Income Tax Incidence Nri

8/8/2019 Income Tax Incidence Nri

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Definitions of important terms

Day 2

Session 2slide 2.2


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Assessment year [Sec. 2(9)]

Assessment year means the period of twelve monthsstarting from April 1 of every year and ending on March 31

of the next year. For instance, the assessment year 23!"which commenced on April 1, 23, will end on March 31,2". #he period of assessment year is fixed $y stat%te.&ncome of previo%s year of an assessee is taxed d%ring the

following assessment year at the rates prescri$ed for s%chassessment year $y the relevant Finance Act

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Previous year 'Sec. 3(

. &ncome earned in a year is taxa$le in the next year. #he yearin which income is earned is )nown as previo%s year and the

next year in which income is taxa$le is )nown as assessmentyear. &n other words, it can $e said that income earned d%ringthe previo%s year 22!3 is taxa$le in the immediatelyfollowing assessment year *i.e., 23!"+

Uniform previous year ! From the assessment year 1-!onwards, all assessees are re%ired to follow financial year*i.e., April 1 to March 31+ as the previo%s year. #his %niform

previo%s year has to $e followed for all so%rces of income.Slide 2.2


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Person [Sec. 2(31)] #he term /person0 incl%des

a. an individ%al

b. a ind% %ndivided family

c. a company d. a firm

e. an association of persons or a $ody of individ%als,

whether incorporated or not f. a local a%thority and

g. every artificial 4%ridical person, not falling within anyof the preceding categories.

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Person [Sec. 2(31)] An individual ! 5nder the present Act, the word

/individ%al0 means only a nat%ral person, i.e., a h%man

$eing. Deities and stat%tory corporations are assessa$le as

/4%ridical person0. /&ndivid%al0 incl%des a minor or a person of %nso%nd mind6 Shridhar Uday Narayan v. CIT

'172( "8 8:: *All.+, or a gro%p of individ%als6 WTO

v. C.K. Mammed Kayi '1-1( 12 3: *S;+.

#r%stees of a discretionary tr%st have to $e assessed in

stat%s of /individ%al0 and not in stat%s of /association of

persons06 CIT v. Deepak Family Tr!" #N$. %& '1"( :2

#axman "7 *


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Person [Sec. 2(31)] A Hindu undivided family ! A ind% %ndivided family

consists of all persons lineally descended from a common

ancestor and incl%des their wives and %nmarried

da%ghters. =rofits made $y a 4oint ind% family arechargea$le to tax as income of the ind% %ndivided family

as a distinct entity or %nit of assessment. >nce a family is

assessed as a ind% %ndivided family, it will contin%e to

$e assessed as s%ch till a finding of partition is given $ythe Assessing >fficer %nder section 1:1

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Person [Sec. 2(31)] An association of persons or a body of individuals ! #he

word /associate0 means /to 4oin in common p%rpose, or to

4oin in action0. #herefore, /association of persons0 means

an association in which two or more persons 4oin in acommon p%rpose or common action. #he term /person0

incl%des any company or association or $ody of

individ%als, whether incorporated or not. An association of

persons may have companies, firms, 4oint families as itsmem$ers6 M.M. Ip$h v.CIT '17-( 7: 17 *S;+.

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Person [Sec. 2(31)] Local authority ! ?ocal a%thority is a separate %nit of

assessment. As per section 3*31+ of the


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Person [Sec. 2(31)] Every artificial juridical person ! &t covers not only

deities6 '$gendra Na"h Na!kar v. CIT '17( :" 33

*S;+ $%t also all artificial persons with a 4%ridical

personality s%ch as a @ar ;o%ncil6 (ar C$ncil $f U""ar )rade!h v. CIT '1-3( 1"3 8-" *All.+ .


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Assessee [Sec. 2(7)] Assessee means a person $y whom any tax or any other

s%m of money *i.e., penalty or interest+ is paya$le %nder

the Act. #he term incl%des the following persons

Fir!" ca"eg$ry ! A person *i.e., an individ%al a ind%%ndivided family a company a firm an association of

persons or $ody of individ%als, whether incorporated or

not a local a%thority and every artificial 4%ridical

person+ $y whom any tax or any other s%m of money

*incl%ding interest and penalty+ is paya$le %nder the Act

*irrespective of the fact whether any proceeding %nder the

Act has $een ta)en against him or not+.Slide 2.2


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Assessee [Sec. 2(7)] Sec$nd ca"eg$ry ! A person in respect of whom any

proceeding %nder the Act has $een ta)en *whether or not

he is lia$le for any tax, interest or penalty+. =roceeding

may $e ta)en a. either for the assessment of the amo%nt of his income

or of the loss s%stained $y him or

b. of the income *or loss+ of any other person in respect

of whom he is assessa$le or

c. of the amo%nt of ref%nd d%e to him or to s%ch other

person

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Assessee [Sec. 2(7)] Third ca"eg$ry ! very person who is deemed to $e an

assessee. For instance, a representative assessee is deemed

to $e an assessee $y virt%e of section 17*2+.

