Section 4 of Income Tax Act 1961-charge of income tax
(1) Where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person :
Provided that where by virtue of any provision of this Act income tax is to be charged in respect of the income of a period other than the previous year, income tax shall be charged accordingly.
(2) In respect of income chargeable under sub-section (1), income tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.
Related FAQ(s)
Q. How to compute the total tax liability?
Ans: After ascertaining the total income, i.e., income liable to tax, the next step is to compute the tax liability for the year. Tax liability is to be computed by applying the rates prescribed in this regard. The following table will help in understanding the manner of computation of the total tax liability of the taxpayer.
Computation of total income and tax liability for the year
| Particulars | Amount |
| Income from salary | XXXXX |
| Income from house property | XXXXX |
| Profits and gains of business or profession | XXXXX |
| Capital gains | XXXXX |
| Income from other sources | XXXXX |
| Total of head wise income | XXXXX |
| Set off of kosses | XXXXX |
| Gross Total Income | XXXXX |
| Less : Deductions under Chapter VI-A (i.e., under sections 80C to 80U)) | (XXXXX) |
| Total Income (i.e., taxable income) | XXXXX |
| Tax on total income to be computed at the applicable rates (for rates of tax, refer “Tax Rate” section) | XXXXX |
| Less : Rebate under section 87A(discussed in later FAQ) | (XXXXX) |
| Tax Liability After Rebate | XXXXX |
| Add: Surcharge (discussed in later FAQ) | XXXXX |
| Tax Liability After Surcharge | XXXXX |
| Add: Health & Education cess @ 4% on tax liability after surcharge | XXXXX |
| Tax liability before rebate under sections 86, section 89, sections 90, 90Aand 91(if any) (*) | XXXXX |
| Less : Rebate under sections 86, section 89, sections 90, 90Aand 91(if any) (*) | (XXXXX) |
| Tax liability for the year before pre-paid taxes | XXXXX |
| Less: Prepaid taxes in the form of TDS, TCS and advance tax | (XXXXX) |
| Tax payable/Refundable | XXXXX |
(*) Rebate under section 86 is available to a member of an association of persons (AOP) or body of individuals (BOI) in respect of income received by such member from the AOP/BOI.
Rebate (i.e., relief) under section 89 is available to a salaried employee in respect of sum received towards arrears of salary, gratuity, etc.
Rebate under sections 90, 90A, and 91 is available to a taxpayer in respect of double taxed income, i.e., income that is taxed in India as well as abroad.
Note: For provisions relating to Minimum Alternate Tax (MAT) in case of corporate taxpayers and Alternate Minimum Tax (AMT) in case of non-corporate taxpayers refer tutorial on “MAT/AMT”.
Q. Is there any limit of income below which I need not pay tax?
Ans: At this moment Individuals, HUF, AOP, and BOI having income below Rs. 2,50,000 need not pay any income tax. In respect of resident individuals of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000 and in respect of resident individuals of 80 years and above, the limit is Rs. 5,00,000. For other categories of persons such as cooperative societies, firms, companies, and local authorities, no basic exemption limit exists and, hence, they have to pay taxes on their entire income chargeable to tax.
Further, if an individual, HUF, AOP, BOI, and AJP opted for a new tax regime under section 115BAC, a threshold limit of Rs. 3,00,000 shall be applicable to them. (applicable w.e.f. Assessment Year 2024-25)
Q. What is marginal relief and how it is computed?
Ans: The concept of marginal relief is designed to provide relaxation from the levy of surcharge to a taxpayer where the total income exceeds marginally above Rs. 50 lakh, Rs. 1 crore, Rs. 2 crore, Rs. 5 crore, or Rs. 10 crore, as the case may be.
Thus, while computing surcharge, in the case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person) having a total income of more than Rs. 50 lakh marginal relief shall be available in such a manner that the net amount payable as income tax and surcharge shall not exceed the total amount payable as income tax on total income of Rs. 50 lakh by more than the amount of income that exceeds Rs. 50 lakh.
In the case of a company, the surcharge is levied @ 7% (2% in case of a foreign company) on the amount of income-tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 12% (5% in case of foreign company) on the amount of income-tax if total income exceeds Rs. 10 crore. Hence, in the case of a company whose total income exceeds Rs. 1 crore but does not exceed Rs. 10 crores, marginal relief will be computed as discussed above, but in the case of a company having total income above Rs. 10 crores marginal relief is available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax and surcharge on total income of Rs. 10 crores by more than the amount of income that exceeds Rs. 10 crore.
