Taxation · Basic Concepts

Income-tax Act, 2025 Overview and Charge of Tax

Updated 4 October 2026 · Fact-checked

The Income-tax Act, 2025 is the law under which income-tax is charged in India from the tax year 2026-27. Tax is charged on the total income of a person for the tax year at rates fixed each year by the Finance Act. To solve questions, find the person, the tax year, the income and the applicable rate.

Understand Income-tax Act, 2025 Overview and Charge of Tax

Income-tax is a tax on income. It is a direct tax: the person who earns the income pays it to the Central Government. The Union can levy it because the Constitution gives Parliament the power to tax income other than agricultural income.

For CA Intermediate from May 2027, Paper 3 Section A is based on the Income-tax Act, 2025, as amended by the Finance Act, 2026, for the tax year 2026-27. You must use the 2025 Act's terms and section numbers. Do not write "assessment year" or 1961 Act section numbers in your answers.

The charge of tax is the legal base of the whole law. The Act says that income-tax is charged for a tax year on the total income of every person. The Act creates the liability. It does not fix the rates. The rates, such as slab rates for individuals, are set each year in the Finance Act. So you need both: the Act for what is taxable, and the Finance Act for how much.

The basic concepts chapter sets up the vocabulary you need before computing anything: person, assessee, income, tax year, residential status, scope of total income, agricultural income, heads of income and computation of total income. Every later chapter, such as salary, house property, business, capital gains and deductions, builds on these ideas.

Think of the flow as a chain. A person earns income. You check the tax year. You decide the residential status. You decide what is in the scope of total income. You compute income under each head, apply set-off, clubbing and deductions, and arrive at total income. Then you apply the Finance Act rates.

Key rules to remember

Charge of income-tax: Income-tax is charged for a tax year = Rate (Finance Act) × Total income of the person for that tax year; The Act creates the charge. The Finance Act fixes the rates. Rates in the exam are those for tax year 2026-27.
Computation flow: Gross total income = Sum of income under the heads (after set-off and clubbing); Total income = Gross total income − deductions under the Chapter on deductions; Use this order for any computation question. Special rate incomes are taxed separately at their own rates.
Tax payable: Tax payable = Tax on total income − rebate (if any) + surcharge + health and education cess; Check conditions for rebate and surcharge in the tax rates topic. Apply cess last.
Terminology rule: Use: Income-tax Act, 2025; tax year 2026-27; 2025 Act section numbers; If you are unsure of a section number, state the rule in words instead of guessing.

How to solve Income-tax Act, 2025 Overview and Charge of Tax questions

Use this method for any question on the Act overview and charge of tax, whether it is a theory answer or the first step of a numerical.

1Identify the person: individual, HUF, firm, company, AOP/BOI or another taxable person.
2Fix the tax year. For the current syllabus it is tax year 2026-27, and state it in your answer.
3Decide the residential status, because it decides which income falls in the scope of total income.
4Classify each receipt: is it income, is it exempt, is it agricultural income, is it capital or revenue?
5Place the taxable items under the correct head and compute income under each head.
6Apply set-off, carry forward, clubbing and deductions to reach total income.
7Apply the Finance Act rates for the person and tax year, then add surcharge and cess as applicable.
8For theory, write in order: provision (charge), facts, conclusion.

Quickest way: Charge-of-tax quick check

When to use it: Use this when you have a short MCQ or a 2-3 mark written answer asking who is taxed, for which year and at what rate.

For MCQs, check the words first: 'tax year' means 2025 Act; 'assessment year' signals an old-law option, which is wrong.
Eliminate options that say the Act itself fixes the rates. Rates come from the Finance Act.
Eliminate options that tax non-persons or ignore the tax year.
In written answers, use this three-line format: Provision (income-tax is charged on total income of a person for the tax year), Facts (the person, year and income given), Conclusion (taxable or not, at the Finance Act rate).
Always write 'tax year 2026-27' once. It earns presentation marks and avoids terminology errors.

