Section 4 of the Income Tax Act, 1961, lays the foundation of the Indian taxation system. It specifies the legal authority of the government to levy income tax on every person for a particular assessment year. This section clearly states that income tax shall be charged on the total income of the previous year at the rates prescribed by the Finance Act. It applies to all categories of taxpayers—individuals, Hindu Undivided Families (HUFs), firms, companies, associations of persons (AOPs), and others—ensuring that tax liability is determined in accordance with the provisions of the Act. Essentially, Section 4 acts as the charging section, making it the backbone of the income tax law in India.
(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person :
Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.
(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.