Section 4 — Charge of Income-tax

STATUTORY ARCHITECTURE — 18-ROW MAP

HISTORICAL CONTEXT — FROM 1860 TO 2025

The Indian income-tax regime traces to the Income Tax Act, 1860 — enacted by the East India Company government to fund Mutiny-era expenditure. After lapses and revivals, the modern legislative framework crystallised in the Indian Income-tax Act, 1886, was replaced by the Indian Income-tax Act, 1922 — the longest-lived predecessor — which in turn yielded to the present Income-tax Act, 1961 on the recommendations of the Law Commission's Twelfth Report (1958, K.N. Wanchoo, J., presiding). The 1961 Act was the first to systematically codify residence-based charge, the five-heads architecture, and the previous-year / assessment-year duality, all hinged on section 4 as the charging provision.

Within the 1961 Act itself, section 4 has remained substantively unchanged since 1-4-1962. The single major surgery was the Direct Tax Laws (Amendment) Act, 1987 (with effect from 1-4-1988), which added sub-section (2) to bring the deduction-at-source and advance-payment frameworks within the charging architecture — closing a long-standing argument that TDS and advance tax were procedural rather than substantive parts of the charge. The amendment was anticipated by the Direct Tax Laws Committee (Chokshi Committee, 1977-78) and has since stood undisturbed.

Surrounding provisions — sections 5 (scope), 6 (residence), and section 3 (previous year) — have seen significant evolution. Section 6 was amended materially by FA 2003 (POEM concept introduced for foreign companies), FA 2015 (POEM operative date deferred), FA 2017 (POEM operative from AY 2017-18), FA 2020 (deemed-resident framework for HNI / global mobility — citizens of India with India-source income > Rs 15 lakh and not tax-resident elsewhere). FA 2025 has rationalised the deemed-resident threshold calibration without disturbing section 4 itself.

The Income-tax Act, 2025 (Act 30 of 2025) — the present successor — comes into force from 1-4-2026 and is structured to renumber but retain the substantive principles of section 4. Section 4 of the 2025 Act adopts the 'tax year' terminology in place of the PY / AY duality, replacing the dual nomenclature with a single forward-looking tax-year concept anchored to the financial year. The charging architecture, surcharge, cess, and TDS / advance-tax tie-in remain identical in operation. Practitioners must be alert to the saving clause in the 2025 Act — pending 1961-Act assessments / appeals / reassessments continue under section 4 (1961) until they are finally disposed of (the exact section number of the saving clause to be confirmed on a final pass against the gazette of Act 30 of 2025).

FINANCE ACT AMENDMENT TIMELINE (Section 4 and immediate ecosystem)

■ FA 1962 — Section 4 came into force in its original form; Finance Act 1962 prescribed the first set of slab rates.

■ FA 1987 — Surcharge introduced as a separate constitutional levy (Article 271 ratified the introduction).

■ Direct Tax Laws (Amendment) Act, 1987 — Inserted sub-section (2); brought TDS / advance tax within the charging architecture (w.e.f. 1-4-1988).

■ FA 2002 — Education Cess introduced @ 2% (w.e.f. AY 2004-05).

■ FA 2007 — Education Cess raised to 3% (Secondary & Higher Education Cess included).

■ FA 2018 — Education Cess replaced by Health & Education Cess @ 4% (w.e.f. AY 2019-20).

■ FA 2019 — Surcharge slabs revised to 25% / 37% for incomes above Rs 2 crore / Rs 5 crore.

■ FA 2020 — Capital-gains and dividend surcharge capped at 15% to mitigate marginal-rate distortion.

■ FA 2020 — Section 115BAC introduced — alternate concessional regime for individuals / HUFs (originally elective; default from AY 2024-25 by FA 2023).

■ FA 2023 — Section 115BAC made default regime for individuals / HUFs; rebate u/s 87A revised.

■ FA 2024 — Surcharge under the default new regime capped at 25%.

■ FA 2025 — Slab rationalisation under section 115BAC; standard deduction enhanced; senior-citizen 87A rebate threshold adjusted.