F$r"h ca"eg$ry ! very person who is deemed to $ean assessee in defa%lt %nder any provision of the Act. For

instance, %nder section 21*1+, any person who does not

ded%ct tax at so%rce, or after ded%cting fails to pay s%ch

tax, is deemed to $e an assessee in defa%lt. ?i)ewise,

%nder section 21-, if a person does not pay advance tax,

then he shall $e deemed to $e an assessee in defa%lt.Slide 2.2


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Gross total income

A s per section 1", income of a person is comp%ted

%nder the following five heads

%. Salaries

*. &ncome from ho%se property

+. =rofits and gains of $%siness or profession

. ;apital gains

-. &ncome from other so%rces.

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E%penditure incurred in relation to

e%empt income! not deductible &Sec"

'(A

Section 1"A has $een inserted from the assessment year172!73. &t provides that no ded%ction shall $e made in

respect of expendit%re inc%rred $y the assessee in relation

to income which does not form part of the total income

%nder the Act.

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E%penditure incurred in relation to

e%empt income! not deductible &Sec"

'(A

Section 1"A has $een inserted from the assessment year172!73. &t provides that no ded%ction shall $e made inrespect of expendit%re inc%rred $y the assessee in relationto income which does not form part of the total income

%nder the Act.

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)esidential status and ta% incidence Residential status General norms

>ne has to )eep in mind the following norms while deciding theresidential stat%s of an assessee

1 $ifferent ta%able entities ! Section 7 lays down the test ofresidence for the following taxa$le entities

a. an individ%al

b. a ind% %ndivided family

c. a firm or an association of persons or a $ody of individ%als d. a company and

e. every other person.Slide 2.2


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)esidential status and ta% incidence $ifferent kinds of residential status ! Assessees are either

*a+ resident in &ndia, or *b+ non!resident in &ndia. As far as

resident individ%als and ind% %ndivided families areconcerned, they can $e f%rther divided into two categories,

i/., *a+ resident and ordinarily resident, or *b+ resident $%t

not ordinarily resident. All other assessees *i/., a firm, an

association of persons, a company and every other person+can simply $e either a resident or a non!resident

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)esidential status and ta% incidence $ifferent residential status in respect of different previous years of the

same assessment year not possible [sec" *+,-] ! &f a person is resident in a previo%s year relevant to an assessment year in respect of any so%rce of

income, he shall $e deemed to $e resident in &ndia in the previo%s year*s+relevant to the same assessment year in respect of each of his otherso%rces of income .

$ifferent residential status for different assessment years ! An assesseemay en4oy different residential stat%s for different assessment years. For

instance, an individ%al who has $een reg%larly assessed as resident andordinarily resident, has to $e treated as non!resident in a partic%larassessment year if he satisfies none of the conditions of section 7*%+

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)esidential status and ta% incidence )esident in .ndia and abroad ! &t is not necessary that a

person who is resident in &ndia, cannot $ecome resident in

any other co%ntry for the same assessment year. A personmay $e resident in more than one co%ntry at the same time

for tax p%rposes, tho%gh he cannot have two domiciles

sim%ltaneo%sly. &t is, therefore, not necessary that a

person, who is resident in &ndia, will $e non!resident forall other co%ntries for the same assessment year

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)esidential status and ta% incidence

+individual- /asic conditions to test as to when an individual is

resident in .ndia !nder section "(')# an individual is

said to $e resident in %ndia in any &revious year# i' esatis'ies at least one o' te 'olloin* $asic conditions +

a" e is in %ndia in te &revious year 'or a &eriod o'1,2 days or more - or

b" e is in %ndia 'or a &eriod o' " days or moredurin* te &revious year and 3"/ days or more durin*te 0 years immediately &recedin* te &revious year

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+individual - Slide 2.2

P4%56S 4e a'oresaid rule o' residence is su$ect to

te 'olloin* e8ce&tions

'" :y virtue o' E%planation +a- to section "(')# te &eriod o'

;" days< re'erred to in (b) a$ove as $een e8tended as

'ollos +

0.1!. Wh$ can "ake "he benefi"

$f e2"ended peri$d

32"ended peri$d

%44564%$n7ard!

