Session-3, Basis of charge

ByB.Pani

M.Com,LLB,FCA,FICWA,ACS,DISA,MBA

• Income tax shall be charged for any assessment year at the prescribed rate in respect of the total income of the previous year.

Total Income (Resident)

• Received or deemed to be received in India by or on behalf of such person.

• Accrues or arises or deemed to accrue or arise in India

• Accrues or arise to him outside India

Total Income (Non-Resident)

• Received or deemed to be received in India by or on behalf of such person.

• Accrues or arises or deemed to accrue or arise in India

Overview of Income-tax Act,1961

TAXATION IN INDIADeterminants of taxation of an individual in

India

Source of income

Residential status

Place of receipt of income

Not ordinarily resident (‘NOR’)

Non-resident (‘NR’)

Resident

Overview of Income-tax Act,1961

SCOPE OF TAXABLE INCOME

Not ordinarily resident (‘NOR’)

Scope of taxable income

ResidentNon-resident

(‘NR’)

• Worldwide income

• Income received in India

• Income sourced from India

• Income from business controlled from India

• Income received in India

• Income sourced from India

Resident• He is in India for more than 182 days or more

during the year.• Being in India for 365 days or more during the

preceding four years and more than sixty days in that year

• For a person who leaves India for the purpose of employment or as a member of crew of an Indian ship or a person of Indian origin being outside India he has to be in India for 182 days in that year and 365 days in preceding four years to be considered as Resident.

Not Ordinarily Resident

• An individual who has been non-resident nine out of ten previous years preceding that year.

• During the seven years preceding that year he has been India for a period of 729 days or less.

• A HUF whose manager satisfies the conditions as above

Overview of Income-tax Act,1961

DETERMINING RESIDENCY IN INDIAIndividual

Stay in India >= 60* days in the FY and >= 365

days in the aggregate in

the last 4 FYs

Non-resident

Not ordinarily resident

Yes

Yes No

Yes

Yes

No

Resident

Basic conditions

Stay in India >= 182 days in the

FY

Additional conditions

Aggregate stay in India during the previous 7

FYs < 730 days

Non-resident in 9 out of 10

previous FY

No

No

No

* Stands changed to 182 days in case of a citizen of India who leaves India for employment abroad and in case of a citizen of India or a person of Indian origin who comes on a visit to India from abroad in the year of leaving / coming into India

Example

• Mr Lee a Korean citizen leaves India after a period of 10 years stay on 1/6/2006.During the financial year 2007-08 he comes to India for a period of 46 days.Later he returns to India for good on 10/10/2008.Determine his residential status for the assessment year 2009-10.Will your answer be different if his date of departure was 15/05/2006

Answer• His stay in India is for 173 days during 2008-09• He has stayed for more than 60 days during the

year 2008-09 and stayed for more than 365 days during the preceding four financial years

• He is satisfying the 2nd basic condition therefore a resident

• He was resident in 9 out of 10 preceding previous years and was staying for more than 729 days during the preceding 7 financial years therefore “Resident and ordinarily Resident”

Date of departure 15/05/06

• 2006-07 Stay for 45 days non-resident• 2007-08 stay for 46 days non-resident• 8 out of 10 years he is resident• He has stayed for more than 729 days during 7

preceding previous yearsTherefore he is a “Resident and ordinarily

Resident”

Example• Suresh furnishes the information about his

period of stay in India which is as below1998-99-365 days 2004-05-178 days1999-00-366 days 2005-06-65 days2000-01-365 days 2006-07-62 days2001-02-110 days 2007-08-70 days2002-03-75 days 2008-09-100 days2003-04-67 daysDetermine the residential status for the year

2009-10

Answer• Suresh stayed for 100 days during the previous year

2008-09 and 375 days during the preceding four financial year. Therefore a resident satisfying the second basic condition

• He is resident in all 10 financial years by fulfilling the 1st basic condition for the first three years and 2nd basic condition for other seven years

• However Suresh fulfils the 2nd additional condition of staying 729 days or less during the 7 financial years(627 days)

• Therefore he is “Resident but not ordinarily Resident”

Tax Planning Hints

• Person leaving India for employment abroad can leave the country on or before 28th September to attain the status of non-resident so that his foreign income will not be taxed in India.

• Person visiting India should ensure that his stay in India does not exceed 181 days in any financial year. If he has to stay for more than 181 days at a stretch, it should be distributed to two financial years

Example

• Mr Bill a British national comes to India for the first time during the year 2004-05. His stay periods in India are as below

2004-05- 55 days2005-06 -60 days2006-07-80days2007-08-160 days2008-09- 70daysResidential Status for AY 2009-10 ?

Answer

• Non-resident• Didn’t stay for 182 days during the year 2008-

09• Having stayed for more than 60 Days(Actual

stay 70 days) during the year 2008-09, he has stayed only for 355 days during the preceding four financial years

• A HUF ,Firm or other Association of Person is said to be resident in India in every case except where during any year the control and management of its affairs is situated wholly outside India.

• A company is said to be resident in India if it is an Indian Company or during the year the control and management of its affairs is situated wholly in India.

• Every other person is said to be resident in India except where the control and management of affairs is situated wholly outside India.

Income deemed to be received

• Any accretion to the balance at the credit of an employee participating in a recognised provident fund

i) Employer’s contribution in excess of 12% of salary

ii) Interest payment in excess of 8.5%• The contribution made by Central Govt or any

other employer to the account of any employee under the pension scheme

Dividend Income

• Any dividend declared, distributed or paid• Interim dividend shall be deemed to be the

income of previous year in which the amount of such dividend is unconditionally made available by the company.

• Dividend income declared by companies shall be exempt in the hands of shareholders. Domestic company is liable for payment of Dividend Distribution Tax.

Income deem to accrue or arise in India

• All income accruing or arising whether directly or indirectly through business connection, property, asset or source of income in India.

• Income which falls under the head “Salaries” if it is earned in India.

• Income chargeable under the head “Salaries” payable by Govt to a citizen of India for service outside India.

• Dividend paid by an Indian Company outside India.

• Income by way of interest payable by the Government, person who is resident except in cases where the debt is for a business outside India and person who is non-resident but debt is incurred for a business carried on in India.

• Income by way of royalty payable by the Government, person who is resident except in cases where the property or right is used for a business outside India and person who is non-resident but property or right is used for a business carried on in India.

• Income by way of fees for technical services payable by the Government, person who is resident except in cases where the fees are for a business outside India and person who is non-resident but fees are incurred for a business carried on in India.

Example

• Kamlesh living in UK has let out his property to Mr Rich for US$ 10000 PM payable at UK.

• Ans- It will be income deemed to accrue or arise in India and will be subject to tax in India.

Example

• Mr Nair a non-resident residing in Dubai has transferred his house property situated in Bangalore to Mr Woon of Korea for a sum of US$ 200 000

• Ans- The capital gain will be taxed in India as it is deemed to accrue or arise in India.

Thank you