Section 4 of the I.T. Act is a charging section. Under this section the Income Tax is charged for any assessment year at the rates prescribed for that year in accordance with the provisions of the I.T. Act in respect of total income of the previous year of any person.

The previous year for the purpose of Income Tax Act would mean a financial year which ends on 31^st March of every year immediately preceding the assessment year.

The person has been defined to include:

i) an individual

ii) a Hindu Undivided Family (HUF)

iii) a company

iv) an association of persons or a body of individuals, whether incorporated or not,

v) a local authority, and every artificial juridical person, not falling within any of the preceding sub-clauses.

Income liable to tax For resident

The resident is charged to tax on all the incomes :-

(i) which is received or is deemed to be received in India

(ii) which accrues or arises or is deemed to accrue or arise in India, and

(iii) which accrues and arises outside India which means the world income is taxable in case of a resident

For resident but not ordinarily resident

Person who is resident but not ordinarily resident is liable to tax the same way as that of resident except that the income which accrues or arises outside India is not taxable in India unless it is derived from a business controlled in or a profession setup in India.

For non residents

In case of a non-resident the income received or deemed to be received in India or income accrues or arises or is deemed to accrue or arise in India only is taxable in India. Thus, the income accruing or arising outside India is not taxable in India.

The following income which might have been payable outside India are deemed to arise in India.

i) dividend paid by an Indian company to a non-resident.

Interest paid on moneys borrowed and brought into India, and

iii) royalty and technical services fees where the royalty is payable in respect of any right or fees are payable in respect of technical services used for business or profession in India which is exempt, if it is payable :

(a) through an agreement made before 1^st April, 1976 which is approved by the Central Government, and

(b) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer based equipment under approved specified scheme of the Government of India.

A person having been a non-resident for a continuous period of 2 years on his return, will remain "not ordinary resident" for all least for 8 subsequent years. A not ordinary resident person will have the advantage of both (1) he will be liable to pay income tax on his Indian income only and (2) his foreign income will be free from Indian income tax.