SECTION 4 — Charge of Income-tax, 2025

1.  Section at a Glance

Section	4
Topic	Charge of Income-tax
Applicable from	Tax Year 2026-27
Purpose	This section actually imposes income-tax in India
One-line summary	Every year, the annual Finance Act tells you at what rate, and Section 4 tells you that tax will indeed be charged on your total income.

2.  Why This Section Exists

No tax can be collected in India unless a law specifically says so. This authority comes from Article 265 of the Constitution (“No tax shall be levied or collected except by authority of law”). Section 4 of the Income Tax Act, 2025, serves as a charging provision (Authority), that mandates the imposition of tax on total income. Without it, even if you earned money, the government would have no legal right to tax it. It also lets the government run TDS, advance tax and TCS smoothly, and lets tax be charged on income of periods other than the normal 12-month tax year (e.g., a business that shuts down mid-year).

3.  Explaining Section 4 of Income Tax Act, 2025:

Think of Section 4 like the Train. Train can move you from one place to another. However, without ticket you can not board a Train. So, here Train Act as sec 4 (mode of conveyance) and Finance Act as Ticket (rate). Every year Parliament passes a Finance Act (Budget) fixing the rate. Section 4 is the permanent rule that says “whatever rate Parliament fixes this year; tax will be charged accordingly.”

4.  Main character of Section 4 of Income Tax Act, 2025

• Assessee (person who pays/is liable to pay tax — individual, company, firm, etc.)
• Total income (all your taxable income added up, after allowed deductions)
• Tax year (the new, simpler term replaces the old confusing pair “previous year” + “assessment year”. It is simply the 12-month period from 1 April to 31 March in which you earn the income and pay tax on it.)

5.  Parts of Section 4 of Income Tax Act, 2025

Sub-section	Meaning	Practical significance
4(1)	If a Central Act (the Finance Act) fixes a rate for a tax year, tax shall be charged at that rate	Confirms tax isn’t optional — it’s automatic once Parliament fixes a rate
4(2)	Tax is charged on the total income of the tax year	You are taxed on net income after deductions, not gross receipts
4(3)	“Income-tax” includes any additional income-tax (e.g., surcharge, cess) whatever named	Surcharge/cess are legally part of “income-tax”, not a separate levy
4(4)	Tax can be charged on income of a period other than the tax year, if the Act specifically says so	Covers special cases like discontinued business (Sec 320) or dissolving AOP (Sec 318)
4(5)	Tax is collected via TDS, advance tax, or direct payment as prescribed	Confirms the collection mechanism is part and parcel of charge itself.

6.  Section 4 of Income Tax Act, 2025 through Example

Raj starts a small YouTube channel. In FY 2026-27 he earns Rs 10 lakh from ad revenue. Since, Section 4(1) says tax “shall be charged” once the Finance Act 2026 fixes a rate, Raj cannot argue “nobody told me to pay.” Section 4(2) confirms it’s his total income (after deducting business expenses like editing software) that gets taxed, not his gross ad revenue. Cess charged on his income tax shall be covered through Section 4(3). Section 4(5) means part of his tax is already collected as TDS by YouTube’s Indian payment processor, and the rest he must pay as advance tax/ Self-assessment tax.

7. Practical Examples

Example 1: Priya’s total income for Tax Year 2026-27 = Rs 6,00,000. Finance Act 2026 fixed slab rates. Applying those slabs to Rs 6,00,000 gives, say, Rs 10,000 basic tax. Under Section 4(1) this charge is automatic. No separate notice is needed to “activate” it.

Example 2: Amit’s basic tax works out to Rs 1,50,000. Finance Act 2026 also levies a 10% surcharge (since his income crosses a threshold) and a 4% health & education cess. Under Section 4(3), both the surcharge and cess are legally “income-tax”. So, his total liability = Rs 1,50,000 + Rs 15,000 (surcharge) = Rs 1,65,000, then + 4% cess on Rs 1,65,000 = Rs 6,600 → Total = Rs 1,71,600.

Example 3: Rohan’s proprietorship business is discontinued on 30 September 2026. Under Section 4(4) read with Section 320, the Assessing Officer can choose to tax the income of 1 April to 30 September 2026 (a period shorter than the full tax year) in that same tax year itself, instead of waiting for the full 12 months.