0n Indian ci"i/en 7h$ leae! India dring"he prei$! year f$r "he prp$!e $f

empl$ymen" $"!ide India $r an Indianci"i/en 7h$ leae! India dring "he

prei$! year a! a member $f "he cre7 $f

an Indian !hip

%8* day!


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+individual- " :y virtue o' E%planation +b-! te &eriod o' ;" days<

re'erred to in (b) a$ove as $een e8tended as 'ollos +

0.1!. Wh$ can "ake "he benefi"

$f e2"ended peri$d

32"ended

peri$d

%44-649$n7ard!

Indian ci"i/en $r a per!$n $f Indian$rigin: 7h$ c$me! $n a i!i" "$ India

dring "he prei$! year

%8* day!

%44564%"$ %446

4-

Indian ci"i/en $r a per!$n $f Indian $rigin7h$ c$me! $n a i!i" "$ India dring "he

prei$! yearSlide 2.2

%-5 day!


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)esidential status and ta% incidence Additional conditions to test when a resident individual is ordinarily

resident in .ndia !nder section "(* )# a resident individual is treatedas ;resident and ordinarily resident< in %ndia i' e satis'ies te

'olloin* to additional conditions + i" e as $een resident in %ndia in at least 9= out o' 1 &revious

years [accordin* to $asic conditions noted a$ove] immediately&recedin* te relevant &revious year - and

ii" e as $een in %ndia 'or a &eriod o' 73 days or more durin* 7

years immediately &recedin* te relevant &revious year. %n $rie' it can $e said tat an individual $ecomes resident and

ordinarily resident in %ndia i' e satis'ies at least one o' te $asicconditions and te to additional conditions [i"e"! +i- and (ii )].

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)esidential status and ta% incidence 0ther points %n determinin* te residential status o' an

assessee# te 'olloin* settled &ro&ositions ave to $e $orne inmind

Stay at the same place not necessary 1 %t is not essential tatte stay sould $e at te same &lace+ 2inloch v. .) 10 4 73".%t is e>ually not necessary tat te stay sould $e continuous.Similarly &lace o' stay or &ur&ose o' stay is not material.

Stay in territorial waters 1 A stay $y an individual on a yactmoored in te territorial aters o' %ndia ould $e treated as is&resence in %ndia 'or te &ur&ose o' tis section+ /aryard

/rown v. /urt / 4 ""7Slide 2.2


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)esidential status and ta% incidence Presence for a part of a day 1 ?ere a &erson is in %ndia only 'or

a &art o' a day# te calculation o' &ysical &resence in %ndia inres&ect o' suc $ro@en &eriod sould $e made on an ourly

$asis. A total o' 20 ours o' stay s&read over a num$er o' days isto $e counted as $ein* e>uivalent to te stay o' one day+ 3alkie v. .) [19/2] 1 AR 92. %'# oever# data is not availa$le tocalculate te &eriod o' stay o' an individual in %ndia in terms o'ours# ten te day on ic e enters %ndia as ell as te day

on ic e leaves %ndia sall $e ta@en into account as stay o'te individual in %ndia+ Advance )ulin4 P" #o"5 of '66,# .n re [1997] 9 4a8man "2 (AAR 6e eli).

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)esidential status and ta% incidence )esident but not ordinarily resident &Sec" *+'-! *+*-+a-7 An individual

o satis'ies at least one o' te $asic conditions mentioned in &ara 11$ut does not satis'y te to additional conditions [i"e"! conditions (i ) and(ii ) mentioned in &ara 12]# is treated as a resident $ut not ordinarilyresident in %ndia. %n oter ords# an individual $ecomes resident $utnot ordinarily resident in %ndia in any o' te 'olloin* circumstances

%' e satis'ies at least one o' te $asic conditions [ i"e"! condition (a)or (b) o' &ara 11] and none o' te additional conditions [ i"e"! (i ) and (ii )o' &ara 12].