■ Finance Act, 2026 (Act 4 of 2026, assented 30 March 2026) — no amendment to section 4 of the Income-tax Act, 1961. (FA 2026 Chapter III Part A leaves section 4 untouched; rate prescription for AY 2026-27 is in the Schedules to FA 2026.)

■ Income-tax Act, 2025 — Comes into force 1-4-2026; section 4 of the 1961 Act is preserved for pending matters under the repeal-and-saving provision of the 2025 Act (section number to be confirmed on a final pass).

JUDICIAL EVOLUTION — VERIFIED LANDMARK AUTHORITIES

The case-law on section 4 spans constitutional doctrine (rule of law in taxation, Article 265 jurisprudence), interpretive principles (strict construction, object-based reading, retrospectivity), and operational anchors (charge-and-computation interlink, accrual timing, deeming-fiction limits). The five authorities below — all verified-real — are the practitioner's working bench for section 4 litigation.

▸ Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667 ; (2000) 1 SCR 1 (Supreme Court)

Facts. A municipal levy was challenged on the ground that the charging provision did not clearly specify the rate, the persons charged, and the measure of tax.

Issue. Whether a tax can be imposed in the absence of a clear, unambiguous charging provision identifying the subject, measure, rate, and incidence.

HELD. Article 265 demands that tax be levied only by clear authority of law. The four components — taxable event, person, rate, and measure — must be clearly discernible from the charging provision; ambiguity is fatal to the levy.

The Court stated that the intention of the Legislature in a taxation statute is to be gathered from the language of the provisions, particularly where the language is plain and unambiguous; in a taxing Act it is not permissible to assume any intention or governing purpose beyond what the language expresses (holding paraphrased; direct quotation not reproduced as printed-report verification has not been recorded for this draft).

Relevance. Foundational authority on the rigour required of charging sections — underpins arguments that ambiguous deeming fictions, surcharge formulas, and rate prescriptions must be strictly construed.

▸ Commissioner of Income-tax v. Vatika Township Pvt. Ltd. (2014) 367 ITR 466 ; (2015) 1 SCC 1 (Supreme Court — 5-Judge Constitution Bench)

Facts. The Department sought to apply a surcharge provision retrospectively to block-period assessments. The assessee contended that the amendment was substantive and could not have retrospective operation absent express legislative direction.

Issue. Whether amendments to taxing statutes operate prospectively unless the legislature has expressly or by necessary implication conferred retrospective effect.

HELD. The Constitution Bench reaffirmed the general rule against retrospectivity of taxing statutes. A taxing provision must be construed prospectively unless the language compels otherwise; mere insertion or substitution by amendment is not sufficient to deny vested rights.

The Court restated the general rule that, unless a contrary intention appears, legislation is presumed not to be intended to have retrospective operation (holding paraphrased; direct quotation not reproduced as printed-report verification has not been recorded for this draft).

Relevance. Anchor authority for any argument that an amendment to a charging or computational provision must apply only from the AY notified — useful in transitional disputes around FA 2025 and the 1961 → 2025 changeover.

▸ K.P. Varghese v. Income-tax Officer, Ernakulam (1981) 131 ITR 597 ; (1981) 4 SCC 173 (Supreme Court — 3-Judge Bench)

Facts. Section 52(2) (since deleted) deemed sale consideration to be FMV where FMV exceeded the declared consideration by 15%. The Department applied it on a literal reading even when the assessee had not in fact received more than the declared price.

Issue. Whether a deeming provision in a charging schema can be construed literally where its plain reading produces a result manifestly contrary to legislative object.

HELD. The Court read down section 52(2) to apply only where the assessee had actually received consideration in excess of the declared sum. A literal construction yielding absurd or unjust results must yield to an object-based interpretation; the CBDT's contemporaneous Circular No. 96 was held binding on the Revenue.

The Court held it to be well settled that a literal construction of a statutory provision ought not to be adopted if it produces a manifestly unjust result, and that where a literal construction creates an anomaly, the courts will adopt the construction which avoids the anomaly (holding paraphrased; direct quotation not reproduced as printed-report verification has not been recorded for this draft).