8. Flowchart

Finance Act fixes tax rate for the year
↓
Section 4(1) activates the charge
↓
Compute Total Income (Section 4(2)
↓
Add surcharge/cess if applicable 4(3)
↓
Is it a special period (discontinued business/
dissolving entity)? — Section 4(4)
↓                     ↓
Yes                 No
↓                     ↓
Tax that shorter period      Tax full tax year
↓                                        ↓
Collect via TDS / Advance Tax / Direct Payment 4(5)

9.  Decision Tree

Has the Finance Act fixed a rate for this tax year?
↓
Yes ──────► Tax is chargeable (Sec 4 applies)
↓
No ──────► No charge can be made (rare/theoretical – Finance Act is passed every year)

10. Tables content of Section 4 of Income Tax Act, 2025

Item	Treatment
Basic tax	Charged per slab rates in the Finance Act
Surcharge	Treated as income-tax under 4(3)
Cess	Treated as income-tax under 4(3)
TDS/Advance tax	Modes of collection, not separate taxes

11. Exceptions of Section 4 of Income Tax Act, 2025

Section 4 of Income Tax Act, 2025 does not apply where a person’s income is fully covered by an exemption under Sections 11/12 (e.g., agricultural income, exempt political party income) — because then there is no “total income” left to charge in the first place.

12. Practical Case Studies

a.   Salaried employee, standard year — Full tax year income taxed normally under 4(1)/4(2).

b.   Freelancer with irregular income — Still taxed on total income for the full tax year; no relief just because income is irregular.

c.    Partnership dissolved mid-year — Section 4(4) triggers taxation for the shorter period.

d.   Startup founder receiving ESOPs — Perquisite value added to total income and taxed under 4(2), with TDS obligations under 4(5).

e.    NRI with only Indian rental income — Section 4 charges tax on Indian source total income even though the person is a non-resident (scope narrowed by Section 5).

13. FAQ under Section 4 of Income Tax Act, 2025

a.   Does Section 4 of Income Tax Act, 2025 itself fix the tax rate? No — the annual Finance Act does; Section 4 only authorises the charge.

b.   What is “total income” here? Income computed under the whole Act, after all deductions/exemptions.

c.    Is surcharge separate from income-tax? No, legally it’s part of income-tax under 4(3).

d.   Is cess separate? No, same treatment as surcharge.

e.    Can income of a period shorter than the tax year be taxed? Yes, under sec 4(4) , in special situations like discontinued business.

f.     How is tax actually collected? TDS, advance tax, or direct payment under section 4(5).

g.   Does Section 4 apply to companies too? Yes, “person” includes companies, firms, etc.

h.   What if no Finance Act is passed in a year? Hypothetical only — Parliament passes Finance Act every year; without it, no charge could be made.

i.     Is Section 4 new? No, it re-enacts Section 4 of the 1961 Act with updated terminology under Section 4 of Income Tax Act, 2025.

j.     Does “tax year” change anything financially? No — it is still 1 April to 31 March; only nomenclature is simplified.

k.   Who decides the rate — CBDT or Parliament? Parliament, through the Finance Act.

l.     Is advance tax a different tax? No, a collection mechanism for the same tax.

m.    Does Section 4 cover capital gains too? Yes, “total income” includes all heads of income.

n.   Can the Finance Act charge tax retrospectively? Generally, no for income-tax rates (would violate the tax year’s already-completed status), barring very specific validating provisions.

o.   What happens to TDS already deducted if final tax is lower? Adjusted/refunded at assessment.

p.   Does Section 4 of Income Tax Act, 2025 apply to exempt income? No, exempt income under Sec 11/12 falls outside “total income.”

q.   Is minimum alternate tax (MAT) covered here? MAT operates as an additional charge under separate provisions, but is still “income-tax” per section 4(3).

r.    Does the charge depend on residency status? The charge itself doesn’t; but what gets included in total income does (Section 5).

s.    Does Section 4 of Income Tax Act, 2025 need annual re-enactment? No — Section 4 is permanent; only the rate is renewed yearly via Finance Act.

t.    Why is Section 4 of Income Tax Act, 2025 called the “charging section”? Because it is the specific legal provision that imposes the liability to pay income-tax, satisfying the constitutional requirement of Article 265 that no tax can be levied without authority of law.

14. Summary Table of Section 4 of Income Tax Act, 2025

Purpose	Eligibility	Conditions	Limit	Exceptions	Penalty	Example
Charges tax on total income	Every “person” per the Act	Rate fixed by Finance Act	None (applies to all total income)	Exempt income (Sec 11/12)	Interest/ penalty under separate default provisions	Salaried employee taxed on annual salary

15. Conclusion

• Section 4 is the charging section — tax is charged automatically once Finance Act fixes the rate, on total income of the tax year, including surcharge/cess, collected via TDS/advance tax/direct payment; special period taxation allowed in specific cases.
• No Finance Act rate → no charge. Finance Act rate + Section 4 of Income Tax Act, 2025 = compulsory tax on total income.

•   Section 4 = the switch that turns “Finance Act rate” into “actual tax liability.”