Section 4 · Residence
Section 4 of the Income-tax Act, 2025 — Charge of Income-tax (and How It Applies to NRIs)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter II
📜 What the law says — Section 4, Income-tax Act 2025
4. (1) Where any Central Act enacts that income-tax shall be charged for any
tax year at any rate or rates, income-tax for such tax year shall be charged at
that rate or those rates in accordance with and subject to the provisions of this Act.
(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.
(3) Income-tax shall also include any additional income-tax, by whatever name
called, levied under this Act.
(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.
(5) For the income chargeable under this section, income-tax shall be deducted or
collected at source or paid in advance as provided under this Act.
Scope of total income.
In plain language
What Section 4 actually says
Section 4 of the Income-tax Act, 2025 is the "charge of income-tax" — the single provision that legally creates your liability to pay income tax in India. It is the direct successor to Section 4 of the old Income-tax Act, 1961, and it does the same job: it says that tax is levied on the total income of every person for a tax year, at the rate or rates that a Central Act (the annual Finance Act) prescribes. Nothing in the Act can tax you unless Section 4 first switches on the charge.
The section is now written in five short, plain sub-sections:
- Section 4(1): Income-tax for any tax year is charged as per this Act, at the rate(s) enacted by a Central Act for that tax year.
- Section 4(2): The charge falls on the total income of the tax year of every person.
- Section 4(3): Income-tax also includes any additional income-tax, by whatever name called, levied under the Act (e.g. surcharge-type or special levies).
- Section 4(4): If the Act requires tax on income of a period other than the tax year, it is charged accordingly (e.g. shipping/discontinued business cases).
- Section 4(5): Tax on this income is collected by TDS, TCS, or advance tax as provided in the Act.
The biggest change: "tax year" replaces "previous year" and "assessment year"
The 1961 law used two confusing terms — the "previous year" (when income was earned) and the "assessment year" (the next year, when it was taxed). The 2025 Act scraps both and uses one term: tax year, a single 12-month period from 1 April to 31 March. You earn income in the tax year and it is taxed for that same tax year. The first tax year under the new Act is 2026-27 (1 April 2026 to 31 March 2027).
Who it applies to
Section 4 applies to every "person" — the Act's definition of person covers individuals, HUFs, companies, firms, LLPs, AOPs/BOIs, local authorities and every other artificial juridical person. It applies whether you are a resident, RNOR, or non-resident (NRI). There is no exemption from the charge based on nationality — an NRI is just as much "chargeable" under Section 4 as a resident.
How much of your income gets caught — the NRI angle (Section 4 + Section 5)
Section 4 creates the charge, but it charges only the total income. What goes into "total income" depends on your residential status, and that is decided by Section 5 (scope of total income) read with Section 6 (residence). This is where residents and NRIs differ sharply:
- Resident and Ordinarily Resident (ROR): taxed on global income — income earned in India and abroad.
- Resident but Not Ordinarily Resident (RNOR): taxed on Indian income, plus foreign income only if from a business controlled in / profession set up in India.
- Non-Resident (NRI): taxed only on income that is received or deemed received in India, or that accrues/arises or is deemed to accrue or arise in India. Genuinely foreign income of an NRI stays outside the Indian charge.
So for an NRI, the practical rule is simple: Section 4 charges the tax, Section 5 limits it to your India-sourced income. Salary for work done in India, rent from Indian property, capital gains on Indian shares/property, and interest on NRO deposits are inside the net; your UAE/US/UK salary and foreign bank interest are generally outside it.
How Section 4 interacts with the rest of the Act
- Rates come from the Finance Act, not Section 4. Section 4 only says tax "shall be charged"; the actual slab rates, surcharge and cess for the year are fixed by the annual Central/Finance Act.
- Section 5/6 decide the size of the base (scope + residence).
- Section 4(5) connects to the TDS, TCS and advance-tax machinery — which is why an NRI's Indian rent or capital gains often suffer TDS even before assessment.
Practical implications
- The charge is annual and automatic — liability arises for each tax year, even before you file a return.
- DTAA relief still applies: Section 4 charges the tax, but a Double Taxation Avoidance Agreement (treaty) can reduce or eliminate it for NRIs, subject to a Tax Residency Certificate and Form 10F.
- For NRIs, the levy under Section 4 is what makes India-source TDS, capital-gains tax and NRO-interest tax enforceable.