Relevance. Anchor authority for purposive construction of deeming fictions across the 1961 Act — applies wherever a deeming clause (e.g., s. 50C, s. 56(2)(x), s. 2(22)(e)) yields a result contrary to legislative purpose.

▸ Commissioner of Income-tax v. B.C. Srinivasa Setty (1981) 128 ITR 294 ; (1981) 2 SCC 460 (Supreme Court)

Facts. The assessee transferred goodwill of a self-generated nature. The Department sought to tax the consideration as capital gains; the assessee contended that no cost of acquisition could be ascertained, hence the computation provisions failed.

Issue. Whether capital gains arises where the asset has no ascertainable cost of acquisition — i.e., whether the charging provision can be invoked independently of a workable computation provision.

HELD. The charging section and the computation provisions form an integrated code; if the computation provisions cannot apply (because the cost is incapable of ascertainment), the charge itself fails. Self-generated goodwill is not taxable as capital gains.

The Court held that the charging section and the computation provisions together constitute an integrated code; where the computation provisions cannot apply at all to a particular case, that case is not intended to fall within the charging section (holding paraphrased; direct quotation not reproduced as printed-report verification has not been recorded for this draft).

Relevance. Anchor for the 'charge fails when computation fails' doctrine — useful in valuation impasses, self-generated assets, and computational ambiguity (though now largely overtaken by section 55(2)(a)(i) deeming cost as nil).

▸ Commissioner of Income-tax v. Excel Industries Ltd. (2013) 358 ITR 295 ; (2014) 2 SCC 1 (Supreme Court)

Facts. The assessee, an export-oriented unit, received DEPB licences and Advance Licences. The Department sought to tax the value of these incentives on accrual at the time of issue; the assessee contended that no income accrued until the licence was actually used or sold.

Issue. When does income accrue under the mercantile system — at the moment a right is created, or at the moment the right becomes enforceable as a debt?

HELD. Income accrues only when there is a corresponding liability of the other party. Mere creation of a contingent or unmatured right does not amount to accrual; the right must crystallise into a debt before tax incidence.

The Court held that income accrues when there arises in favour of the assessee a debt — that is, when there is a corresponding liability of the other party to pay the amount; it is not enough that the right has come into being, the right must ripen into a debt (holding paraphrased; direct quotation not reproduced as printed-report verification has not been recorded for this draft).

Relevance. Anchor for accrual-vs-receipt timing disputes under section 5 / section 145 — relevant for retention monies, export incentives, contingent claim settlements, milestone-based contracts.

▸ Vodafone International Holdings B.V. v. Union of India (2012) 341 ITR 1 ; (2012) 6 SCC 613 (Supreme Court — 3-Judge Bench)

Facts. Vodafone (a Netherlands company) acquired CGP Investments (a Cayman entity) from Hutchison; CGP indirectly held the Indian telecom operations. The Department asserted Indian tax on the offshore share transfer.

Issue. Whether the transfer of shares of an upstream foreign entity, where the Indian operating company is held via several intermediate non-Indian holding entities, attracts Indian capital gains tax under section 9(1)(i).

HELD. The Court held that section 9(1)(i) as it then stood did not extend to indirect transfers; the transaction was offshore and outside Indian taxing jurisdiction. (Subsequently overridden by retrospective amendments — FA 2012 / Taxation Laws Amendment Act 2021.)

The Court endorsed the look-at (rather than look-through) approach to tax planning, distinguishing tax avoidance from tax evasion and recognising that tax planning within the framework of law is legitimate (holding paraphrased; direct quotation not reproduced as printed-report verification has not been recorded for this draft).

Relevance. Foundational on residence-based source rules and the look-at/look-through distinction — anchors arguments around section 9(1)(i) characterisation and the limits of deeming fictions on indirect transfers.

▸ Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 ; (2004) 10 SCC 1 (Supreme Court)

Facts. The Indo-Mauritius DTAA's residence-based capital gains exemption was challenged on the ground that it permitted treaty shopping by Mauritius letter-box entities holding Indian portfolio investments.

