lecture notes on SCOPE OF TOTAL INCOME and RESIDENTAL STATUS Under in

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lecture notes on residential status and scope of income under Indian income tax ACT 1961

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SCOPE OF TOTAL INCOME & RESIDENTAL STATUS: Under income tax Act 1961 : 

SCOPE OF TOTAL INCOME & RESIDENTAL STATUS: Under income tax Act 1961 Scope of Total Income u/s. 5 Residential Status in India u/s 6. Apportionment of Income between spouses governed by the Portuguese Civil Code u/s. 5A. 12/24/2012 1 sanjaydessai@gmail.com

Different taxable entities : 

Different taxable entities Individual Hindu undivided family Firm or association of person or a body of individuals Every other person 12/24/2012 2 sanjaydessai@gmail.com

IMPORTANCE OF RESIDENTIAL STATUS: 

IMPORTANCE OF RESIDENTIAL STATUS Tax is to be charged on the income of the previous year of a person at the rates fixed for the assessment year . The tax liability of a person is determined on the basis of Residence in India in the previous year. The residential status of an assessee may not necessarily be the same-in each year, he may be a resident in one year and a non-resident in the next. As such, clear identification of residential status is necessary. The rules for determining the residential status for different types of assessees viz., individual, Hindu Undivided Family (HUF), firm and a company etc. are not same. 12/24/2012 3 sanjaydessai@gmail.com

Scope of Total Income u/s. 5 : 

Scope of Total Income u/s. 5 Section 5 of the Income tax Act deals with the scope of total income. It states that the scope of total income of a person is determined by reference to his residence in India in the previous year. 12/24/2012 4 sanjaydessai@gmail.com

Residential status: 

Residential status 1. Resident of India 2. Non resident of India Resident individual and HUF can be divided in to two categories Resident and ordinarily resident or Resident but not ordinarily resident All other assessee can simply be either resident or non resident 12/24/2012 5 sanjaydessai@gmail.com

Residential status of an individual (6): 

Residential status of an individual (6) An individual may be Resident and ordinarily resident Resident but not ordinarily resident Non resident 12/24/2012 6 sanjaydessai@gmail.com

Residential status of the Assessee: 

Residential status of the Assessee 12/24/2012 7 sanjaydessai@gmail.com

Resident and ordinarily resident : 

Resident and ordinarily resident Basic condition for resident An individual is said to be resident in India in any previous year, if he satisfies at least one of the following basic condition He is in India in the previous year for a period of 182 days or more 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 12/24/2012 8 sanjaydessai@gmail.com

Exceptions : 

Exceptions i ) Being a citizen of India if he leaves India in any previous year for the purpose of employment outside India, the period of 60 days in clause (b) above will be extended to 182 days or more. ii) Being a citizen of India or a person of Indian origin, who being outside India, comes on a visit to India in any previous year the period of 60 days mentioned in clause (b) will be 182 days or more A person is deemed to be of Indian origin if he, or either of his parents or any of his grand parents was born in undivided India. 12/24/2012 9 sanjaydessai@gmail.com

Additional conditions for ordinarily resident : 

Additional conditions for ordinarily resident Resident individual is treated as “resident and ordinarily resident ” In India if he satisfies the following two additional conditions – He has been resident in India in at least 2 out of 10 previous years immediately the relevant previous year He is been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year. Individual becomes resident and ordinarily resident in India if he satisfies at least one of the basic conditions and the two additional conditions . 12/24/2012 10 sanjaydessai@gmail.com

Non -Resident Individual : 

Non -Resident Individual Non – Resident means a person who is not a resident. An individual is non-resident in India if he does not satisfy any of the two basic conditions as stated under section 6(1) 12/24/2012 11 sanjaydessai@gmail.com

Hindu Undivided Family (Section 6(2) ) : 

Hindu Undivided Family (Section 6(2) ) The residential status of an HUF depends on two factors, the location of control and management of its affairs and the residential status of its Karta: Ordinarily Resident (Section 6(2) ) HUF is said to be ordinarily resident in India in any previous year : If the control and management of its affairs is wholly or partly situated in India during the previous year. If its manager (Karta) satisfies the following conditions of Section 6(6) : its manager has been resident in India in 2 out of 10 previous years preceding that year; and its manager has, during the 7 years preceding that year, been in India for a period amounting in all to 730 days or more. 12/24/2012 12 sanjaydessai@gmail.com

Not Ordinarily Resident: 

Not Ordinarily Resident A Hindu Undivided Family is said to be 'not ordinarily resident in India, if control and management of its affairs is situated wholly or partly in India during the previous year but its manager does not satisfy the conditions of Section 6(6). 12/24/2012 13 sanjaydessai@gmail.com

Non-resident : 

Non-resident A Hindu Undivided Family is said be non-resident in such cases only where its control and management is situated wholly outside India during the previous year. 12/24/2012 14 sanjaydessai@gmail.com

Firms and other Association of Persons (Section 6(2) 1 ) : 

