Income Tax 2025

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CHAPTER II BASIS OF CHARGE

Charge of income-tax ​

4(1) ​

Income-tax for any tax year shall be charged as per the provisions of this Act at the rate or rates which are enacted by a Central Act for such tax year.

4(2) ​

The charge of income-tax under sub-section (1) shall be on the total income of the tax year of every person as per the provisions of this Act.

4(3) ​

Income-tax shall also include any additional income-tax, by whatever name called, levied under this Act.

4(4) ​

If this Act provides that income-tax is to be charged in respect of income of a period other than the tax year, it shall be charged accordingly.

4(5) ​

For the income chargeable under sub-section (2), income-tax shall be deducted or collected at source or paid in advance as provided under this Act.

Explanation

Section Summary: ​

Section 4 of the Income Tax Act outlines the basis for charging income tax. It specifies that income tax is levied on the total income of a taxpayer for a given tax year at the rates prescribed by the Central Government. It also clarifies that income tax includes any additional taxes levied under the Act and provides rules for charging tax on income from periods other than the tax year. Additionally, it mandates that tax can be collected through deductions at source, advance payments, or other methods as per the Act.

Key Changes: ​

  1. Clarification on Additional Taxes: Section 4(3) explicitly states that income tax includes any additional taxes, regardless of how they are named (e.g., surcharge, cess). This is a clarification rather than a new provision, ensuring no ambiguity in interpretation.
  2. Tax on Non-Tax Year Income: Section 4(4) introduces a provision for charging tax on income from periods other than the tax year, if specified by the Act. This is a new addition to address specific scenarios where income may not align with the standard tax year.

Practical Implications: ​

  1. Taxpayers: Taxpayers must ensure their total income for the tax year is accurately calculated, as tax is charged on this amount. They must also account for any additional taxes (e.g., surcharge, cess) when computing their tax liability.
  2. Businesses and Employers: Entities responsible for deducting tax at source (TDS) or collecting tax at source (TCS) must comply with the provisions of Section 4(5) to ensure proper tax collection.
  3. Non-Standard Income Periods: Taxpayers with income from periods other than the tax year (e.g., deferred income) must ensure such income is taxed as per Section 4(4).

Critical Concepts: ​

  1. Total Income: This refers to the aggregate income from all sources (e.g., salary, business, capital gains) after allowable deductions and exemptions.
  2. Additional Income-Tax: This includes surcharges, cess, or any other levies imposed under the Income Tax Act.
  3. Tax Year: The financial year (April 1 to March 31) for which income is assessed and taxed.
  4. Deduction/Collection at Source: Taxes deducted or collected by a third party (e.g., employer, bank) before the income is received by the taxpayer.

Compliance Steps: ​

  1. Calculate Total Income: Determine total income for the tax year, including all sources and after applying deductions/exemptions.
  2. Account for Additional Taxes: Include surcharges, cess, or other levies when computing tax liability.
  3. Ensure TDS/TCS Compliance: If liable to deduct or collect tax at source, follow the prescribed rates and timelines.
  4. Report Non-Tax Year Income: If income pertains to a period other than the tax year, ensure it is reported and taxed as per Section 4(4).

Examples: ​

  1. Example 1: A salaried individual earns ₹10 lakh in the tax year 2023-24. Their employer deducts TDS as per the applicable rates. The individual must also account for any surcharge or cess when filing their tax return.
  2. Example 2: A business receives deferred income in 2023-24 for services rendered in 2022-23. As per Section 4(4), this income must be taxed in the year it is received, even though it pertains to a prior period.
  3. Example 3: A company collects tax at source (TCS) on the sale of goods. It must remit the TCS to the government as per the timelines specified under the Act.

This section ensures clarity on how income tax is charged, collected, and applied, helping taxpayers and entities comply with the law effectively.