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LESSON 1
BASIC CONCEPTS
STRUCTURE OF THE CHAPTER
1.1 Objectives 1.2 Basics 1.3 Meaning of tax planning, tax avoidance, tax evasion and tax management 1.4 Definitions 1.5 Charge of income tax 1.6 Basic principles of income tax 1.7 Computation of total income 1.8 Computation of tax 1.9 Tax rates, rebate, surcharge and cess for the assessment year 201 8 - 19 1.10 Special rates of tax on certain incomes 1.11 Rounded off of income and tax 1.12 Miscellaneous provisions 1.13 Summary 1.1 Objectives The objective of this chapter is to make the students familiar with some basic concepts of taxation. After studying this chapter, students will be able to understand Finance Acts, Income-tax Act, Income-tax Rules, Notifications, Circulars, etc. Further, students will understand the concepts of tax planning, tax evasion, tax avoidance and tax management. 1.2 Basics Income tax in India is paid on the income earned. The provisions of computation of income are given in Income Tax Act, 1961. Rules to assist the provisions of the Act are given in Income Tax Rules 1962. To make changes in the Act or Rules, CBDT (Central Board of Direct Taxes) issues notifications time to time. Notifications are binding. Apart from notifications, CBDT issues circulars also. Circulars are basically for providing information to officers of Income Tax Department. Circulars are not compulsorily to be followed by people but notifications are compulsorily to be followed by people. Different court rulings on different provisions of the Act are also given by Income Tax Tribunals, High Courts and Supreme Court. All relevant information related to Income Tax Act is available on the following website of the Government of India: www.incometaxindia.gov.in In case of any clarification related to Income Tax Act, readers should always refer the website: www.incometaxindia.gov.in 1.3 Meaning of tax planning, tax avoidance, tax evasion and tax management Some of the important concepts of taxation are tax planning, tax avoidance, tax evasion and tax management which are explained below –
Tax Planning Tax planning can be defined as an arrangement of one’s financial and economic affairs by taking complete legitimate benefit of all deductions, exemptions, allowances and rebates so that tax liability reduces to minimum. The benefits arising from tax planning are substantial particularly in the long run. Tax Avoidance Tax avoidance is reducing or negating tax liability in legally permissible ways and has legal sanction. Tax avoidance is sound law and certainly not bad morality for anybody to so arrange his affairs in such a way that the brunt of taxation is the minimum. This can be done within the legal framework even by taking help of loopholes in the law. Tax avoidance is intentional tax planning before the actual tax liability arises. Tax Evasion All methods by which tax liability is illegally avoided are termed as tax evasion. Tax evasion may involve an untrue statement knowingly, submitting misleading documents, suppression of facts, not maintaining proper accounts of income earned (if required under law), omission of material facts on assessment. Tax evasion is intentional attempt to avoid payment of tax after the liability to tax has arisen. Tax Management Tax management relates to past (i.e., assessment proceedings, rectification, revision, appeals etc.), present (filing of return of income on time on the basis of updated records) and future (corrective action). 1.4 Definitions Section 2 of the Income-tax Act gives definitions. Some of the relevant definitions are given below – Income [Sec. 2(24)] This term has not been defined in the Income-tax Act, except that it states as to what is included in income. Under this section, income includes: ▪ profits and gains; ▪ dividend; ▪ the value of any perquisite or profits in lieu of salary taxable under the head 'salaries'; ▪ any special allowance or benefit, other than granted to the assessee to meet his expenses; ▪ any allowance granted to the assessee either to meet his personal expenses, e.g., City Compensatory Allowance; ▪ the value of any benefit or perquisite; ▪ any sum paid by any such company in respect of any obligation; ▪ any profits on sale of import license; ▪ cash assistance received or receivable under exports; ▪ any refundable custom duty or excise the value of any benefit or perquisite arising from business or exercise of profession; ▪ any capital gains. Person [Sec. 2(31)] The term “person” includes:
all sources of income. For newly set-up business or profession first previous year may be of less than 12 months. Exceptions to the general rule (i.e., when income of previous year is not taxable in the immediately following assessment year): The rule says the income of previous year is assessable as the income of the immediately following assessment year or in other words, it can be said that income of previous year is chargeable to tax in the next following assessment year. The above rule, however, has certain exceptions which are given below:
- Income of non-resident from shipping: Conditions to be satisfied: ▪ The assessee is a non-resident who owns a ship or ship is chartered by a non- resident. ▪ The ship carries passengers, livestock, mail or goods shipped at a port in India. ▪ The non-resident may (or may not) have an agent/ representative in India.