💡 Example
Example 1 — Resident vs NRI on the same income. Arjun and his cousin Vikram each earn ₹12,00,000 salary in India plus ₹4,00,000 interest from a US bank in tax year 2026-27. Arjun is a Resident and Ordinarily Resident, so Section 4 read with Section 5 charges his global income of ₹16,00,000. Vikram is an NRI (he lives and works partly abroad); the same Section 4 charge applies to him, but Section 5 limits his total income to only the India-source ₹12,00,000 — his US interest of ₹4,00,000 escapes the Indian charge entirely.
Example 2 — NRI with only Indian rent. Meera, an NRI in Dubai, owns a Bengaluru flat that earns ₹6,00,000 rent a year and has no other Indian income. Section 4 creates the charge; Section 5 confirms Indian rent is "accruing in India," so it is taxable. Because she is an NRI, the tenant/payer must deduct TDS under the Section 4(5) machinery before assessment. After the standard 30% house-property deduction, roughly ₹4,20,000 is her taxable income — and if the India-UAE treaty gives her relief, she can claim it with a Tax Residency Certificate and Form 10F.
A short story. When Ravi returned from Singapore mid-year, he panicked that India would tax his entire Singapore salary. His CA explained it calmly: "Section 4 is only the switch that says tax shall be charged — it doesn't decide how much. Section 5 does, based on your residential status. For the months you were a non-resident, only your Indian income counts." Ravi relaxed: the charge existed, but its reach was tied to where he lived, not to the fact that he is Indian.
| Aspect | Section 4, Income-tax Act 2025 | Section 4, Income-tax Act 1961 (old) |
|---|
| Core rule | Tax charged on total income of every person for the tax year at Finance Act rates | Tax charged on total income of the previous year at Finance Act rates |
|---|
| Time unit | Single "tax year" (1 Apr–31 Mar) | "Previous year" earned + "assessment year" taxed |
|---|
| First year applicable | Tax year 2026-27 (from 1 Apr 2026) | Up to AY 2026-27 / earlier years |
|---|
| Additional income-tax | Expressly included [Sec 4(3)] | Covered via various charging provisions |
|---|
| Collection machinery | TDS / TCS / advance tax [Sec 4(5)] | TDS / TCS / advance tax |
|---|
| Residential status | Income taxed under Section 4 + Section 5 |
|---|
| Resident & Ordinarily Resident (ROR) | Global income (India + foreign) |
| Resident but Not Ordinarily Resident (RNOR) | Indian income + foreign income only if from business controlled/profession set up in India |
| Non-Resident (NRI) | Only income received/deemed received in India, or accruing/deemed to accrue in India |
Related sections
Section 5 — Scope of total income (resident vs non-resident) Section 6 — Residence in India (how residential status is decided) Section 9 — Income deemed to accrue or arise in India Section 2 — Definitions (person, tax year, total income) Section 3 — Tax year Section 393 — TDS/TCS and collection framework
Frequently asked questions
Does Section 4 apply to NRIs?
Yes. Section 4 charges income-tax on every person, including non-residents. However, an NRI's taxable total income is limited by Section 5 to income received, accruing, or deemed to accrue in India.
What is the difference between the 2025 Section 4 and the 1961 Section 4?
The substance is the same — both create the charge of income-tax on total income at Finance Act rates. The main change is that the 2025 Act uses a single 'tax year' instead of the old 'previous year' and 'assessment year', and is written in simpler five sub-sections.
Does Section 4 tell me the tax rates?
No. Section 4 only says tax 'shall be charged' at the rates enacted by a Central Act. The actual slab rates, surcharge and cess for each tax year are fixed by the annual Finance Act.
When does Section 4 of the 2025 Act take effect?
The Income-tax Act, 2025 comes into force on 1 April 2026, so Section 4 applies from tax year 2026-27 onwards, replacing the 1961 Act.
Is my foreign salary taxed under Section 4 if I am an NRI?
Generally no. Section 4 creates the charge, but Section 5 keeps an NRI's genuine foreign income outside the Indian tax net. Only your India-source income is charged.
What does 'additional income-tax' in Section 4(3) mean?
It clarifies that any extra levy in the nature of income-tax, by whatever name called, imposed under the Act is also treated as income-tax — so it is charged and collected the same way.
How is the tax under Section 4 actually collected?
Under Section 4(5), through TDS (tax deducted at source), TCS (tax collected at source), and advance tax, as provided in the Act. This is why NRIs often face TDS on Indian rent, capital gains and NRO interest.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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