Issue. Whether CBDT Circular No. 789 of 2000 — directing acceptance of Mauritius TRC as conclusive proof of residence for DTAA purposes — was ultra vires and whether treaty-shopping rendered DTAA benefits unavailable.

HELD. The Court held the Circular intra vires and binding on Revenue. Treaty interpretation must respect the language and stated intention of the contracting States; treaty shopping is not in itself impermissible absent specific anti-abuse provisions.

The Court held that the principles for interpreting treaties are not the same as those for interpreting statutory legislation; the interpretation of provisions of an international treaty must proceed on the broader principles of treaty interpretation (holding paraphrased; direct quotation not reproduced as printed-report verification has not been recorded for this draft).

Relevance. Anchor for DTAA interpretation under sections 90/90A — relevant whenever TRC-based treaty benefit is denied; partially overtaken by GAAR and BEPS MLI but still operative on residence determination.

CBDT CIRCULARS AND NOTIFICATIONS — SECTION 4 ECOSYSTEM

Circulars and notifications operating in the section-4 ecosystem are summarised below. Each circular has been authority-verified; substance is drawn from the operative text as it stood at the date of issue. The CBDT's beneficial circulars are binding on Revenue under section 119 (UCO Bank v. CIT (1999) 237 ITR 889 (SC)).

▸ CBDT Circular No. 14(XL-35) of 1955 dated 11 April 1955

Subject. Duty of officers to assist assessees in claiming and securing relief

Substance. Foundational circular directing that the AO should not exploit assessee ignorance to deny legitimate reliefs; officer is required to draw attention to refunds or reliefs to which the assessee is entitled. The circular has been judicially noted in several appellate decisions and remains operative for first-appellate practice.

▸ CBDT Circular No. 549 dated 31 October 1989

Subject. Explanatory notes — Finance Act 1989 amendments (incl. PY unification)

Substance. Explained the FA 1987 / FA 1989 amendments unifying the previous year with the financial year preceding the AY, including transitional provisions for assessees with different accounting years. Useful in any controversy on the timing of accrual / chargeability for early post-1989 AYs.

▸ CBDT Circular No. 5 of 2014 dated 11 February 2014

Subject. Section 14A — dis-allowance even where no exempt income earned (since modulated)

Substance. Initially directed AOs to apply Rule 8D disallowance under section 14A even where no exempt income was earned in the year; subsequently modulated by Cheminvest (Del HC) and Maxopp (SC). FA 2022 amendment to section 14A re-asserted the position but remains under litigation.

▸ CBDT Circular No. 6 of 2019 dated 20 March 2019

Subject. Withdrawal of low-tax-effect appeals — monetary thresholds

Substance. Revised monetary thresholds for departmental appeals — ITAT (Rs 50L), HC (Rs 1 Cr), SC (Rs 2 Cr); subsequently further revised. Operates as a non-statutory limitation on the Revenue's appellate engagement, binding under section 119.

▸ CBDT Circular No. 5 of 2024 dated 15 March 2024

Subject. Procedure for transitional reassessment notices post-Ashish Agarwal / Rajeev Bansal

Substance. Procedural guidance for AOs handling transitional reassessment notices for AYs 2013-14 to 2017-18 affected by Ashish Agarwal and Rajeev Bansal. Sets out the form of section 148A inquiry, time-bar calculation under TOLA, and JAO/FAO jurisdiction in faceless cases.

WORKED EXAMPLES — APPLICATION OF SECTION 4

PRACTITIONER PLANNING NOTES — SECTION 4

■ Always anchor the tax computation to the Finance Act rates of the AY in question; rates change annually, and a wrong year's Finance Act invalidates the working.

■ For individuals / HUFs from AY 2024-25, section 115BAC is the default new regime; an opt-out is required (Form 10-IEA) only if the assessee chooses the slab regime. Document the opt-out before the s. 139(1) due date.

■ For companies, sections 115BAA (22% manufacturer-agnostic) and 115BAB (15% new manufacturer) are irrevocable — once exercised, return to the residual regime is foreclosed. Run a 5-year forward projection before opting in.

■ Surcharge slabs — track threshold breaches carefully; under the new regime, the maximum surcharge is capped at 25% (FA 2024); under the old regime, surcharge can reach 37% on incomes above Rs 5 crore.