%' e satis'ies at least one o' te $asic conditions and one o' te toadditional conditions [i"e"! (i ) or (ii ) o' &ara 12

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)esidential status and ta% incidence #on1resident An individual is a nonresident in %ndia i'

e satis'ies none o' te $asic conditions [&ara 11]. %n tecase o' nonresident te additional conditions [i"e"! (i ) and

(ii ) o' &ara 12] are not relevant Residential status o' a Bindu undivided 'amily [Sec. "(2)]

A Bindu undivided 'amily (li@e an individual) is eiterresident in %ndia or nonresident in %ndia. A residentBindu undivided 'amily is eiter ordinarily resident ornot ordinarily resident

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3hen a Hindu undivided family is resident or non1resident

)lace $f c$n"r$l ;e!iden" $r

n$n6re!iden"

5rdinarilyresident $r n$"

;ontrol and management ofthe affairs of a ind%%ndivided family is 6

Bholly in &ndia9esident See para 2 for

individ%al

Bholly o%t of &ndia Con!resident !!

=artly in &ndia and partly

o%tside &ndia

9esidentSlide 2.2

See para 2 for

individ%al


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)esidential status and ta% incidence 3hen a resident Hindu undivided family is ordinarily resident in .ndia 1 A resident Bindu undivided 'amily is ordinarily resident in%ndia i' te @arta or mana*er o' te 'amily (includin* successive@arta) satis'ies te 'olloin* to additional conditions as laid don

$y section "(* )(b) a" e as $een resident in %ndia in at least 9= out o' 1 &revious

years immediately &recedin* te relevant &revious year - and

b" e as $een &resent in %ndia 'or a &eriod o' 73 days or moredurin* 7 years immediately &recedin* te &revious year.

%' te @arta or mana*er o' a resident Bindu undivided 'amily doesnot satis'y te to additional conditions# te 'amily is treated asresident $ut not ordinarily resident in %ndia.

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)esidential status and ta% incidence Residential status o' te 'irm and association o' &ersons

[Sec. "(2)]

A &artnersi& 'irm and an association o' &ersons are

said to $e resident in %ndia i' control and mana*emento' teir a''airs are olly or &artly situated itin%ndia durin* te relevant &revious year. 4ey are#oever# treated as nonresident in %ndia i' control and

mana*ement o' teir a''airs are situated olly outside%ndia

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)esidential status and ta% incidence Residential status o' a com&any [Sec. "(3)]

An %ndian com&any is alays resident in %ndia. A'orei*n com&any is resident in %ndia only i'# durin* te

&revious year# control and mana*ement o' its a''airs issituated wholly in %ndia. %n oter ords# a 'orei*ncom&any is treated as nonresident i'# durin* te&revious year# control and mana*ement o' its a''airs is

eiter olly or &artly situated out o' %ndia.

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)esidential status and ta% incidence Residential status o' ;every oter &erson< [Sec. "(0)]

very oter &erson is resident in %ndia i' control and

mana*ement o' is a''airs is olly or &artly situated

itin %ndia durin* te relevant &revious year. 5n te

oter and# every oter &erson is nonresident in %ndia

i' control and mana*ement o' is a''airs is olly

situated outside %ndia.

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4a8 incidence 4e ta8 incidence ould di''er accordin* to te

residential status o' te assessee i.e. Resident or Resident and 5rdinarily Resident (R C 5 R)

Resident $y 6ot 5rdinarily Resident (R C 6 5 R) 6on Resident (6 R)

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)esidential status and ta% incidence 4a8 incidence 4a8 incidence in res&ect o' te 'olloin* incomes ould arise in

all te cases %ncome received in %ndia eter accrued in %ndia or outside %ndia

%ncome deemed to $e received in %ndia eter accrued in %ndia oroutside %ndia

%ncome accruin* or arisin* in %ndia eter received in %ndia oroutside %ndia

%ncome deemed to accrue or arise in %ndia eter received in %ndia oroutside %ndia

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4a8 incidence 4a8 incidence in res&ect o' te 'olloin* incomes

ould arise only in te case o' R C 5 R and R C6 5 R %ncome received and accrued outside %ndia 'rom a $usiness

controlled in or a &ro'ession setu& in %ndia 4a8 incidence in res&ect o' te 'olloin* incomes

ould arise only in te case o' R C 5 R %ncome received and accrued outside %ndia 'rom a $usiness

controlled 'rom outside %ndia or a &ro'ession setu& outside%ndia

%ncome (oter tan $usiness or &ro'ession income) receivedand accrued outside %ndia

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4a8 incidence 6o 4a8 incidence in res&ect o' te 'olloin* incomes

ould arise in any o' te tree cases

%ncome earned and received outside %ndia $ut later on

remitted to %ndia at te time o' remittance

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