- Income of persons leaving India either permanently or for a long period of time;
- Income of association of persons or a body of individuals or artificial juridical persons formed for short duration;
- Income of a person trying to alienate his assets with a view to avoiding payment of tax; and
- Income of a discontinued business. In these cases, income of a previous year may be taxed as the income of the assessment year immediately preceding the normal assessment year. These exceptions have been incorporated in order to ensure smooth collection of income-tax from the aforesaid taxpayers who may not be traceable if tax assessment procedure is postponed till the commencement of the normal assessment. Assessment year [Sec. 2(9)] “Assessment year" means the period of twelve months commencing on the 1st^ day of April every year. The income earned during any year is taxable in the next year which starts from April 1. For example, income is earned during the year April 1, 201 7 to March 31, 201 8. It will be taxable in the next year which starts from April 1, 201 8 and ends on March 31, 201 9. Thus, the assessment year for the income earned during the year 201 7 - 18 is 201 8 - 19. Therefore, year 201 7 - 18 is known as previous year and year 201 8 - 19 is known as assessment year for the previous year 201 7 - 18. In simple words, it can be said that the year in which income is taxable is known as assessment year. For the previous year 201 7 - 18 , assessment year is 201 8 - 19. Maximum marginal rate [Sec. 2(29C)] Maximum marginal rate means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or body of individuals, as specified in the Finance Act of the relevant year. For instance, for the assessment year 201 8 - 19 , the maximum marginal rate of tax for an individual assessee is 3 5. 535 % (tax rate @ 30% + surcharge @ 1 5 % + cess @ 3%).
1.5 Charge of income tax Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate (or rates), income-tax at that rate (or those rates) shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every person. Finance Act gives the tax rates every year and all the amendments in the Income Tax Act. Finance Act becomes an Act from the Finance Bill. Finance bill is a Money bill and is presented in the Lok Sabha on February 1 of every year by the Finance Minister. For some days, discussion on Finance bill takes place in Lok Sabha and Rajya Sabha. After the Finance bill is passed by both Lok Sabha and Rajya Sabha and after the assent of the President, the Finance bill becomes Finance Act. Every Finance Act shows the proposals for the coming financial year. For instance, Finance Act 201 7 shows the proposals for 201 7 - 18 (i.e., April 1, 201 7 to March 31, 201 8 ). As far as tax rates are concerned, Part I of The First Schedule of the Finance Act 201 7 shows the tax rates for the financial year 201 6 - 17 and Part III of The First Schedule of the Finance Act 2017 shows the tax rates for the financial year 201 7 - 18. Similarly, Finance Act 201 8 shows the proposals for 201 8 - 19 (i.e., April 1, 201 8 to March 31, 201 9 ). As far as tax rates are concerned, Part I of The First Schedule of the Finance Act 2018 shows the tax rates for the financial year 201 7 - 18 and Part III of The First Schedule of the Finance Act 201 8 shows the tax rates for the financial year 201 8 - 19. Part III of The First Schedule of current year’s Finance Act becomes Part I of The First Schedule of next year’s Finance Act. For instance, Part III of The First Schedule of the Finance Act 201 7 becomes Part I of The First Schedule of the Finance Act 201 8. 1.6 Basic principles of income-tax Following are some basic principles of income-tax:
- Income tax is an annual tax on income.
- Tax rates are fixed by the annual Finance Act.
- Tax is charged on the total income of every person computed in accordance with the provisions of this Act.
- Income tax is to be deducted at source or paid in advance as provided under provisions of the Act.
- Total income is computed on the basis of residential status of the assessee.