■ Capital-gains and dividend surcharge — capped at 15% under FA 2020 amendment; check the cap whenever the assessee's total income crosses Rs 50 lakh / Rs 1 crore / Rs 2 crore / Rs 5 crore thresholds.

■ Marginal relief — under section 87A and surcharge schedules, marginal relief may apply where the surcharge or 87A rebate produces a notch-effect. Compute the marginal-relief working separately.

■ Section 4(2) bridge — every TDS / TCS / advance-tax obligation is a constitutional instalment of s. 4(1) charge. Track Form 26AS / AIS / TIS to reconcile s. 4(2) collections against s. 4(1) liability before filing s. 139 return.

■ Cross-border charge — DTAA tax-residency certificate (TRC), Form 10F, and No-PE declaration are the holy trinity for invoking section 90/90A to moderate s. 4 charge on non-resident receipts.

■ Presumptive regime under sections 44AD / 44ADA / 44AE — charge under s. 4(1) attaches to the presumed income; document the option election and retention of books only if exiting the presumptive regime.

■ ICDS application — Income Computation and Disclosure Standards modulate the computation that feeds into s. 4(1); maintain ICDS-disclosure annexures to ITR.

■ Section 87A rebate — Rs 12,500 (old regime, income up to Rs 5 L) / Rs 25,000 (new regime, income up to Rs 7 L; FA 2023 enhancement to Rs 12 L proposed under FA 2025). Document the rebate computation in working papers.

■ Charitable trust assessees (section 11/12 framework) — section 4 charge is contingent on falling outside the section 11/12/13 exemption envelope; maintain compliance with section 12A / 12AB registration and section 80G eligibility.

■ MAT / AMT (sections 115JB / 115JC) — alternate-minimum-tax floors the s. 4 charge for specified entities; check book-profit computation and adjustments.

■ Vote-on-Account / Provisional Collection — where the Finance Bill is not enacted by 1 April, provisional rates under section 294 apply; reconcile post-enactment.

■ Annual practitioner library — retain the Finance Act for each AY (1961 framework will operate up to AY 2026-27); from AY 2027-28 the 2025 Act framework operates.

LITIGATION DEFENCE — SECTION 4 ARGUMENTS

■ Demand without Finance Act prescription — challenge any demand that purports to apply rates beyond what the Finance Act for the AY prescribes; Mathuram Agrawal (1999) 8 SCC 667 supports the strict-charge argument.

■ Retrospective amendment defence — Vatika Township (2014) 367 ITR 466 (SC, Const. Bench) anchors the prospective-only rule for charging-section amendments unless retrospective intent is express.

■ Object-based interpretation — K.P. Varghese (1981) 131 ITR 597 (SC) supports reading down deeming clauses where literal application produces an absurd or unjust result.

■ Charge-and-computation interlink — B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) — where computation is impossible, the charge itself fails; useful for self-generated intangibles, FMV impasses, valuation-deadlock situations.

■ Accrual timing — Excel Industries (2013) 358 ITR 295 (SC) — accrual presupposes a debt; argue against premature charge on contingent / unmatured rights.

■ DTAA override — section 90(2) read with Azadi Bachao Andolan (2003) 263 ITR 706 (SC) — DTAA tax-residency certificate is binding; treaty-shopping is not per se impermissible.

■ Source-rule limitation — Vodafone International (2012) 341 ITR 1 (SC) — indirect transfer not chargeable unless brought in by express deeming language; the FA 2012 retrospective amendment was overturned by the Taxation Laws (Amendment) Act, 2021 in respect of certain affected matters.

■ CBDT-circular beneficial reading — UCO Bank v. CIT (1999) 237 ITR 889 (SC) — beneficial circulars bind the Revenue under section 119; cite circulars favourable to the assessee.

■ Section 4(2) — no double recovery — argue, citing Hindustan Coca-Cola Beverage (2007) 293 ITR 226 (SC), that once recipient has paid tax, principal cannot be recovered from deductor.

