Adjusted Gross Total Income (AGTI)

In Indian taxation, every taxpayer needs to understand the factors involved in calculating income. Among the plethora of terms that emerge in tax planning, adjusted gross total income (AGTI) is an important concept. While most are aware of “Gross Total Income” (GTI), AGTI receives less mention but warrants just as much consideration, particularly when claiming deductions under different sections of the Income Tax Act. In this blog post, we will demystify AGTI, discuss its application, and walk you through its calculation to ensure you claim your eligible deductions and stay on the right side of the law.

What is Gross Total Income (GTI)?

Before diving into AGTI, it’s crucial to understand GTI, as AGTI is derived from it. Your Gross Total Income is the aggregate of all income under:

• Salary
• House Property
• Profits and Gains of Business or Profession
• Capital Gains
• Other Sources

After adding clubbed incomes (like the income of a minor child or spouse, as the case may be) and adjusting for set-off and carry-forward of losses, the total of these heads constitutes your GTI.

What is Adjusted Gross Total Income (AGTI)?

Adjusted Gross Total Income (AGTI) is not directly defined in the Income Tax Act. Still, it has generally become a term that is used in the case of some deductions, under Section 80G (donations) and Chapter VI-A. In these situations, AGTI is the income that remains after subtracting certain incomes and deductions from your GTI.

AGTI would usually be calculated as:

• Begin with your GTI.
• Deduct income exempt from tax.

Deduct incomes that are taxed at differentiated rates (e.g., long-term capital gains, short-term capital gains under Section 111A, and some incomes under Sections 115A, 115AB, 115AC, 115AD, etc.). Deduct deductions under Chapter VI-A (Sections 80C to 80U), but exclude the section for which the deduction is being allowed. This figure is your AGTI, which is used as a basis for calculating maximum permissible deductions under certain sections.

Why is AGTI Relevant?

AGTI is most applicable when:

• Claiming Deductions under Section 80G (Donations): The donation deduction is normally limited to a percentage (typically 10%) of AGTI rather than GTI.
• Determining other deductions: There are other deductions under Chapter VI-A that set up their maximum deduction on the basis of AGTI.

Knowing about AGTI keeps you from claiming excessive deductions and helps you with tax planning better.

Step-by-Step Calculation of AGTI

Let us calculate the computation of AGTI through a real-life example:

Step 1: Calculate Gross Total Income (GTI)

Calculate your income during the year is the following:

1. Salary: ₹8,00,000
2. House Property: ₹1,00,000
3. Long-term Capital Gains: ₹1,00,000
4. Other Sources: ₹50,000
5. Total GTI: ₹10,50,000

Step 2: Deduct Income Tax at Special Rates

1. Long-term capital gains: ₹1,00,000

Step 3: Deduct Deductions under Chapter VI-A (excluding the deduction claimed)

1. Section 80C: ₹1,50,000
2. Section 80D: ₹20,000
3. Total Deductions: ₹1,70,000

Step 4: Compute AGTI

1. AGTI=GTI−Long-term Capital Gains−Other Deductions, (for example, AGTI=₹10,50,000−₹1,00,000−₹1,70,000=₹7,80,000)
2. In case you are seeking a deduction under Section 80G, the eligible amount can be as much as 10% of AGTI, i.e., ₹78,000.

AGTI and Section 80G: A Closer Look

Section 80G allows deductibility for donations to specific funds, charitable trusts, etc. Not all donations, however, qualify for the benefit of a complete deduction.

How is AGTI impacting your 80G deduction?

If donations eligible for deduction are more than 10% of AGTI, the deduction is limited to 10% of AGTI.

If donations are below 10% of AGTI, the full amount of eligible donations (with other conditions) can be claimed.

It is therefore important to calculate AGTI correctly so that you do not claim excess deductions, which may trigger notices or penalties from the tax authorities.

Mistakes in Calculating AGTI

• Not Excluding Special Rate Incomes: Omitting to exempt long-term capital gains or special rate incomes can artificially inflate your AGTI and cause over-claimed deductions.
• Incorrect Deduction Adjustments: Failure to deduct all applicable deductions (other than the one to be claimed) can also cause errors.
• Misinterpreting GTI as AGTI: Most taxpayers confuse GTI with AGTI and mistakenly use it for the calculation of deduction limits, which results in compliance problems.

Tips for Accurate AGTI Calculation

• Keep Accurate Records: Keep accurate records of all special rate incomes, as well as deductions.
• Use Tax Software or a Tax Professional: Due to the complexity, use tax software or hire a tax professional to help you with calculations.
• Keep Current: Tax provisions and deduction rules are modified regularly. Always utilize the most current provisions when computing your AGTI.

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Adjusted Gross Total Income or AGTI is an important Indian income tax calculation, particularly for those taxpayers who want to maximize deductions available under sections such as 80G. It might feel like an additional step, but knowing and correctly calculating AGTI can avoid compliance issues and allow you to take the maximum of available tax benefits. By using a systematic method—beginning with GTI, leaving aside incomes that are taxed at special rates, and deducting all applicable deductions—you will be able to calculate your AGTI with certainty and effectively plan your taxes. Keep in mind that tax planning is not merely about saving but also about remaining compliant and preventing future hassles. So the next time you donate or intend to claim deductions, keep your AGTI calculated in hand!