Rs. 5,00,001 – Rs. 10,00,000 Rs. 10 ,000 + 20% of income exceeding Rs. 5,00, Above Rs. 10,00,000 Rs. 1, 1 0,000 + 30% of income exceeding Rs. 10,00, Situation 2: For a resident super senior citizen (who is 80 years or more at any time during the relevant previous year 201 7 - 18 ): Annual net taxable income Tax Up to Rs. 5,00,000 Nil Rs. 5,00,001 – Rs. 10,00,000 20% of income exceeding Rs. 5,00, Above Rs. 10,00,000 Rs. 1,00,000 + 30% of income exceeding Rs. 10,00, Situation 3: For any other resident individual (who is less than 60 years of age at any time during the relevant previous year 201 7 - 18 ), any non-resident individual , every HUF / AOP/ BOI/ artificial juridical person: Annual net taxable income Tax Up to Rs. 2,50,000 Nil Rs. 2,50,001 – Rs. 5,00,000 5 % of income exceeding Rs. 2,50, Rs. 5,00,001 – Rs. 10,00,000 Rs. 1 2, 50 0 + 20% of income exceeding Rs. 5,00, Above Rs. 10,00,000 Rs. 1, 12 , 5 00 + 30% of income exceeding Rs. 10,00, Tax Rates for “Firms” A firm is taxable at a flat rate of 30%. Tax Rates for “Companies” Company Tax Rate In the case of a domestic company:
- where its total turnover (or gross receipts) during the previous year 201 5 - 16 does not exceed Rs. 5 0 crore
- any other domestic company
In the case of a foreign company:
- Special royalty incomes
- Other income
Rebate of tax in case of certain individuals [Sec. 87A] This rebate is given to provide tax relief to individual taxpayers who are in lower income bracket. Any resident individual whose net taxable income (i.e., GTI minus deductions under section 80C to 80U) is Rs. 3,50,000 or less is entitled to claim rebate under section 87A which is 100% of income tax payable on total income or Rs. 2 , 5 00, whichever is less. This rebate is available from income tax (before adding surcharge and cess). Surcharge Assessee Rate An individual assessee:
- If net taxable income does not exceed Rs. 50 lakhs Any assessee (other than an individual assessee):
- If net taxable income does not exceed Rs. 1 crore Nil Nil
Individual:
- If net taxable income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore 10% Individual, HUF, AOP, BOI and Artificial juridical person:
- If net taxable income exceeds Rs. 1 crore 15% Firm:
- If net taxable income exceeds Rs. 1 crore 12% Domestic company:
- If net taxable income exceeds Rs. 1 crore but does not exceed Rs. 10 crore
- If net taxable income exceeds Rs. 10 crore
Foreign company:
- If net taxable income exceeds Rs. 1 crore but does not exceed Rs. 10 crore
- If net taxable income exceeds Rs. 10 crore
Marginal relief Surcharge is subject to marginal relief.
- In case of an individual assessee, if net income exceeds Rs. 50 lakhs, the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 50 lakhs by more than the amount of income that exceeds Rs. 50 lakhs.
- In case of any assessee, if net income exceeds Rs. 1 crore, the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
- In case of a company assessee, if net income exceeds Rs. 10 crore, the amount payable as income tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 10 crore by more than the amount of income that exceeds Rs. 10 crore. Education Cess (EC) 2% of (income tax after deducting rebate under section 87A and after adding surcharge) Secondary and Higher Education Cess (SHEC) 1% of (income tax after deducting rebate under section 87A and after adding surcharge) 1.10 Special rates of tax on certain incomes Some incomes under the Income Tax Act are taxable at special rates. While applying tax on these incomes, exemption slab applicable for an assessee is of no use. It means even if income of an individual assessee is less than Rs. 2,50,000 (i.e., exempted slab of an individual assessee who is less than 60 years of age) or Rs. 3,00,000 (i.e., exempted slab of a resident senior citizen who is less than 8 0 years of age but more than 60 years of age) or Rs. 5,00,000 (i.e., exempted slab of a resident super senior citizen who is 8 0 years or more of age), these incomes are taxable at flat rate given below –
- Long term capital gain is taxable at a flat rate of 20%.
- Short term capital gain covered under section 111A is taxable at a flat rate of 15%.
- Casual incomes (viz., gambling, lottery, betting, etc.) is taxable at a flat rate of 30%.
