Section 4 under Income Tax Act, 1961

Rakesh Kumar

16 Dec, 2023

According to Section 2(45) of the Income Tax Act, 1961, “Total income” manner the combination of profits, computed beneath the provisions of the Act, and all different earning chargeable to tax beneath the Act, after making deductions underneath Chapter VI-A of the Act. This manner that the whole income of a man or woman or a business is the sum of earnings from all resources, decreased with the aid of the deductions specified in Chapter VI-A.

Residential Status

The Income Tax Act divides taxpayers into three categories based totally on their residential fame, i.e., resident, non-resident, and resident however not on the whole resident. The residential status of a man or woman or a business determines the taxability of income beneath the Income Tax Act. A resident is susceptible to paying tax on global profits, while a non-resident is taxed best on earnings that accrues or arises in India.

Tax Rates

The Income Tax Act offers for distinct tax charges for extraordinary categories of taxpayers based totally on their income ranges. The tax fees are situation to change occasionally thru amendment made in the Finance Act. The tax rates for the economic year 2022-23 are as follows:

Individuals and HUFs

• Income as much as Rs. 2.Five lakh – Nil
• Income between Rs. 2.5 lakh and Rs. 5 lakh – five%
• Income among Rs. 5 lakh and Rs. 7.Five lakh – 10%
• Income between Rs. 7.Five lakh and Rs. 10 lakh – 15%
• Income between Rs. 10 lakh and Rs. 12.5 lakh – 20%
• Income among Rs. 12.5 lakh and Rs. 15 lakh – 25%
• Income above Rs. 15 lakh – 30%

Domestic Companies

• Income as much as Rs. 1 crore – 25%
• Income above Rs. 1 crore – 30%

Foreign Companies

• Income up to Rs. 1 crore – forty%
• Income above Rs. 1 crore – 43%

Deductions under Chapter VI-A

Chapter VI-A of the Income Tax Act provides for numerous deductions that taxpayers can declare at the same time as computing their taxable income. These deductions are available to individuals, HUFs, and different taxpayers, and encompass deductions for contributions to certain investment schemes, medical insurance premiums, and donations made to charitable institutions. The deductions specified in Chapter VI-A are subtracted from the gross earnings of the taxpayer to arrive on the taxable profits.

TDS and Advance Tax

Under the Income Tax Act, taxpayers are required to pay tax on their income earlier thru the fee of Advance Tax. The amount of Advance Tax to be paid is calculated based on the expected earnings for the monetary year. Taxpayers must also deduct tax at source (TDS) whilst making payments to certain recipients, including employees, contractors, and professionals. The TDS¹ quantity is then deposited with the authorities with the aid of the deduction.

Penalties and Prosecution

Non-compliance with the provisions of the Income Tax Act can cause penalties and prosecution for taxpayers. Penalties may be imposed for late filing of tax returns, failure to deduct TDS, and different violations of the Income Tax Act. In critical instances of non-compliance, taxpayers might also face prosecution, which can lead to fines and imprisonment.

Impact of Section 4 on Businesses

Section 4 of the Income Tax Act has a tremendous impact on businesses operating in India. Businesses are required to pay profits tax on their earnings, that are calculated via subtracting the fees incurred for the duration of the economic yr from the sales earned. This approach that companies must keep accurate statistics in their income and fees to determine their taxable income appropriately.

Compliance with Section 4

Compliance with Section 4 of the Income Tax Act is critical for taxpayers to avoid legal consequences. Taxpayers should document their tax returns on time, pay the suitable amount of tax, and follow other provisions of the Income Tax Act. Failure to comply with the provisions of the Income Tax Act can bring about consequences and prosecution.

Recent Changes to Section 4

The Indian government has made numerous adjustments to the Income Tax Act in recent years, which include changes to Section 4. In the Union Budget 2021, the authorities introduced a new tax regime for people and HUFs that offers decrease tax fees but removes sure deductions and exemptions. Taxpayers have the option to pick among the antique tax regime and the new tax regime primarily based on their preference.

Conclusion

In end, Section 4 of the Income Tax Act, 1961 is an important provision that lays down the inspiration for the taxation of earnings in India. The phase defines the scope of taxable earnings, offers for exceptional tax quotes, and specifies the deductions available to taxpayers.

Taxpayers must be aware of the provisions of this segment and ought to comply with the necessities of the Income Tax Act to avoid any prison results.

FAQs

1. https://incometaxindia.gov.in/Pages/Deposit_TDS_TCS.aspx