🔍 Charge of Income Tax Under Section 4 of the Income-tax Act, 1961

📘 Overview

Section 4 of the Income-tax Act, 1961 is the foundational provision that legally mandates the chargeability of income tax in India. It outlines who is liable to pay tax, the basis of charging income, and how total income is taxed depending on the residential status and source of income.

Understanding this section is crucial for individuals, businesses, and tax consultants who deal with income tax compliance, assessments, and planning in India.

⚖️ Legal Provision of Section 4 (Charge of Income Tax)

As per Section 4(1) of the Income-tax Act:

“Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax shall be charged in respect of the total income of the previous year of every person…”

This means that income tax is levied annually based on a person’s total income earned in the previous year, assessed in the following assessment year (AY).

🧾 Key Elements of Section 4

1. Tax is Charged Annually

Income tax is not a one-time or transaction-based levy. It is charged every assessment year on the income earned in the previous financial year (FY).

✅ Example: Income earned in FY 2024–25 is taxed in AY 2025–26.

2. Scope of Total Income

The tax is levied on a person’s total income as defined under Section 5, which depends on:

• Residential status (Resident, Non-Resident)

   

• Source and location of income

   

• Nature of income (domestic or foreign-sourced)

   

3. Person Includes…

Section 4 applies to every “person” as defined in Section 2(31), which includes:

• Individuals

   

• Hindu Undivided Families (HUFs)

   

• Companies

   

• Firms

   

• LLPs

   

• Associations of Persons (AOPs)

   

• Body of Individuals (BOIs)

   

• Local Authorities

   

• Artificial Juridical Persons

   

4. Previous Year vs Assessment Year

• Previous Year: Financial year in which income is earned.

   

• Assessment Year (AY): Year in which that income is taxed.

   

For example, income from April 1, 2024 to March 31, 2025 is assessed in AY 2025–26.

5. Income Deemed to Accrue or Arise in India

Income earned outside India may also be taxed if:

• The person is a resident

   

• The income is deemed to accrue/arise in India

   

• It is received or deemed received in India

   

This provision supports India’s worldwide income taxation for residents.

🔍 Who is Liable to Pay Income Tax under Section 4?

The charge of income tax applies to:

• All persons whose total income exceeds the basic exemption limit

   

• Both residents and non-residents, though scope varies

   

• Income that is received, accrued, or deemed to accrue in India

   

📊 Real-World Examples

🛡️ Constitutional Backing

The authority to impose income tax comes from:

• Entry 82, Union List, Seventh Schedule of the Constitution of India

   

• It allows Parliament to levy taxes on income, other than agricultural income

   

📑 Exceptions & Special Provisions

• Agricultural Income is exempt under Section 10(1)

   

• Clubbing of Income provisions may affect the total income

   

• Minimum Alternate Tax (MAT) or AMT applies for companies and LLPs

   

• Exemptions under Section 10, Deductions under Chapter VI-A, and rebates may reduce tax liability

   

🔍 Related Sections

📌 Summary of Section 4 – Charge of Income Tax