LESSON 2
AGRICULTURAL INCOME
STRUCTURE OF THE CHAPTER
2.1 Objectives 2.2 Definition of Agricultural income 2.3 Scheme of Partial Integration 2.4 Summary 2.5 Exercise 2.1 Objectives This chapter explains the provisions of Income Tax Act applicable for agricultural income earned by the assessees. 2.2 Definition of Agricultural income Agricultural Income [Sec. 2(1A)] “Agricultural income” means:
- Any rent or revenue derived from land which is situated in India and is used for agricultural purposes;
- Any income derived from land (which is situated in India and is used for agricultural purposes) by agricultural operations. Following are the three instances of this type of agricultural income: a. Any income derived by agriculture from land situated in India and used for agricultural purposes; b. Any income derived by a cultivator or receiver of rent-in-kind of any process ordinarily employed to render the produce raised or received by him to make it fit to be taken to market; or c. Any income derived by such land by the sale by a cultivator or receiver of rent-in- kind of the produce raised or received by him in respect of which no process has been performed other than a process of the nature described in (b).
- Income from farm building Note – Capital gain arising from the transfer of agricultural land shall not be treated as agricultural income.
Partly agricultural incomes: Income^1 Non - agricultural income Agricultural income Growing and manufacturing tea in India 40% 60% Sale of centrifuged latex or cenex or latex based crepes
Sale of coffee grown and cured by seller 25% 75% 2.3 Scheme of Partial Integration Agricultural income is totally exempt from tax. However, agricultural income is taken into consideration while computing the tax on non-agricultural income of an assessee. This is known as scheme of partial integration. The scheme of partial integration of non-agricultural income with agricultural income is applicable if the following conditions are satisfied:
- The taxpayer is an individual, a HUF, a body of individual, an association of persons or an artificial juridical person.
- The taxpayer has non-agricultural income exceeding the amount of exemption limit [i.e., Rs. 5,00,000 (in the case of a resident super senior citizen who is 80 years or more), Rs. 3,00,000 (in the case of a resident senior citizen who is 60 years or more), and Rs. 2,50,000 (in the case of any other individual or every HUF) for the relevant previous year].
- The agricultural income of the taxpayer exceeds Rs. 5,000. If the above conditions are satisfied, then the scheme of partial integration of tax on non- agricultural income with income derived from agriculture is applicable. It is to be noted that this scheme is NOT applicable in the case of a firm, company, co- operative society etc. Procedure of computing tax as per the scheme: Step 1: Net agricultural income is to be computed as if it were income chargeable to income-tax. Step 2: Agricultural and non-agricultural income of the assessee will then be aggregated and income-tax is calculated on the aggregate income as if such aggregate income were the total income. Step 3: The net agricultural income will then be increased by the amount of exemption limit (i.e., the first slab of income on which tax is charged at nil rate) and income-tax is calculated on net agricultural income, so increased, as if such income was the total income of the assessee. (^1) Income in respect of the business given above is, in the first instance, computed under the Act as if it were derived from business after making permissible deduction. 40% or 35% or 25% of the income so arrived at is treated as business income and the balance is treated as agricultural income. Salary and interest received by a partner from a firm is taxable only to the extent of 40% or 35% or 25% and the balance is treated as agricultural income.
Step 1: Net agricultural income is to be computed as if it were income chargeable to income- tax. Agricultural and non-agricultural income of the assessee will then be aggregated and income-tax is calculated on the aggregate income as if such aggregate income were the total income. Thus, total income including agricultural income is Rs. 14,41,000 (Rs. 3,10,000 + Rs. 11,31,000). Tax on Rs. 14,41,000 is Rs. 2,42,300 [1,10,000 + 30% (14,41,000 – 10,00,000)] Step 2: The net agricultural income will then be increased by the amount of exemption limit (i.e., the first slab of income on which tax is charged at nil rate) and income-tax is calculated on net agricultural income, so increased, as if such income was the total income of the assessee. Amount (Rs.) Agriculture income 11 ,31, Add: Exemption limit in case of resident senior citizen 3,00, Total 14,31, Tax on Rs. 14,31,000 is Rs. 2,39,300 [1,10,000 + 30% (14,31,000 – 10,00,000)] Step 3 : The amount of income-tax determined at step 1 will be reduced by the amount of income-tax determined under step 2 and find out the balance. Amount (Rs.) Tax in step 1 2,42, Add: Tax in step 2 2 , 39 , 300 Balance 3, Step 4: From the balance so arrived, give rebate under section 87A (if applicable), add surcharge and cess and deduct prepaid taxes (if