Residential Status and tax incidence

• The following norms are necessary for deciding the residential status

• 1) Different taxable entities:

• An individual

• A Hindu Undivided Family

• A Firm or an association of persons or a body of Individuals

• A company and

• Every other person

Different kinds of residential status: Either Resident in India and Non Resident in India .(Individuals & HUF)

Different Residential status in respect of different previous years of the same assessment year not possible

Different RS for different Assessment years.

Resident in India and abroad.

Onus of proof.

Residential status of an individual• An Individual may be (a) resident and ordinary resident (b) resident but not

ordinarily resident or (c) non-resident. • First Find out the whether an individual is “resident and ordinarily resident” in

India.

• 1) Resident in India.: Under sec 6 (1) an individual is said to be resident in India in any previous year, if he satisfies at least one of the following conditions

• Condition 1---- HE IS IN INDIA IN THE PREVIOUS YEAR FOR A PERIOD OF 182 DAYS OR MORE.

• Condition 2----- HE IS 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.

• EXCEPTION to the rule::: • (1) An Indian Citizen who leaves India during the previous year for the purpose of

employment outside India or an Indian citizen who leaves India during the previous year as a member of the crew of an Indian ship.

• (2) Indian citizen of a person of Indian origin who comes on a visit during the previous year.

• Then … the above mentioned condition 2 ,, the period of 60 days will be extended to 182 days.

• Meaning of Employment outside India and a person of Indian Origin,

• Additional condition to test when a resident in Individual is ordinary resident in India.

• A person will be resident and ordinary resident in India if he satisfies the following conditions.

• 1) HE HAS BEEN RESIDENT IN INDIA AT LEAST 2 OUT OF 10 PREVIOUS YEARS IMMEDIATELY PRECEDING THE RELEVENT PREVIOUS YEAR.

• 2) HE HAS BEEN IN INDIA FOR APERIOD OF 730 DAYS OF MORE DURING 7 YEARS IMMEDIATELY PRECEDING THE RELEVENT PEVIOUS YEAR.

• While deciding the status, the following settled prepositions have to be borne in mind::

• Stay at the same place not necessary

• Stay in territorial waters

• Presence for a part of a day

• Resident but not ordinary resident::• An individual satisfying at least one of the basic conditions but not satisfying

the two additional conditions is treated as a resident but not ordinarily resident in India.

• Non Resident in India; An individual is a non resident in India if he satisfies none of the basic conditions. In case of non resident the additional condition is not required

• SUMS ON RESIDENTIAL STATUS OF INDIVIDUAL……

• Residential status of HUF sec.6 (2)

• AND discuss KARTA

• Residential status of the firm and association of persons Sec 6 (2)

• Residential status of company sec.6 (3)

• Relationship between residential status and incidence of tax. Sec (5)

• Under the Act, incidence of tax on a tax payer depends on his residential status and place and time of accrual or receipt of income.

• Indian income and foreign income:

• Indian income: any of the following three is an Indian Income

• 1) If income is received (or deemed to be received ) in India during the PY and at the same time it accrues (or arise or is deemed to accrue or arise) in India during the PY.

• 2) If income is received (or deemed to be received ) in India during the PY but it accrues (or arise ) outside India during the PY.

• 3) If income is received outside India during the PY but it accrues (or arise or is deemed to accrue or arise ) in India during the PY.

• Foreign Income : If the following two conditions are satisfied then such income is FOREIGN income.

• A. income is not received ( or not deemed to be received ) in India; and

• B. income does not accrue or arise (does not deem to accrue or arise) in India.

Whether income is received ( or deemed to be received ) in India during the relevant years.

Whether income accrues( or arises or is deemed to accrue or arise) in India during the relevant years

Status of the income

Yes Yes Indian Income

Yes No Indian Income

No Yes Foreign Income

No No Foreign Income

Resident and ordinarily resident in India

Resident and ordinarily resident in India

Non Resident

Indian Income Taxable in India Taxable in India Taxable in India

Foreign Income Taxable in India Only case 1 and case 2 given below) taxable in India.

Any other income is not taxable in India.

Not Taxable in India

Incidence of tax for different taxpayers {HUF n Individual}

• Case 1. Business income and business income is controlled wholly or partly from India.

• Case 2. Income from profession which is set up in India.

Any other taxpayer (like company, firm, co-operative soc, AOP, BOI, etc

Resident in India Non-resident in India

Indian Income Taxable in India Taxable in India

Foreign Income Taxable in India Not taxable in India

CONCLUSIONS:::::

• Indian Income: Indian Income is always taxable in India irrespective of status of the tax payer.

• Foreign Income : Foreign Income is taxable in the hands of resident (in the case of a firm, AOP, company and every other person) or resident and ordinarily resident (in case of an individual or a HUF) in India. Foreign income is not taxable in the hands of non resident in India.

• In the hands of resident but not ordinary resident taxpayer, foreign income is taxable only if it is (a) business income and business is controlled wholly or partly from India, or (b) professional income from a profession which is set up in India. In any other case, foreign income is not taxable in the hands of resident but not ordinarily resident taxpayers

RECEIPT OF INCOME

• Income received in India is taxable in all cases irrespective of residential status of the assessee. The following points are important in this respect.

1. Receipt vs. Remittance

2. Cash vs. kind

3. Receipt vs. accrual

4. Actual receipt vs. Deemed receipt

5. Receipt by agent

6. Receipt of income in the case of advance money

7. Receipt in the case of sale by commission agent

8. Receipt by cheque

• Receipt when cheque is sent by post

• When sale proceeds are received in Kind

• Mere book entry is not sufficient

• Burden of Proving

• Question of fact

ACCRUAL OF INCOME• Accrual is generally unconditioned.• Income is said to accrue when it becomes due.• Accrual of business profit• It is incorrect to state that profits do not accrue until actually

computed.• If income is taxable at the time of accrual, it cannot be taxed

on receipt basis.• Accrual of business income in the case of composite business • Place where property in goods passes decides accrual of profit

in the case of sales of goods..• Accrual of profit in the case of forward contract• Selling agents’ commission accrues at a place where sales are

effected.

• Commission payable for other services accrues at the place where service is rendered.

• Interest accrues where money is lent

• Interest in the case of compulsory acquisition.

• No profit arises on the valuation of closing stock

• Profit does not accrue in transfers between head office and branch office.

• Dividends accrue at the place where the register of members is kept.

• Damages accrue when the amount is decreed or admitted

• Commission payable on passing of audited accounts accrues only on the date of meeting.

• Profit on devaluation arises in the year of devaluation

• Share of profit from a resident firm accrues on arises in India.

• Profit on mortgage sale arises on the date of confirmation of sale.

• Mesne Profit

• Question as to source of income is not relevent.

• Question of fact.

• Income from business connection.• What is the business connection• Operations not taken as business connection.• Clarification from Board.• Income through or from any property, asset or source of

income in India.• Income through the transfer of capital asset situated in

India.• Income under the heading SALARIES.• Income by way of interest• Income by way of royalty.• Fees for technical service.

Deemed to accrue or arise in India