Tax Laws and Practice · Basic Concept of Income Tax

Charge of Income-tax under Section 4, Income-tax Act 2025

Updated 11 October 2026 · Fact-checked

Section 4 of the Income-tax Act, 2025 is the charging provision. Income-tax is charged for a tax year at the rates a Central Act (the Finance Act) enacts, on the total income of every person. To answer a question, state the section, the rate source, the tax year, the person and the total income.

Understand Charge of Income-tax

Every tax needs a legal basis. Under Article 265 of the Constitution, no tax can be collected without the authority of law. The charge of tax is that legal basis. For income-tax, it sits in section 4 of the Income-tax Act, 2025.

Section 4 works together with the annual Finance Act. The Income-tax Act sets the rules: who is taxed, on what, and how income is computed. The Finance Act fixes the rates for a given tax year. Section 4(1) says that where a Central Act enacts that income-tax shall be charged for any tax year at any rate or rates, tax is charged at those rates, in accordance with and subject to the provisions of the Act.

The subject of the charge is in section 4(2). Tax is charged on the total income of the tax year of every person, as per the Act. So you first compute total income under the Act's rules, and only then apply the rates. Section 4(3) adds that income-tax includes any additional income-tax, by whatever name called, levied under the Act. Section 4(4) says that if the Act charges tax on income of a period other than the tax year, tax is charged accordingly.

Section 4(5) links the charge to collection. For income chargeable under this section, tax is deducted or collected at source, or paid in advance, as the Act provides. Charge and collection are different things. The charge creates the liability. TDS, TCS and advance tax are ways of collecting it during the year.

What if the Finance Act has not been passed by 1 April? Section 530 says the Act still has effect. Until the Finance Act is passed, it operates as if the rates of the preceding tax year, or the rates proposed in the Bill before Parliament, whichever is more favourable to the assessee, were in force.

Key rules to remember

Charging rule (section 4(1) and (2)): Income-tax = total income of the tax year × rates fixed by the Finance Act; Total income is computed under the Income-tax Act, 2025. Rates come from the Central Act for that tax year.
Who is charged: Every person, on total income of the tax year; Section 4(2). The word 'person' is wide, as defined in the Act.
Additional income-tax: Income-tax includes any additional income-tax, by whatever name called, levied under the Act; Section 4(3).
Non-tax-year periods: If the Act charges income of a period other than the tax year, tax is charged accordingly; Section 4(4).
Collection of the charge: Tax is deducted or collected at source or paid in advance as provided in the Act; Section 4(5).
Interim position without a Finance Act: On 1 April, if no charging Act exists, apply the preceding year's provision or the Bill's proposal, whichever is more favourable to the assessee; Section 530.
Advance tax computation (section 405(1)): A = B – C; A is advance tax payable, B is tax on the specified sum at rates in force, C is tax deductible or collectible at source on qualifying income.

How to solve Charge of Income-tax questions

Use this method for any question on the charging provision, whether it is theory or a short problem.

1Identify the provision asked about: the charge itself (section 4), the interim rule (section 530) or the collection link (section 4(5), section 405).
2State the rule in plain words, citing section 4(1) and 4(2) for the basic charge.
3Fix the tax year and the person. The charge is on every person's total income of the tax year.
4Separate the two roles: the Income-tax Act decides what is taxable and how total income is computed; the Finance Act decides the rates.
5Apply the rule to the facts. If a problem is given, compute total income first and then apply the rates in force for that tax year.
6Check for special features: additional income-tax (section 4(3)), a non-tax-year period (section 4(4)), or no Finance Act on 1 April (section 530).
7Close with a clear conclusion that answers the exact question asked.

Quickest way: Four-line answer for a charge of tax question

When to use it: Use this when time is short and the question asks you to explain or state the charge of income-tax.

Line 1: Section 4(1) says tax is charged at the rates enacted by a Central Act for the tax year, subject to the Act.
Line 2: Section 4(2) says the charge is on the total income of the tax year of every person.
Line 3: Section 4(3) to (5) cover additional income-tax, other periods, and collection by TDS, TCS or advance tax.
Line 4: Conclude with the point asked, for example that the Finance Act supplies rates, or that section 530 applies if no Finance Act exists on 1 April.

