BCOC-136 INCOME TAX LAW AND PRACTICE UNIT-3 RESIDENTIAL STATUS AND TAX LIABILITY:

 

BCOC-136 INCOME TAX LAW AND PRACTICE 

UNIT-3 RESIDENTIAL STATUS AND TAX LIABILITY:

The tax liability of a person is determined based on his residence in India in the previous year. The resident status of assessee may not necessarily be the same in each year , he may be resident in one year and a non-resident in the next year.

CATEGORIES OF RESIDENTIAL STATUS:

a. Person who are ordinarily resident in India
b. Person who are not ordinarily resident in India c. Person who are non-residents in India

For the purpose of determining the rules applicable in the regard the assesees are divided in to 4 groups :

1. Individuals

2. Non-company plural entities (HUF, firms or other

   association of persons)

3. Companies

4. Every other person

RULES FOR DETERMINING THE RESIDENTIAL STATUS:-

1. Individual :-
a. Resident and ordinarily resident: an individual shall

be considered as Resident in India if he shall fulfill at least one basic condition and both additional conditions

         Conditions of Part1 or basic condition:

• He must be physically present in India for period of 182 dys or more during the relevant previous year or

• He must be in India for period of 60 days(182days in some special circumstances) or more during the relevant previous year 365 days or more for 4 years immediately preceding the relevant previous year

  Exception to the Basic Conditions:

• Incase individual being citizen of India ,if leavesIndia

  during previous year as a member of the crew of an Indian ship or for the purpose of employment outside of India , he shall fulfill the basic condition no2 only where he is in India at least 182 days instead of 60 days

• If the person citizen of India and he is al ready outside of India and comes on a visit during the previous year he shall fulfill the basic condition no2 only when he is in India for at least 182 days instead of 60

  Condition of Part 2 or Additional Conditions:

• If he has be e resident In India for at. least 2out of the10

  years preceding previous year

• He has been in India for period of periods amounting in all

  to 730 days or more during 7 previous year preceding the previous year

  2. Not Ordinarily-Resident :
     If an individual satisfies anyone of the two conditions of part1 or Basic condition but doesn’t satisfy the both condition or fulfill one conditions of Part2 or Additional condition are called Not ordinarily Resident

  3. Non-Resident:

If an Individual does not satisfy anyone of the Basic condition in the previous year .

NON-COMPANY PLURAL ENITIES: HINDU UNDIVIDED FAMILY:

1. Ordinary Resident:

   • If the control and management of its affairs is wholly

     or partly situated in India in during the previous year

   • If the manager(Karta)resident in Indiain 2outof10

     previous year

   • And manager has during 7years preceding that year

     been in India for a period amounting in all 730 days

     and more

2. Not Ordinary Resident:

   The manager doesn’t satisfy the additional condition

3. Non- Resident:

   If the management wholly or partly situated in outside of India during previous year

FIRMS AND OTHER ASSOCIATION OF PERSONS:

1. Resident: in a previous year the control and management wholly or partially situated in India

2. Non-Resident :- during the previous year the control and management of its affairs wholly or partially situated outside of India

RESIDENT STATUS OF A COMPANY:

A company is resident when
• It is an Indian company
• The company is foreign company, its Place Of

Effective Management(POEM)in the year in India
A company said to be non-resident in any previous year if:

• Its not an Indian company 

• POEM not in India

ANY OTHER PERSON:

1. Resident: in previous year if the control and management of its affairs is partially or wholly situated in India

2. Non-Resident: in previous year if the control and

   management of its affairs is partially or wholly situated in outside India

SCOPE OF TOTAL INCOME ON THE BASIS OF RESIDENCE;

1. Resident and Ordinarily Resident
- Income received or deemed to be received in India:- Taxable in India, irrespective of whether it accrues or arises in India or elsewhere.
- Income accruing or arising in India: Taxable in India.
- Income accruing or arising outside India:- Taxable in India.

2 Non-Resident
- Income received or deemed to be received in India:- Taxable in India.
- Income accruing or arising in India:- Taxable in India.
- income accruing or arising outside India:- Not taxable in India.

3 Not Ordinarily Resident

- Income received or deemed to be received in India: Taxable in India.
- Income accruing or arising in India: Taxable in India.

- income accruing or arising outside India: Taxable only if derived from a business controlled in or a profession set up in India.

KINDS OF INCOME:

1 Income Received in India
- Any income received in India during the previous year is taxable.
- Receipt of income refers to control over the income, not necessarily cash.
- Non-residents' foreign income is not taxable unless received in India.

.2 Income Deemed to be Received in India
- Pension contributions by central government:- Under section 80CCD.
- Employer contributions to recognized provident fund:- If exceeds 12% of salary.
- Interest credited to recognized provident fund:- If exceeds 9.5% p.a.
- Transferred balances from unrecognized provident funds: Considered received income.

3 Incomes Accruing or Arising in India
- Income is considered received when the right to receive it arises.
- It is taxed based on the method of accounting showing it as profit or gain.

4 Income Deemed to Accrue or Arise in India

- Business connections: Income from business connections in India.
- Property, asset, or source of income:-Income from assets situated in India.

- Interest, royalty, or technical fees:- If paid by the Government, a resident for business purposes, or a non-resident for business carried out in India.