Basis of Charge - Sections 4 & 5 | Residential Status & Scope of Total Income

Key Takeaways

• Section 4 is the charging section that imposes income tax on every person's total income of the tax year at prescribed rates.
• Residential status (ROR, RNOR, or NR) determines which income is taxable in India - not citizenship or domicile.
• Section 5 defines the scope of total income differently for residents and non-residents.
• A person can be resident in India for one tax year and non-resident for another - status is determined year by year.
• Income deemed to accrue or arise in India under Section 9 is always taxable regardless of residential status.

What is the Basis of Charge? (Section 4)

Section 4 of the Income Tax Act, 2025 is the charging section. It provides the legislative authority to levy income tax. The section states that income tax shall be charged for any tax year at the rates laid down by the relevant Finance Act, on the total income of the tax year of every person.

Key elements of Section 4:

• Every person includes individuals, HUF, firms, companies, AOP, BOI, local authorities, and artificial juridical persons.
• Total income is computed in accordance with the provisions of the Act.
• Tax Year is the financial year (e.g., FY 2025-26 is the tax year for which income is returned and assessed).
• Rates are prescribed by the annual Finance Act.

Residential Status - The Gateway to Taxability

Before computing total income, the residential status must be determined under Sections 6, 6A, and 6B. There are three categories:

For Individuals

| Status | Basic Condition (Sec 6(1)) | Additional Conditions (Sec 6(6)) | |--------|---------------------------|----------------------------------| | Resident & Ordinarily Resident (ROR) | Present in India for 182+ days in tax year; OR 60+ days in tax year and 365+ days in preceding 4 tax years | Resident in at least 2 of the 10 preceding tax years AND present in India for 730+ days in 7 preceding tax years | | Resident but Not Ordinarily Resident (RNOR) | Meets basic condition | Does NOT meet both additional conditions | | Non-Resident (NR) | Does NOT meet any basic condition | Not applicable |

Special rule: For Indian citizens leaving India for employment abroad or as crew of an Indian ship, the 60-day threshold is replaced by 182 days. For Indian citizens/PIOs visiting India, the threshold is 120 days (if total income other than foreign sources exceeds Rs. 15 lakhs).

Scope of Total Income (Section 5)

| Source of Income | ROR | RNOR | NR | |-----------------|-----|------|-----| | Income received or deemed to be received in India | Taxable | Taxable | Taxable | | Income accruing or arising in India | Taxable | Taxable | Taxable | | Income accruing outside India from a business controlled from India | Taxable | Taxable | Not Taxable | | Income accruing outside India (other cases) | Taxable | Not Taxable | Not Taxable |

Landmark Judgement

Worked Example

Mr. Arjun, an Indian citizen, provides the following details for Tax Year 2025-26:

| Particulars | Amount (Rs.) | |------------|-------------| | Salary received in India from Indian employer | 12,00,000 | | Rental income from property in London | 4,80,000 | | Interest on UK bank deposits (not remitted to India) | 1,20,000 | | Capital gains on sale of shares in USA (not remitted) | 2,50,000 |

Stay in India: 100 days in Tax Year 2025-26; 400 days in the preceding 4 tax years. Resident in India in 5 of the preceding 10 tax years. Total stay in preceding 7 tax years: 800 days.

Step 1 - Determine Residential Status:

• Basic condition: 100 days (< 182) but 100 days (> 60) + 400 days (> 365) in preceding 4 tax years = Resident
• Additional conditions: Resident in 5 of 10 tax years (Yes) + 800 days in 7 tax years (> 730) = Both met = ROR

Step 2 - Compute Total Income (ROR - All worldwide income taxable):

| Income | Amount (Rs.) | |--------|-------------| | Salary in India | 12,00,000 | | London rental income | 4,80,000 | | UK bank interest | 1,20,000 | | US capital gains | 2,50,000 | | Total Income | 20,50,000 |

Had Mr. Arjun been RNOR, his UK interest and US capital gains (Rs. 3,70,000) would not be taxable as they accrue outside India from non-Indian business/profession.

Expert Tip

Section Interconnect

• Also read: Chapter 2 - Exempt Incomes under Section 11 + Schedule II (certain incomes are exempt regardless of residential status)
• Also read: Chapter 8 - Set Off and Carry Forward of Losses (losses from foreign sources have special rules for RNOR/NR)

Frequently Asked Questions

Q1: Can a person be resident of India and another country simultaneously?

Yes. India follows a unilateral system where residential status is determined solely by Indian law under Section 6 of the Income Tax Act, 2025. A person can be a tax resident in both India and another country. In such cases, the Double Taxation Avoidance Agreement (DTAA) tie-breaker rules under the relevant treaty determine the country of residence for treaty purposes.

Q2: If I stay in India for exactly 182 days, am I a resident?

Yes. Section 6(1)(a) of the Income Tax Act, 2025 uses the expression "182 days or more." Therefore, a stay of exactly 182 days satisfies the basic condition, and you will be treated as a resident (subject to additional conditions for ROR/RNOR classification).

Q3: Is OCI (Overseas Citizen of India) status relevant for determining residential status?

No. The Income Tax Act, 2025 does not distinguish between OCI, PIO, or foreign nationals. Residential status depends solely on physical presence in India and the conditions under Section 6. However, Indian citizens and PIOs get the benefit of the extended 120-day/182-day threshold under certain conditions.

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