Section 4 of the Income Tax Act 2025 maintains the same rules for charging income tax as the 1961 Act, but updates the language and structure to reflect modern tax administration. Taxpayers, including salaried employees, senior citizens, non-resident Indians, stock market investors, mutual fund investors, and freelancers, will find no change in their tax liability under this section. The main update is the replacement of the terms "assessment year" and "previous year" with a single term: "tax year."
- The Income Tax Act 2025 took effect on April 1, 2026.
- Section 4 remains the key provision charging income tax on individuals and entities.
- "Tax year" replaces the older terms "assessment year" and "previous year."
- Tax liability and charges remain unchanged for all taxpayers.
- The new Act clarifies additional income tax and tax collection at source in separate subsections.
What is the main change in terminology under Section 4?
The Income Tax Act 2025 replaces the terms "assessment year" and "previous year" with a single term called "tax year." This change simplifies the tax period concept by defining the tax year as the 12-month financial year starting April 1. Previously, the "previous year" was the year when income was earned, and the "assessment year" was the following year when tax was assessed. The new terminology merges these into one period, making tax administration clearer.
Does Section 4 change who is charged income tax?
No, Section 4 of the 2025 Act charges income tax on the same persons as the 1961 Act. It applies to every person earning income within the tax year. This includes individuals, companies, and other entities. The base of the charge—the total income of the tax year—remains the same, ensuring continuity in tax liability.
How does the new Act handle additional income tax and tax collection?
Under the 1961 Act, additional income tax was mentioned briefly in a parenthesis. The 2025 Act gives it a dedicated subsection (Section 4(3)), stating that income tax includes any additional income tax by whatever name it is called. Furthermore, tax deducted or collected at source, which was not explicitly named in the 1961 charging section, now appears clearly in Section 4(5). This subsection covers tax deducted or collected at source or paid in advance, providing explicit legal backing for these mechanisms.
Are there any changes in how tax is charged on income from periods other than the standard tax year?
Yes, the 2025 Act moves the rule for charging tax on income earned during a period other than the standard tax year from a proviso in the 1961 Act to its own subsection, Section 4(4). This change clarifies the application of tax in special cases without altering the substance of the rule.
What does this mean for taxpayers?
For taxpayers, the changes in Section 4 of the Income Tax Act 2025 are mostly administrative and terminological. The actual tax liability remains unchanged. Individuals and investors can expect their tax calculations and payments to continue as before, but with updated terminology in notices, intimations, and refund orders. This modernization aims to simplify tax administration while preserving the existing tax framework.
Source: Income Tax Act 2025 and Income Tax Act 1961 provisions as updated on April 1, 2026.