any). This will be the total income-tax payable by the assessee. It is to be noted that for applicability of rebate and surcharge, non-agricultural income is considered. Amount (Rs.) Balance 3, Less: Rebate under section 87A 2, 500 Add: Cess @ 3% 15 Tax payable (Rounded off) 520 Note – It is assumed that policy is issued on or after April 1, 2012 and thus, maximum limit of deduction for life insurance premium is 20% of sum assured. Problem 2 – From the following information, calculate tax liability of X, a resident and ordinarily resident in India, for the assessment year 201 8 - 19 : Amount (Rs.) Income from house property 1,60, Income from growing and manufacturing tea in India 1,00, Share of profit from a firm carrying agricultural business in India 1,20, Donation to Prime Minister’s National Relief Fund 40,
Solution: Particulars Non-agricultural income (Rs.) Agricultural income (Rs.) Income from house property 1,60,000 ---- Tea business [40%; 60%] 40,000 60, Share of profit from firm [Exempt U/S 10(2A)] ---- ---- Gross total income 2,00,000 60, Less: Deduction U/S 80G 40,000 ---- Net taxable income 1,60,000 60, Here, tax liability is nil because scheme of partial integration is not applicable as non- agriculture income (i.e., Rs. 1,60,000) is less than the exemption limit of Rs. 2,50,000. Notes – In case of income related to growing and manufacturing tea in India, 40% income is treated as non-agriculture income and 60% is treated as agricultural income. Problem 3 – ‘X’ is a non-resident for 201 7 - 18. He earned the following incomes during the previous year in India: a. Net agricultural income: Rs. 5,40, b. Income from business: Rs. 3,00, c. Income from other sources: Rs. 2,60, He made the following donations during the previous year: a. Donations to Prime Minster Relief Fund: Rs. 20, b. Donation to Charitable Trust: Rs. 40, c. Donation to Delhi Government for promoting family planning: Rs. 30, Compute the tax liability of ‘X’ for the assessment year 201 8 - 19. Solution: Computation of taxable income of X for the assessment year 2018-19: Amount (Rs.) Business income 3,00,00 0 Income from other sources 2,60, Gross total income 5,60, Less: Deduction U/S 80G (W.N. – 1) 63, Net taxable income 4,97, Net agricultural income 5,40, In the present case, assessee is an individual whose non-agriculture income is more than the exemption limit of Rs. 2,50,000 and net agriculture income (i.e., Rs. 5,40,000) is more than Rs. 5,000. So, tax has to be computed as per the scheme of partial integration which is as follows – Step 1: Net agricultural income is to be computed as if it were income chargeable to income- tax. Agricultural and non-agricultural income of the assessee will then be aggregated and income-tax is calculated on the aggregate income as if such aggregate income were the total income. Thus, total income including agricultural income is Rs. 10,37,000 (Rs. 4,97,000 + Rs. 5,40,000).
Solution: Computation of taxable income of A for the assessment year 201 8 - 19 : Amount (Rs.) Gross total income 8,50, Less: Deduction U/S 80C 90, Net taxable income 7,60, Net agricultural income 4,00, In the present case, assessee is an individual whose non-agriculture income (i.e., Rs. 7,60,000) is more than the exemption limit of Rs. 3,00,000 (resident senior citizen) and net agriculture income (i.e., Rs. 4,00,000) is more than Rs. 5,000. So, tax has to be computed as per the scheme of partial integration which is as follows – Step 1: Net agricultural income is to be computed as if it were income chargeable to income- tax. Agricultural and non-agricultural income of the assessee will then be aggregated and income-tax is calculated on the aggregate income as if such aggregate income were the total income. Thus, total income including agricultural income is Rs. 11,60,000 (Rs. 7,60,000 + Rs. 4,00,000). Tax on Rs. 11,60,000 is Rs. 1,58,000 [1,10,000 + 30% (11,60,000 – 10,00,000)] Step 2: The net agricultural income will then be increased by the amount of exemption limit (i.e., the first slab of income on which tax is charged at nil rate) and income-tax is calculated on net agricultural income, so increased, as if such income was the total income of the assessee. Amount (Rs.) Agriculture income 4,00, Add: Exemption limit in case of non-resident 3 , 00 , Total 7,00, Tax on Rs. 7,00,000 is Rs. 50,000 [10,000 + 20% (7,00,000 – 5,00,000)] Step 3 : The amount of income-tax determined at step 1 will be reduced by the amount of income-tax determined under step 2 and find out the balance. Amount (Rs.) Tax in step 1 1,58, Add: Tax in step 2 50 , 000 Balance 1,08, Step 4: From the balance so arrived, give rebate under section 87A (if applicable), add surcharge and cess and deduct prepaid taxes (if any). This will be the total income-tax payable by the assessee. It is to be noted that for applicability of rebate and surcharge, non-agricultural income is considered. Amount (Rs.) Balance 1,08, Less: Rebate under section 87A Nil 1,08, Add: Cess @ 3% 3, Tax payable (Rounded off) 1,11, 240
Books recommended –
1. Singhania, V.K. and Singhania, Monica [2018], Students’ Guide to Income Tax _(University Edition), Taxmann Publications (P) Ltd.