Firms and other Association of Persons (Section 6(2) 1 ) Firms and other association of persons can fall under two categories only. They may either be residents or non-residents. Resident A firm or other association of persons is said to be resident in India in any previous year where during that year the control and management of its affairs is partially or wholly situated in India. The residential status of its partners in India is immaterial. 12/24/2012 15 sanjaydessai@gmail.com

Non resident: 

Non resident A firm or an association of persons is said to be non-resident in such cases only where the control and management of its affairs is situated wholly outside India during the previous year. 12/24/2012 16 sanjaydessai@gmail.com

Companies: 

Companies A company may either be a resident or non-resident. A company is said to be resident in India in any previous year if: it is an Indian company, or during the year, the control and management of its affairs is situated wholly in India. 12/24/2012 17 sanjaydessai@gmail.com

Non-Resident: 

Non-Resident If a company does not satisfy any of the aforesaid conditions of residence, it is said to be a 'non-resident' company. In other words if the company is not registered in India and its control and management is situated wholly or partially outside India, it is regarded as a non-resident. 12/24/2012 18 sanjaydessai@gmail.com

Every other Person (Section 6(4) ) : 

Every other Person (Section 6(4) ) Resident : Every other person (local authority, artificial, juridical person & Statutory Corporations) is said to be resident in India in any previous year if the control and management of its affairs is partly or wholly situated in India Non-Resident : Every other person is said to be non-resident if control and management of its affairs is situated wholly outside India. 12/24/2012 19 sanjaydessai@gmail.com

Scope of total income ( Resident and ordinarily Resident ) : 

Scope of total income ( Resident and ordinarily Resident ) The total income of any person, who is resident in the relevant previous year, includes all income from whatever sources derived which…. is received, or deemed to be received in India in such year by him or on his , behalf; or accrues or arises or is deemed to accrue or arise to him in India during such year; or accrues or arises to him outside India during such year. 12/24/2012 20 sanjaydessai@gmail.com

Accrual of Income : 

Accrual of Income When right to receive the income become vested in the assessee, is said to accrue or arise . Income has been said to accrue when there is a right to payment and when there is unconditional liability on behalf of the payer to pay it to tax payer. Income is said to accrue when it become due 12/24/2012 21 sanjaydessai@gmail.com

Scope of total income ( Resident but non- Ordinarily Resident ) : 

Scope of total income ( Resident but non- Ordinarily Resident ) Not Ordinarily Resident If the assessee is 'not-ordinarily resident', the total income of the relevant previous year includes all incomes from whatever sources derived which - is received or is deemed to be received in India in such‘ year by or on behalf of such person; or' accrues or arises or is deemed to accrue or arise to him in India during such year; or accrues or arises to him outside India and is derived from business controlled in India or a profession set up in India. 12/24/2012 22 sanjaydessai@gmail.com

Difference between resident and non ordinarily resident : 

Difference between resident and non ordinarily resident The basic difference between the scope of a total income of a resident and not ordinarily resident relates to the income which accrues or arises to him outside India. In case of a resident it is included in his total income irrespective of the source of such income. But in case of a not ordinarily resident it will be included in his total only if it is derived from a business which is controlled in or a profession set up in India. 12/24/2012 23 sanjaydessai@gmail.com

Scope of total income of Non-Resident : 

Scope of total income of Non-Resident If the assessee is a non-resident in India, the total of the relevant previous year includes all income from whichever sources derived which – is received or is deemed to be received in India in such year by or on behalf of such person, or accrues or arises or is deemed to accrue or arise to him in India during such year. ' Thus non-residents are not liable in respect income accruing or arising outside India even if it is remitted to India. 12/24/2012 24 sanjaydessai@gmail.com

Chart showing scope of total income: 

Chart showing scope of total income Nature of income Resident & ordinarily resident Resident but not ordinarily resident Non Resident Income received in India Included Included Included Income deemed to be received in India Included Included Included Income accruing or arising in India Included Included Included Income deemed to accrue or arise in India Included Included Included Income accruing or arising outside India and received out-side India i.e. foreign income 1. From business controlled from India or profession setup in India Included Included Excluded 2. From a business controlled outside India or profession set up outside India Included Excluded Excluded 12/24/2012 25 sanjaydessai@gmail.com

Apportionment of Income between spouses governed by the Portuguese Civil Code u/s. 5A.: 

Apportionment of Income between spouses governed by the Portuguese Civil Code u/s. 5A. 5A. (1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 1860 as "COMMUNIAO DOS BENS") in force in the State of Goa and in the Union territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head "Salaries") shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly. 12/24/2012 26 sanjaydessai@gmail.com

PowerPoint Presentation: 

(2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head "Salaries", such income shall be included in the total income of the spouse who has actually earned it.] 12/24/2012 27 sanjaydessai@gmail.com

PowerPoint Presentation: 

Thank you 12/24/2012 sanjaydessai@gmail.com 28