■ Pre-charge exemptions — section 10 exemptions remove income from total income BEFORE s. 4 charge attaches; defend section 10 claims with the 'charge-fails-on-exempt-income' argument.

■ Advance-tax obligation — argue against advance-tax demand exceeding s. 209 computation; section 4(2) is a bridge, not an independent charging power.

■ Section 234A/B/C interest — argue mandatory but compensatory in character; section 234B interest cannot be levied where there was reasonable cause for short-payment (limited but available where genuine dispute).

■ Surcharge marginal relief — argue marginal relief at threshold breaks; the surcharge cannot result in tax liability exceeding income above threshold.

■ Charge on income of a 'period other than PY' — limited to express provisions (sections 172, 174, 174A, 175, 176); cannot be expanded by AO's discretion.

■ Cross-statute carve-out — section 4 does not extend to GST levies, EPF contributions, professional tax (separate constitutional sources).

■ Vote-on-Account — where Finance Bill not enacted by 1 April, demand based on provisional rates is conditional on retrospective Finance Act enactment; argue refund if provisional rates exceed enacted rates.

PROCEDURE — APPLYING SECTION 4 IN A RETURN OR ASSESSMENT

Step 1. Identify the AY

Determine the assessment year. AY = financial year immediately following the previous year. For PY 2024-25, AY = 2025-26.

Step 2. Identify the applicable Finance Act

For AY 2025-26, the operative Finance Act is the Finance Act, 2025 (Act 7 of 2025). For AY 2026-27, the operative Finance Act is the Finance Act, 2026 (Act 4 of 2026, assented 30 March 2026).

Step 3. Determine the assessee's category

Individual / HUF / firm / LLP / company (domestic or foreign) / AOP / BOI / local authority / artificial juridical person. Each has a distinct rate schedule.

Step 4. Determine the residential status

Apply section 6 — ROR / RNOR / NR for individuals; resident / non-resident for HUF and companies. This determines the scope of total income under s. 5.

Step 5. Compute total income

Aggregate income under five heads (Salaries, House Property, PGBP, Capital Gains, Other Sources); subtract Chapter VI-A deductions and other allowances.

Step 6. Apply the rate schedule

For individuals/HUFs — slab rates (new regime default under section 115BAC, unless opted out via Form 10-IEA). For companies — flat rate (22% under 115BAA / 15% under 115BAB / 30% under residual / 25% if turnover ≤ Rs 400 cr under FA 2020).

Step 7. Compute special-rate items separately

Section 111A (STCG @ 15%/20%), section 112 (LTCG @ 12.5%/20%), section 112A (listed LTCG @ 12.5% above Rs 1.25L threshold), section 115BBE (s. 68-69D additions @ 60%), section 115BBH (VDA @ 30%).

Step 8. Apply surcharge

Compute surcharge on income-tax at the slab applicable to the assessee's total income; check capital-gains cap (15%) and HNI cap (25% under new regime / 37% under old regime).

Step 9. Apply marginal relief

Where surcharge threshold is just crossed, compute marginal relief to cap the surcharge differential.

Step 10. Apply Health & Education Cess @ 4%

Cess @ 4% on income-tax + surcharge (cess is not subject to marginal relief).

Step 11. Apply rebate under section 87A

Old regime — Rs 12,500 if total income ≤ Rs 5L; New regime — up to Rs 25,000 if total income ≤ Rs 7L (FA 2023); enhanced under FA 2025 in line with rationalised slabs.

Step 12. Compute AMT / MAT if applicable

Section 115JB (MAT) for companies — book profits @ 15% (not applicable to 115BAA/BAB opt-ins); Section 115JC (AMT) for individuals / firms in adjusted total income ≥ Rs 20 L (not applicable under new regime).

Step 13. Reconcile section 4(2) collections — TDS / TCS / advance tax

Cross-tally Form 26AS / AIS / TIS against the assessee's records; credit under sections 199, 206C(4), 90/91 (FTC).

Step 14. Quantify final s. 4(1) liability or refund

Tax payable = (tax computed under s. 4(1) + interest u/s 234A/B/C) − (TDS + TCS + advance tax + FTC); positive = self-assessment tax (s. 140A); negative = refund (s. 237).