Illustration for better understanding
Mr. Mukesh is a salaried employee (age 40 years). His total income from salary for the year 2023-24 amounts to Rs. 51,00,000. Will he be liable to pay the surcharge, if yes, then how much and will he get the benefit of margin relief?
**
Surcharge is an additional tax levied on the amount of income tax. In the case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person), surcharge is levied @ 10% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 50 lakh. In this case, total income of Mr. Mukesh exceeds Rs. 50 lakh and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 50 Lakh. The Computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows:
(1) Normal tax liability (i.e. without marginal relief)
| Tax on total income before surcharge (*) | 13,42,500 |
| Add: Surcharge (@10% on the amount of income-tax of Rs. 13,42,500 | 1,34,250 |
| Tax liability after surcharge (i.e., normal tax liability) | 14,76,750 |
(*) The normal tax rates for the financial year 2023-24 applicable to an individual below the age of 60 years are as follows:
- Nil upto income of Rs. 2,50,000
- 5% for income above Rs. 2,50,000 but upto Rs. 5,00,000
- 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
- 30% for income above Rs. 10,00,000.
Apart from above rates, cess will be computed separately.
(2) Tax liability under marginal relief (i.e. after marginal relief)
| Tax on Rs. 50 lakh (at the above discussed rates) | 13,12,500 |
| Add: Income above Rs. 50 lakh | 1,00,000 |
| Tax liability under marginal relief | 14,12,500 |
Conclusion
Normal tax liability (i.e. without marginal relief) comes to Rs. 14,76,750 and tax liability under marginal relief comes to Rs. 14,12,500. It can be observed that tax liability under marginal relief is lower and, hence, Rs. 14,12,500 will be the tax liability before cess. Total tax liability will be computed as follows:
| Rs. | |
| Tax liability after marginal relief (*) | 14,12,500 |
| Add: Health & education cess @ 4% | 56,500 |
| Tax liability | 14,69,000 |
(*) In this case, surcharge paid by Mr. Mukesh will be Rs. 70,000 computed as follows:
| Rs. | |
| Tax liability (before cess) on Rs. 51,00,000 after considering the provisions of marginal relief | 14,12,500 |
| Tax liability (before cess) at normal rates on Rs. 51,00,000 if surcharge is not levied | 13,42,500 |
| Surcharge (i.e. increase in tax liability) | 70,000 |
Illustration for better understanding
Mr. Raja is a businessman (age 35 years). His total income for the year 2023-24 amounted to Rs. 1,02,00,000. Will he be liable to pay surcharge, if yes, then how much and will he get the benefit of marginal relief?
**
Surcharge is an additional tax levied on the amount of income tax. In the case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person), surcharge is levied @ 10% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Raja exceeds Rs. 1 crore and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The Computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows:
(1) Normal tax liability (i.e. without marginal relief)
| Tax on total income before surcharge (*) | 28,72,500 |
| Add: Surcharge (@15% on the amount of income-tax of Rs. 28,72,500 ) | 4,30,875 |
| Tax liability after surcharge (i.e., normal tax liability) | 33,03,375 |
(*) The normal tax rates for the financial year 2023-24 applicable to an individual below the age of 60 years are as follows:
- Nil upto income of Rs. 2,50,000
- 5% for income above Rs. 2,50,000 but upto Rs. 5,00,000
- 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
- 30% for income above Rs. 10,00,000.
Apart from above rates, cess will be computed separately.
(2) Tax liability under marginal relief (i.e. after marginal relief)
| Tax on Rs. 1 crore (at the above discussed rates) | 28,12,500 |
| Add: Surcharge on income-tax @ 10% (if income is Rs. 1 crore) | 2,81,250 |
| Add: Income above Rs. 1 crore | 2,00,000 |
| Tax liability under marginal relief | 32,93,750 |
Conclusion
Normal tax liability (i.e. without marginal relief) comes to Rs. 33,03,375 and tax liability under marginal relief comes to Rs. 32,93,750. It can be observed that tax liability under marginal relief is lower and, hence, Rs. 32,93,750 will be the tax liability before cess. Total tax liability will be computed as follows:
| Rs. | |
| Tax liability after marginal relief (*) | 32,93,750 |
| Add: Health & education cess @ 4% | 1,31,750 |
| Tax liability | 34,25,500 |
Illustration for better understanding
Mr. Karan is a businessman (age 35 years). His total income for the year 2023-24 amounted to Rs. 1,07,00,000. Will he be liable to pay surcharge, if yes, then how much and will he get the benefit of marginal relief?
