# Charging Section [Section 4]

Section 4 is the section that actually levies income tax. Three questions answer it: at what rate, on whom, and on what amount.

## 1. Rate of tax

Tax is charged at the rates fixed by the Annual Finance Act, or by the Income-tax Act itself, or both.

## 2. Scope — "on whom"

Tax applies to every "person" as defined in Section 2(31):

## 3. Amount liable — "on what"

Tax is charged on the Total Income earned during the Previous Year (PY) — not the Assessment Year (AY).

### Exception — taxed in the year of earning itself

In certain cases income of the PY is taxed in the same year (not deferred to the AY) under:

Section 172 – shipping business of non-residents
Section 174 – persons leaving India
Section 174A – AOP/BOI/artificial juridical person formed for a particular event/purpose
Section 175 – persons likely to transfer property to avoid tax
Section 176 – discontinued business

> Core principle: Income of the PY is taxed in the AY, except in the five accelerated-assessment cases above.

⚠️ Common exam mistakes

Saying tax is charged on the income of the Assessment Year — it is charged on the income of the Previous Year (assessed in the AY).
Forgetting the five exception sections (172, 174, 174A, 175, 176) where PY income is taxed within the same year.

Reference: Section 4

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