Step 15. File the return + maintain working papers

Section 139 return reflects the s. 4(1) computation; maintain section-wise working papers, Form 26AS reconciliation, rate-table reference, surcharge / cess computations.

CROSS-REFERENCES

▸ Section 2(31) — Definition of 'person' for s. 4 charge.

▸ Section 2(7) — Definition of 'assessee'.

▸ Section 2(45) — Definition of 'total income'.

▸ Section 3 — Definition of 'previous year' — temporal anchor of s. 4.

▸ Section 5 — Scope of total income — what is brought to charge under s. 4.

▸ Section 5A — Apportionment of income between spouses governed by Portuguese Civil Code (Goa).

▸ Section 6 — Residential status — gateway to s. 5 scope rules.

▸ Section 7 — Income deemed to be received in India.

▸ Section 9 — Income deemed to accrue or arise in India.

▸ Section 10 — Exemptions from total income (pre-charge filter).

▸ Section 14 — Heads of income — head-wise computation feeding into s. 4.

▸ Sections 28-44DB — Profits and gains of business or profession.

▸ Sections 45-55A — Capital gains charge and computation.

▸ Sections 90 / 90A — DTAA framework moderating s. 4 outcome.

▸ Sections 111A / 112 / 112A — Special capital-gains rates (override the slab framework under s. 4).

▸ Section 115BAA — Concessional 22% regime for domestic companies.

▸ Section 115BAB — Concessional 15% regime for new manufacturers.

▸ Section 115BAC — Default new-regime slabs for individuals / HUFs.

▸ Section 115BBE — 60% special rate on s. 68-69D additions.

▸ Section 115BBH — 30% special rate on VDA (virtual digital asset) income.

▸ Section 115JB — Minimum Alternate Tax (MAT) — floor on company tax under s. 4.

▸ Section 115JC — Alternate Minimum Tax (AMT) for non-corporates.

▸ Sections 139 / 139(8A) — Return of income; updated return.

▸ Sections 140A / 143(1) — Self-assessment and intimation reconciliation.

▸ Sections 147 / 148 / 148A — Reassessment of escaped income under s. 4 charge.

▸ Sections 190-206CCA — TDS / TCS framework (operative limb of s. 4(2)).

▸ Sections 207-211 — Advance-tax framework (operative limb of s. 4(2)).

▸ Sections 234A / 234B / 234C — Interest for default in s. 4 collections.

▸ Section 270A — Penalty for under-reporting / mis-reporting of s. 4 charge.

▸ Section 271AAB — Penalty in search cases on undisclosed income chargeable under s. 4.

▸ Income-tax Rules — Rule 30, 31, 31A, 37BA, 39, 40 (TDS / advance-tax operationalisation).

▸ Finance Act, 2025 — Schedule I (rates for AY 2025-26).

▸ Income-tax Act, 2025 — Section 4 / 5 (successor) — applicable from 1-4-2026.

▸ Income-tax Act, 2025 — repeal-and-saving provision (section number to be confirmed on a final pass — preserves s. 4 (1961) for pending matters).

▸ Constitutional anchor — Article 265, Entry 82 of List I (Seventh Schedule).

▸ CBDT Circular No. 5 of 2024 — Reassessment transitional procedure (Ashish Agarwal / Rajeev Bansal compliance).

▸ GST Act — section 4 of 1961 Act is constitutionally distinct from GST levy (CGST / IGST / SGST / UTGST — Articles 246A, 269A, 270 framework).