- Ahuja, Girish and Gupta, Ravi [201 8 ], Simplified Approach to Income Tax_ (University Edition), Flair Publications Pvt. Ltd.
b. He is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year. Exceptions: In the following two situations, basic condition (b) is not applicable:
- An Indian citizen who leaves India during the previous year ▪ for the purpose of employment outside India; or ▪ as a member of crew of an Indian ship.
- An Indian citizen or a person of Indian origin who comes on a visit to India during the previous year. Additional conditions [Sec. 6(6)] a. He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year. b. He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year. How to determine the residential status of a HUF A Hindu undivided family (like an individual) is either resident in India or non-resident in India. A resident Hindu undivided family is either ordinarily resident or not ordinarily resident. Following are the rules to determine the residential status of a Hindu undivided family: a. A Hindu undivided family is said to be resident in India if control and management of its affairs are situated – ▪ Wholly in India or ▪ Partly in India and partly outside India It is to be noted that in order to determine whether a HUF is resident or non-resident, the residential status of the karta of the family during the previous year is not relevant. Residential status of the karta during the preceding years is considered for determining whether a resident HUF is “ordinarily resident” or not. A resident Hindu Undivided family is an ordinarily resident in India if karta or manager of the family satisfies the two additional conditions given above. However, if kata or manager of a resident HUF does not satisfy the two additional conditions, the family is treated as resident but not ordinarily resident in India. b. A Hindu undivided family is said to be non-resident in India if control and management of its affairs are situated wholly out of India. How to determine the residential status of a FIRM AND an ASSOCIATION OF PERSONS a. A partnership firm and an association of persons are said to be resident in India if control and management of their affairs, during the relevant previous year, are situated – ▪ Wholly in India or ▪ Partly in India and partly outside India
b. A partnership firm and an association of persons are said to be non-resident in India if control and management of their affairs, during the relevant previous year, are situated wholly out of India. How to determine the residential status of a COMPANY a. An Indian company is always resident in India. b. A foreign company is resident in India if its place of effective management (POEM), at any time during the previous year is in India. For this purpose, “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. How to determine the residential status of every OTHER PERSON a. Every other person is resident in India if control and management of its affairs, during the previous year, is situated – ▪ Wholly in India or ▪ Partly in India and partly outside India b. Every other person is non-resident in India if control and management of its affairs, during the previous year, is situated wholly out of India. 3.4 Relationship between residential status and incidence of tax As per section 5 of the Income Tax Act, incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income. Meaning of “INDIAN INCOME” Any of the following three is an Indian income:
- If income is received (or deemed to be received) in India during the previous year and at the same time it accrues or arises (or is deemed to accrue or arise) in India during the previous year.
- If income is received (or deemed to be received) in India during the previous year but it accrues or arises (or is deemed to accrue or arise) outside India during the previous year.
- If income is received outside India during the previous year but it accrues or arises (or is deemed to accrue or arise) in India during the previous year. Meaning of “FOREIGN INCOME” If the following two conditions are satisfied, then such income is “foreign income” –
- Income is not received (or not deemed to be received) in India and
- Income does not accrue or arise (or is deemed to accrue or arise) in India. Conclusions regarding taxability 1. Indian Income Indian income is always taxable in India irrespective of the residential status of the taxpayer. 2. Foreign Income Foreign income is taxable in the hands of resident (in case of a firm, an association of persons, a joint stock company and every other person) or resident and ordinarily