**
What is surcharge and how it is computed?
Surcharge is an additional tax levied on the amount of income tax. In the case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person) surcharge is levied @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, the total income of Mr. Karan exceeds Rs. 1 crore and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows :
(1) Normal tax liability (i.e. without marginal relief)
| Tax on total income before surcharge (*) | 30,22,500 |
| Add: Surcharge (@15% on the amount of income-tax of Rs. 30,22,500) | 4,53,375 |
| Tax liability after surcharge (i.e., normal tax liability) | 34,75,875 |
(*) Tax rates are discussed in previous illustration.
(2) Tax liability under marginal relief (i.e. after marginal relief)
| Tax on Rs. 1 crore (at the rates discussed in previous illustration) | 28,12,500 |
| Add: Income above Rs. 1 crore | 7,00,000 |
| Tax liability under marginal relief | 35,12,500 |
Conclusion
Normal tax liability (i.e. without marginal relief) comes to Rs. 34,75,875 and tax liability under marginal relief comes to Rs. 35,12,500. It can be observed that normal tax liability (i.e. without marginal relief) is lower and, hence, Rs. 34,75,875 will be the tax liability before cess. Total tax liability will be computed as follows:
| Rs. | |
| Normal tax liability i.e. tax liability after surcharge of Rs. 4,53,375 | 34,75,875 |
| Add: Health & education cess @ 4% | 1,39,035 |
| Tax liability | 36,14,910 |
Surcharge is an additional tax levied on the amount of income-tax. In case of individuals/HUF/AOP/BOI/artificial juridical person, surcharge is levied @ 10% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 50 lakh but doesn’t exceeds Rs. 1 crore.
Surcharge is levied @ 15% of income-tax where the total income of the taxpayer exceeds Rs. 1 crore but doesn’t exceeds Rs. 2 crore.(*).
Surcharge is levied @ 25% of income-tax where the total income of the taxpayer exceeds Rs. 2 crore but doesn’t exceeds Rs. 5 crore(*).
Surcharge is levied @ 37% of income-tax where the total income of the taxpayer exceeds Rs. 5 crore(*).
Notes:
(a) The surcharge rate for AOP with all members as a company, shall be capped at 15%.
(b) The enhanced surcharge of 25% & 37%, as the case may be, is not levied, from income chargeable to tax under sections 111A, 112 112A and 115AD.
(c) The surcharge rate is nil if the total income of a ‘specified fund’ as referred to section 10(4D) includes any income in respect of securities as given under section 115AD(1)(a).
(d) If the assessee opted for a tax regime under section 115BAC(1), the enhanced surcharge rate of 37% isn’t levied. In other words, if the total income of an assessee exceeds Rs. 5 crores, the surcharge rate will be 25% instead of 37%.In the case of Firms, and local authorities surcharge is levied at 12% if total income exceeds Rs 1 crore. In the case of a cooperative society, the surcharge is levied at 7% if the total income exceeds Rs 1 crore but doesn’t exceed Rs. 10 crore and the surcharge is levied at 12% if the total income exceeds Rs 1 crore. In the case where a cooperative society opted for the alternative tax regime under section 115BAD or 115BAE, the surcharge is levied at a rate of 10% on a total income of Rs. 1 crore or more. In the case of a domestic company surcharge is levied @ 7% on the amount of income tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 12% on the amount of income tax if the total income exceeds Rs. 10 crore (*). In the case where a domestic company opts for an alternative tax regime under section 115BAA or section 115BAB, the surcharge is levied at a rate of 10% on a total income of Rs. 1 crore or more.
In the case of a foreign company surcharge is levied @ 2% on the amount of income tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 5% on the amount of income tax if the total income exceeds Rs. 10 crore (*).
(*) A taxpayer can claim marginal relief from the amount of surcharge, subject to certain conditions. Refer to the next FAQ for the concept of marginal relief.
Illustration for better understanding
Mr. Kapoor is a doctor, and his total income for the year amounted to Rs. 44,00,000. Will he be liable to pay a surcharge, If yes, then how much?
**
Surcharge is an additional tax levied on the amount of income tax. In the case of individuals surcharge is levied @ 10% on the amount of income tax where the total income of the taxpayer exceeds Rs. 50 lakh. In this case, the total income of Mr. Kapoor is below Rs. 50 lakh, hence, he will not be liable to pay a surcharge.