Common mistakes in Income-tax Act, 2025 Overview and Charge of Tax

Writing 'assessment year' or citing Income-tax Act, 1961 sections.
Older books, notes and videos still use the 1961 Act, and the habit is strong.
Fix: Use only 'tax year' and 2025 Act terms. If unsure of a section number, state the rule without it.
Saying the Income-tax Act, 2025 fixes the rates of tax.
Students merge the charging provision with the rate schedule.
Fix: Remember the split: the Act charges the tax, and the Finance Act fixes the rates each year.
Treating all receipts as taxable income.
The word 'income' feels like any money received.
Fix: Ask first whether the receipt is income, exempt, agricultural or capital, and whether it falls in the scope of total income.
Ignoring residential status before including foreign income.
Students jump straight to heads of income.
Fix: Decide residential status before the scope of total income. Foreign income is not taxed the same way for all residents and non-residents.
Using the wrong year's rates or the old Finance Act.
Rates change every year and students revise from outdated material.
Fix: Use rates under the Finance Act, 2026 for tax year 2026-27 as given in current study material.

Worked examples

Example 1

Explain in three or four lines how income-tax is charged under the Income-tax Act, 2025 for the tax year 2026-27, and who decides the rates.

Show the solution

Provision: The Income-tax Act, 2025 charges income-tax for a tax year on the total income of every person.
Rates: The Act does not fix the rates. They are fixed by the Finance Act for the relevant year.
Facts: The year in question is tax year 2026-27, so the rates and amendments of the Finance Act, 2026 apply.
Conclusion: Tax is therefore the rate under the Finance Act, 2026 applied to the person's total income for tax year 2026-27, plus surcharge and cess where applicable.

Answer: Income-tax is charged on the total income of a person for the tax year under the Income-tax Act, 2025. The rates are fixed by the Finance Act, 2026 for tax year 2026-27.

Example 2

MCQ: Which statement about the charge of income-tax for CA Intermediate from May 2027 is correct? (A) Tax is charged for an assessment year under the 1961 Act (B) Tax is charged on total income of a person for the tax year under the 2025 Act, at rates fixed by the Finance Act (C) The Act itself fixes the slab rates permanently (D) Only individuals are charged to tax

Show the solution

Option A uses 'assessment year' and the 1961 Act, which the current syllabus does not follow.
Option C is wrong because slab rates are set by the Finance Act and change with it.
Option D is wrong because the charge applies to every person, including HUFs, firms and companies.
Option B states the correct combination: total income, person, tax year, 2025 Act, Finance Act rates.

Answer: (B)

Exam tips

Write 'tax year' in every answer. Scan your script once at the end to catch any 'assessment year'.
For theory, open with the charging provision in one line, then the facts and conclusion. This pattern earns step marks.
Do not memorise section numbers you are unsure about. A correct rule in words earns marks, a wrong number may not.
MCQs here test terms and the Act versus Finance Act split. They need no reasoning, so spend seconds, not minutes, and attempt all since there is no negative marking.
Revise this topic first. It is short, and it makes every later income-tax chapter easier.

Practice questions from Basic Concepts

Income-tax Act, 2025 Overview and Charge of Tax in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Income-tax Act, 2025 Overview and Charge of Tax: frequently asked questions

Which Act applies to CA Intermediate Taxation Section A from May 2027?

The Income-tax Act, 2025, as amended by the Finance Act, 2026, applies. The tax year is 2026-27. You should use the 2025 Act's terms and section numbers.

What is the difference between the Income-tax Act and the Finance Act?

The Income-tax Act creates the charge and sets the rules for what is taxable. The Finance Act is passed every year and fixes the rates and makes amendments. You need both to compute tax.

Do I still need to learn 'assessment year' for the exam?

For Section A from May 2027, you answer using 'tax year'. Use the 2025 Act's terms. Do not write assessment year in your answers.

How is this topic examined?

It usually appears as MCQs on terms and as short theory on the charge of tax. It also forms the base for every computation question in the paper.