Common mistakes in Charge of Income-tax

Saying the Income-tax Act itself fixes the tax rates.
Students mix up the Act with the Finance Act because both are read together.
Fix: Write that rates are enacted by a Central Act, the Finance Act, for each tax year, and section 4(1) makes the charge subject to them.
Stating that tax is charged on income of the previous year.
Old terminology under the earlier Act lingers in notes and habits.
Fix: Use the Income-tax Act, 2025 language: tax is charged on total income of the tax year.
Treating TDS or advance tax as the charge.
Section 4(5) mentions them, so students think they create the liability.
Fix: Say the charge arises under section 4(1) and (2). TDS, TCS and advance tax only collect it.
Writing that tax is charged on gross receipts.
Students skip the idea of computing income before applying rates.
Fix: Always say the charge is on total income as computed under the Act, not on receipts.
Misstating section 530 by saying the preceding year's rates always apply.
Students remember only half of the rule.
Fix: State both options: the preceding year's provision or the Bill's proposal, whichever is more favourable to the assessee.
Citing section 405 as the charging section.
Both sections are in the syllabus and sound similar in purpose.
Fix: Section 4 is the charge. Section 405 only gives the formula A = B – C for advance tax payable.

Worked examples

Example 1

Explain the charge of income-tax under the Income-tax Act, 2025. Who is liable and on what basis is tax levied?

Show the solution

Provision: Section 4(1) provides that where a Central Act enacts that income-tax shall be charged for any tax year at any rate or rates, tax is charged at those rates in accordance with and subject to the Act.
Subject of charge: Section 4(2) provides that the charge is on the total income of the tax year of every person, as per the Act.
Inclusions: Section 4(3) provides that income-tax includes any additional income-tax, by whatever name called, levied under the Act.
Other periods: Section 4(4) provides that if the Act charges income of a period other than the tax year, tax is charged accordingly.
Collection: Section 4(5) provides that tax is deducted or collected at source or paid in advance as the Act provides.

Answer: Every person is liable to income-tax on the total income of the tax year, at the rates fixed by the Finance Act for that year, under section 4. The Act decides what is taxable. The Finance Act decides the rates. TDS, TCS or advance tax collect the tax during the year.

Example 2

On 1 April of a tax year, the Finance Act for that year has not yet been passed. A Bill is before Parliament. Can income-tax be charged, and at what rates?

Show the solution

Provision: Section 530 says the Act has effect even if, on 1 April, no Central Act has yet provided for the charge of income-tax for that tax year.
Rate rule: Until the Finance Act is passed, the Act operates as if the provision in force in the preceding tax year, or the provision proposed in the Bill then before Parliament, were in force.
Choice: Whichever of the two is more favourable to the assessee applies.
Link to section 4: The charge under section 4 continues to operate in the meantime, so there is no gap in the law.
Conclusion: Tax can be charged and collected, but at the more favourable of the two provisions, until the Finance Act is passed.

Answer: Yes. Under section 530, the Act has effect on 1 April even without a Finance Act. The rates are those of the preceding tax year or those proposed in the pending Bill, whichever is more favourable to the assessee, until the Finance Act is enacted.

Exam tips

Quote section 4(1) and 4(2) by number in every answer on the charge. Examiners look for the section and the key words: Central Act, tax year, total income, every person.
Always separate the Income-tax Act from the Finance Act. One line on this earns credit in theory answers.
Learn section 530 as a pair: preceding year or the Bill, whichever is more favourable to the assessee.
In a problem, compute total income first and apply rates second. Show both steps even for a short computation.
End each answer with a one-line conclusion that answers the exact question asked.

Practice questions from Basic Concept of Income Tax

Charge of Income-tax in other exams

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

Charge of Income-tax: frequently asked questions

What does section 4 of the Income-tax Act, 2025 say?

It is the charging section. Income-tax is charged for a tax year at the rates enacted by a Central Act, on the total income of the tax year of every person. It also covers additional income-tax, other periods and collection at source or in advance.

Who fixes the rate of income-tax?

The Finance Act of the relevant year fixes the rates, as a Central Act. Section 4(1) makes the charge at those rates, subject to the Income-tax Act, 2025.

What happens if the Finance Act is not passed by 1 April?

Section 530 lets the Act operate anyway. It applies the preceding year's provision or the provision proposed in the Bill, whichever is more favourable to the assessee, until the Finance Act is passed.

Is TDS the same as the charge of tax?

No. The charge arises under section 4(1) and (2) on total income. Section 4(5) only says tax is collected through deduction, collection at source or advance payment.