Preliminary & Basis of Charge
The first step in understanding the Income-tax Act, 2025 is to understand who is taxable, what income is taxable, when income becomes taxable and how residential status affects taxation.
Sections 2, 4, 5, 6, 9 and 11 provide an important foundation for understanding the working of the new Income-tax Act. The Act applies from 1 April 2026, and the new concept of “Tax Year” replaces the earlier “Previous Year” terminology.
U/s 2 – Definitions
“Definitions.”
Section 2 contains the important definitions used throughout the Income-tax Act, 2025.
It defines several commonly used terms such as assessee, assessment, business, capital asset, income, person, non-resident, tax, transfer, virtual digital asset and many other expressions.
For example, the definition of “person” covers an individual, Hindu undivided family, company, firm, association of persons or body of individuals, local authority and artificial juridical person.
Similarly, the meaning of “income” is wide and includes items such as profits and gains, dividend, certain benefits or perquisites, capital gains and specified winnings.
Why U/s 2 is important
Section 2 should be read whenever a particular word used in another section is not clear.
Student tip: Do not assume the ordinary meaning of a word. If the Income-tax Act specifically defines that word, the statutory definition should normally be referred to first.
The new Act also contains updated terminology and definitions, including provisions relating to digital assets and crypto-assets.
U/s 4 – Charge of Income-tax
“Charge of income-tax.”
Section 4 is the basic charging provision of the Income-tax Act, 2025.
In simple terms, income-tax is charged on the total income of a person for the tax year, at the rate or rates provided for that tax year by the relevant Central Act and subject to the provisions of the Income-tax Act, 2025.
This section is important because it establishes the basic legal basis for imposing income-tax.
Important change in the new Act
Under the Income-tax Act, 1961, the charging provision referred to the “previous year” and “assessment year.”
Under the Income-tax Act, 2025, the charging framework uses the term “tax year”, and the separate assessment-year terminology has been discontinued.
Easy example:
Income earned during Tax Year 2026-27 is income of that tax year. The tax liability is determined under the provisions applicable to that tax year.
U/s 5 – Scope of Total Income
“Scope of total income.”
Section 5 explains which income is included in the total income of a person depending upon whether the person is resident or non-resident.
For a resident, total income generally includes:
• income received or deemed to be received in India;
• income accruing or arising or deemed to accrue or arise in India; and
• subject to the special rule for a person who is not ordinarily resident, certain income accruing or arising outside India.
For a non-resident, total income generally includes income received or deemed to be received in India and income accruing or arising or deemed to accrue or arise in India.
Income arising outside India does not become Indian income merely because it is recorded in a balance sheet prepared in India.
Why U/s 5 matters
Section 5 is particularly important for understanding the difference between:
Resident → wider scope of taxable income
Non-resident → generally India-linked income
Therefore, residential status under Section 6 should normally be considered along with Section 5.
U/s 6 – Residence in India
“Residence in India.”
Section 6 determines the residential status of a person for a tax year.
For an individual, the basic test is whether the individual:
1. stays in India for 182 days or more during the tax year; or
2. stays in India for 60 days or more during the tax year and 365 days or more during the four preceding tax years, subject to the exceptions provided in the section.
There are special rules for:
• Indian citizens leaving India for employment outside India;
• members of the crew of an Indian ship;
• Indian citizens or persons of Indian origin visiting India;
• certain individuals having total income exceeding ₹15 lakh;
• deemed residency; and
• determination of Resident but Not Ordinarily Resident (RNOR) status.
Deemed resident
Section 6 also provides a deemed-resident rule for an Indian citizen who:
• has total income exceeding ₹15 lakh, excluding income from foreign sources; and
• is not liable to tax in any other country or territory because of domicile, residence or similar criteria.
Residential status is not the same as citizenship.
A person may be an Indian citizen but may be non-resident for a particular tax year depending upon the conditions of Section 6.
Residential status is important because it directly affects the scope of total income under Section 5.
U/s 9 – Income Deemed to Accrue or Arise in India
“Income deemed to accrue or arise in India.”
Section 9 is especially important in cases involving non-residents and cross-border transactions.
The section provides that specified income shall be deemed to accrue or arise in India.
This includes income connected with:
• an asset or source of income in India;
• property in India;
• business connection in India;
• transfer of a capital asset situated in India;
• salary earned in India in specified circumstances;
• dividend paid by an Indian company;
• specified interest;
• royalty; and
• fees for technical services.
The section also contains provisions dealing with business connection and significant economic presence (SEP) of a non-resident.
Simple example
Suppose a non-resident earns income from a property situated in India.
Even though the recipient is outside India, the income may be deemed to accrue or arise in India under Section 9.
Therefore, Section 9 works together with Section 5 when determining whether income of a non-resident falls within the Indian tax net.
U/s 11 – Incomes Not Included in Total Income
“Incomes not included in total income.”
Section 11 provides the framework for income which is not included in total income, subject to the conditions specified in the relevant Schedules.
Under Section 11(1), specified income mentioned in Schedules II, III, IV, V and VI is not included in total income where the prescribed conditions are fulfilled.
If the conditions are not satisfied, the relevant income may become taxable.
Section 11 also refers to Schedule VII, under which specified persons may not be chargeable to tax subject to fulfilment of the prescribed conditions.
Important point for students
Do not simply remember:
“Section 11 = Exempt Income.”
A better way to understand it is:
Section 11 + relevant Schedule + conditions = treatment of income not included in total income.
This is an important structural change in presentation compared with the familiar Section 10 framework of the Income-tax Act, 1961.
Important Highlights – Quick Revision
U/s 2 → Definitions
Understand the meaning of important terms used throughout the Act.
U/s 4 → Charge of Income-tax
Provides the basic charging provision for income-tax.
U/s 5 → Scope of Total Income
Determines what income is generally included for residents and non-residents.
U/s 6 → Residence in India
Determines residential status for a tax year.
U/s 9 → Income Deemed to Accrue or Arise in India
Important for India-linked income, particularly in non-resident and international transactions.
U/s 11 → Incomes Not Included in Total Income
Provides the framework for specified non-taxable income through the relevant Schedules.
Questions Should Remember
1. What is the difference between U/s 4 and U/s 5?
Section 4 creates the basic charge of income-tax.
Section 5 explains the scope of income that forms part of total income.
2. Why is Section 6 important?
Because residential status determines the scope of income that may be taxable in India.
3. Is every income earned outside India taxable in India?
No. The taxability of foreign income depends upon residential status and the specific provisions of the Act. Section 5 is particularly important for this analysis.
4. Why is Section 9 important for non-residents?
It identifies specified income which is deemed to accrue or arise in India even where the recipient is outside India.
5. Does Section 11 itself list every exempt income?
No. Section 11 provides the framework and refers to the specified Schedules containing the relevant income and conditions.
6. What is the major terminology change under the new Act?
The “Tax Year” concept replaces the earlier “Previous Year” terminology, and the separate “Assessment Year” concept has been discontinued under the new framework.
Disclaimer: This article is prepared for educational and study purposes. The applicable provisions of the Income-tax Act, 2025, Rules, notifications, circulars and amendments should be referred to for actual tax compliance or professional advice.