India’s Income-tax Act, 2025 came into force on April 1, 2026, replacing the Income-tax Act, 1961 for the new law’s applicable period. One of its important provisions is Section 4, which explains how income tax is charged.
Although Section 4 retains the same number under both laws, the wording and structure have changed. The new provision uses the term “tax year” instead of “previous year” and no longer uses “assessment year” in the charging provision. According to the official Income Tax Department guidance, the reform is intended to simplify the law rather than introduce a new tax merely because the legislation has been replaced.
What Section 4 Means for Taxpayers
Section 4 is known as the charging section because it establishes the legal basis for levying income tax on a taxpayer’s total income, at rates prescribed by the relevant law.
Under the Income-tax Act, 1961, the provision referred to the total income of the “previous year” and the applicable “assessment year.” Under the Income-tax Act, 2025, the charge is linked to the total income of the “tax year,” with tax rates prescribed for that period under the new Act.
For individuals, salaried employees, freelancers, investors and businesses, the change is primarily about the language and structure used to describe the tax period. The actual amount of tax payable still depends on the applicable tax rates, income, deductions, exemptions and other relevant provisions.
The Key Difference: “Tax Year” Replaces the Old Two-Year Terminology
Under the earlier system, taxpayers commonly dealt with two terms:
Previous year: The year in which the income was earned.
Assessment year: The following year in which that income was assessed for tax purposes.
The 2025 Act replaces this terminology with “tax year,” aligned with the financial year. For income earned from April 1, 2026, the period is referred to as Tax Year 2026–27. The change is intended to reduce confusion without requiring businesses to change their accounting year.
What Has Changed in the Wording of Section 4?
The new provision organises the charging rules into five subsections, compared with two subsections in the earlier Act.
Area | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
Tax period | Previous year and assessment year | Tax year |
Additional income tax | Included within the earlier wording | Expressly covered in Section 4(3) |
Income from a different period | Addressed through a proviso | Set out in Section 4(4) |
Tax deducted or collected at source | Section 4 referred to deduction at source and advance tax | Section 4(5) expressly refers to tax deducted or collected at source and advance tax |
These drafting changes make the provision more explicit, but they do not by themselves mean every other provision of the tax law is unchanged. Taxpayers must still consider the relevant rules, rates and provisions applicable to their circumstances.
Does Section 4 Increase Tax Liability?
The article by Upstox states that Section 4 itself does not create a change in taxpayers’ liability simply because the charging provision has been rewritten. The official Income Tax Department also says the new Act is intended to simplify the law rather than impose a new tax solely through its replacement.
Upstox - Online Stock and Share Trading+1
This does not mean every taxpayer’s total tax bill will necessarily remain identical in every situation: the final liability depends on the applicable tax rates and other provisions, along with the taxpayer’s income and circumstances.
For individuals and businesses, the practical step is to use the correct terminology and applicable provisions for the relevant tax period. Income tax consulting support can help taxpayers understand which law applies to a particular return, notice or proceeding.