CAUTION

This v3 file is the audit-corrected re-issue of the v2 (First Issue) draft of Section 4. Corrections are recorded here for the firm’s working version and are to be stripped before client issue. (a) Masthead caption updated from “as amended by the Finance Act, 2025” to “as amended by the Finance Act, 2026” per the FA 2026 overlay protocol; the Practitioner Edition tag has been left unchanged. (b) Block 1 reference note updated from FA 2025 to FA 2026 to match. (c) Block 2 right-hand column header updated to carry the Income-tax Act, 2025 Act-number citation (Act 30 of 2025). The earlier project material that referred to the 2025 Act as “Act 7 of 2025” was inverted: Act 7 of 2025 is the Finance Act, 2025, and the Income-tax Act, 2025 is Act 30 of 2025. (d) Block 2 last row, the Architecture-row 18, the historical-context paragraph, the amendment-trail last bullet, and the cross-references final bullet previously cited “section 536” of the 2025 Act as the repeal-and-saving provision; the precise 2025-Act section number for the repeal-and-saving provision has not been verified from the printed gazette in this session and the references have been softened to the generic “repeal-and-saving provision” pending a final pass against the gazette of Act 30 of 2025. (e) Block 2 last row also previously described the Finance Act, 2026 as “anticipated”; corrected to enacted status (Act 4 of 2026, assented 30 March 2026). (f) Direct quotations within quotation marks from Mathuram Agrawal, Vatika Township, K.P. Varghese, B.C. Srinivasa Setty, Excel Industries, Vodafone International, and Azadi Bachao Andolan have all been paraphrased and the quotation marks removed, since the exact text has not been verified against the printed ITR / SCC / AIR report in this session. The case citations themselves, the holdings, and the relevance notes are retained; only the quotation-mark renderings have been replaced with paraphrased prose. (g) Illustration 1 stated the assessee A’s age as 62 years and applied the slab regime with a basic exemption of Rs 2,50,000; for a resident individual of 60 years or above the old-regime basic exemption is Rs 3,00,000 (senior citizen) or Rs 5,00,000 (super-senior, 80+), and the slab computation as shown would understate the basic exemption. The fact pattern has been corrected by stating A as “below 60 years of age”, which makes the Rs 2,50,000 basic exemption consistent with the slab working. (h) Procedure step 2 previously described Finance Act, 2026 as “anticipated April 2026”; updated to reflect enacted status. (i) A new bullet has been inserted in the Finance Act amendment timeline carrying the mandatory FA 2026 closing sentence: Finance Act, 2026 (Act 4 of 2026) — no amendment to section 4 of the 1961 Act. (j) All five illustrations have been advanced from AY 2025-26 (PY 2024-25) to AY 2026-27 (PY 2025-26). Illustration 1 (old regime) retains its arithmetic since the old-regime slabs and the section 87A old-regime rebate are unchanged for AY 2026-27. Illustration 2 (new regime, section 115BAC) has been recomputed against the verified AY 2026-27 slabs in section 115BAC(1A)(iii) (inserted by the Finance Act, 2025 (Act 7 of 2025), w.e.f. 1-4-2026): 0\u20134L Nil; 4\u20138L 5%; 8\u201312L 10%; 12\u201316L 15%; 16\u201320L 20%; 20\u201324L 25%; above 24L 30%. On total income of Rs 18,00,000 the recomputed income-tax is Rs 1,60,000; HEC at 4% is Rs 6,400; total tax payable is Rs 1,66,400 (against Rs 2,39,200 in the earlier AY 2025-26 working). The saving over the old-regime working in Illustration 1 (Rs 3,66,600) is Rs 2,00,200. Section 87A rebate does not apply at Rs 18L total income, since the post-FA-2025 first-proviso threshold is Rs 12,00,000. Illustration 3 (section 115BAA domestic company) retains its arithmetic since the 22% concessional rate, the 10% surcharge and the 4% HEC are unchanged. Illustrations 4 and 5 retain their reasoning and arithmetic with PY/AY labels updated. (k) Illustration 2 facts carry a forward-looking caveat that the standard deduction of Rs 75,000 under the first proviso to section 16(ia) is, on the current gazette text, tied to clause (ii) of section 115BAC(1A) (AY 2025-26); whether the proviso has been extended to clause (iii) of section 115BAC(1A) (AY 2026-27 onwards) is to be verified against the FA 2025 amendments to section 16 on a final pass; the working in Illustration 2 does not apply the standard deduction arithmetically, taking Rs 18L as total income directly. No visual or styling change has been made anywhere in the file: every font, shade, border, table-cell dimension, indent, spacing instruction and illustration-boxing convention is preserved exactly as the original Cowork draft set them.