Section 3 and 4 Income Tax Act: Tax Year and Charge of Income Tax
Section 3 and Section 4 explain the period for which income is considered and the basic statutory charge of income tax. From 1 April 2026, the Income-tax Act, 2025 applies to Tax Year 2026-27 onward, while the Income-tax Act, 1961 continues to matter for earlier assessment years and matters preserved by the transition provisions.
Updated: 27 September 2026
Section 3 of the Income-tax Act, 2025: Definition of tax year
Section 3 of the Income-tax Act, 2025 defines the expression tax year. A tax year is ordinarily the twelve-month period of the financial year beginning on 1 April.
In practical terms: Tax Year 2026-27 runs from 1 April 2026 to 31 March 2027.
Where a business or profession is newly set up, or a new source of income comes into existence during a financial year, the tax year begins on the date the business or profession is set up or the source comes into existence and ends with that financial year.
Official text: Income Tax Department - Section 3, Income-tax Act, 2025.
Section 4 of the Income-tax Act, 2025: Charge of income tax
Section 4 is the basic charging provision under the Income-tax Act, 2025. Where a Central Act provides the rate or rates of income tax for a tax year, tax is charged at those rates in accordance with and subject to the provisions of the Income-tax Act, 2025.
The charge is on the total income of the tax year of every person, as determined under the Act. The section also recognises additional income tax where imposed by the Act, permits tax to be charged for another period where a specific provision so requires, and provides for deduction or collection of tax at source or payment of advance tax where applicable.
Official text: Income Tax Department - Section 4, Income-tax Act, 2025.
How the 1961 Act treated previous year and charge of income tax
Section 3 of the Income-tax Act, 1961: Previous year
Under Section 3 of the Income-tax Act, 1961, previous year generally meant the financial year immediately preceding the assessment year. For a newly set-up business or profession, or a source of income newly coming into existence during that financial year, the previous year began on the relevant date of setting up or commencement of the source and ended with that financial year.
Section 4 of the Income-tax Act, 1961: Charge of income tax
Section 4 of the 1961 Act provided the basic charge of income tax. Where a Central Act enacted that income tax was to be charged for an assessment year at specified rates, tax was charged at those rates, subject to the provisions of the 1961 Act, on the total income of the previous year of every person. It also provided for cases where tax was charged for a period other than the previous year and for deduction of tax at source or payment of advance tax where required.
Previous year, assessment year and tax year: key difference
| Concept | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Income earning period | Previous year | Tax year |
| Ordinary duration | Financial year immediately preceding the assessment year | Financial year beginning on 1 April |
| Separate assessment-year terminology | Yes | No separate assessment year concept for Tax Year 2026-27 onward |
| New business or new source | Period begins from setting up or emergence of the source and ends with the financial year | Tax year similarly begins from setting up or emergence of the source and ends with the financial year |
Which Act applies in 2026?
For income of Financial Year 2025-26, assessed as Assessment Year 2026-27, the Income-tax Act, 1961 continues to apply. For income arising in Financial Year 2026-27, the applicable framework is the Income-tax Act, 2025 and the period is called Tax Year 2026-27. Earlier assessments, appeals, reassessments and other proceedings may continue under the 1961 Act where preserved by the transition and savings provisions.
Why Sections 3 and 4 matter
These provisions establish two foundational questions in income tax law: which period is being taxed and under what statutory authority income tax is charged. Other provisions then determine the scope of total income, computation under different heads, deductions, special rates, withholding, advance tax and procedural requirements.
Official resources
For current law and transition guidance, refer to the Income-tax Act, 2025 resources and the Income Tax Department help centre for the Income-tax Act, 2025. For older periods, use the official Income Tax Department resources for the Income-tax Act, 1961.