DIRECT TAXES CIA 1

Calculation of Residential status of Individual and

Computation of Incidence of Tax

- Submitted by
Adithya C. Gaikwad (1923601)
Aditya Pradeep (1923604)
Parkhi Gupta (1923643)
Ratika Gupta (1923646)
Rohit Krishna Rajeevan (1923651)
Ryan Adhikary (1923654)
5 BBA FIB B
Table of Contents

CASE FORMATION with different Residential Status ........................................................... 1

As an Ordinary Citizen (Resident) .............................................................................................. 1

As a Non-Ordinary Citizen (Resident) ....................................................................................... 1

As a Non Resident ...................................................................................................................... 2

CASE FORMATION OF DIFFERENT INCOME (Incidence of Tax) ................................... 4

CALCULATION OF TAX LIABILITY -Under the new and old regime .............................. 7

Anubhav-Ordinary Resident ....................................................................................................... 7

Anubhav-Non Ordinary Resident ............................................................................................... 8

Anubhav-Non Resident ............................................................................................................... 9

EXPLANATION ......................................................................................................................... 10

RECOMMENDATIONS............................................................................................................ 10
CASE FORMATION with different Residential Status

Anubhav is a 29-year-old Microsoft employee who is an Indian from a well to do family and has
multiple income sources. Through this case, we will understand his tax payments, exemptions and
the regime to which he belongs to.

Through the following possible case scenarios, we can understand the residential status of
Anubhav.

As an Ordinary Citizen (Resident)

Anubhav works in the Microsoft office in Hyderabad and spends more than 250 days in India
which clearly makes him a resident of the country. Since he did spend more than 60 days in the
relevant previous year which is 2019 (current year as 2020) and also has been working in India for
almost 6 relevant previous years, it makes him a resident of the country.

2020-21 250 days Current Year

2019-20 250 days Relevant Previous Year

2018-19 250 days Relevant Previous Year

2017-18 250 days Relevant Previous Year

2016-17 250 days Relevant Previous Year

2015-16 250 days Relevant Previous Year

2014-15 250 days Relevant Previous Year

Anubhav Qualifies as a
Total Days Spent in India 1500
Resident of India

As a Non-Ordinary Citizen (Resident)

Anubhav has been spending about 200 days in India for the past 2 years. Before that he used to
visit often for about 30-40 days in the entire year. He has not lived in India for more than 730 days
in the past 7 years and hence he is a non-ordinary resident of India and would be taxed accordingly.

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2020-21 X days Current Year

2019-20 200 days Relevant Previous Year

2018-19 200 days Relevant Previous Year

2017-18 40 days Relevant Previous Year

2016-17 30 days Relevant Previous Year 160 + 90 = 250 days.

Even though he has
2015-16 40 days Relevant Previous Year
spent about 200 days
2014-15 30 days Relevant Previous Year in India for the last 2
years, he has
2013-14 40 days Relevant Previous Year
historically not lived
2012-13 30 days Relevant Previous Year in India for 730 days.

2011-12 40 days Relevant Previous Year

Total Days spent in

India for the last 7 250 days
years

As a Non Resident
Anubhav has been spending around 60-70 days in the country as he comes from Dubai to India for
his vacation. He is considered as a NRI since he does not meet the criteria of 182 days in a year
nor the 365 days in the last 4 years.

Year Days Spent Timeline

2019-20 60 days Relevant Previous Year

2018-19 60 days Relevant Previous Year

2017-18 60 days Relevant Previous Year

2016-17 60 days Relevant Previous Year

Total Days in last 4 years 240 days

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Basic Conditions Under Sec 6 (1):

(a) If the Individual stayed in India for a period of 182 DAYS OR MORE during the
Relevant Previous Year (RPY), he is Resident of India;

(OR)

(b) If he stayed in India for a period of 60 DAYS OR MORE during Relevant

Previous Year (RPY) and 365 DAYS OR MORE during the four preceding Previous
Years, he is Resident of India.

If the assesse fails to satisfy either of the above basic conditions, as applicable,
then the assesse is a Non-Resident for that Relevant Previous Year.

Additional Conditions Under Sec. 6(6)(a)

Resident in India for at least 2 years out of the preceding 10 Previous

Years, AND

Physically present in India for at least 730 days during the 7 preceding
Previous Years.

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CASE FORMATION OF DIFFERENT INCOME (Incidence of Tax)

S.no. Particulars Amount (in Rs.)

1 Salary received from Standard Chartered Bank in Hyderabad. 7,00,000

Profits from a partnership with an Arab friend controlled in India

2 55,000
(55/45 profit share)

3 Bonus from Nokia for helping them install a Microsoft System 5,00,000

4 Income from a Garage owned by Remo, received in India. 2,00,000

5 Winning a reality show in Abu Dhabi 35,000

Profits from an Indian Start-up set in Belgium, received in rupees

6 1,05,000
through HSBC Bank

Income from profit of shares of Pharma company due to covid

7 65,000
surge in India

Income from villa on rent in Dubai received in India through

8 2,00,000
ICICI Bank

Income from Islands rented in Nicaragua, which is received and

9 5,00,000
deposited in Central Bank of Nicaragua

10 Sale of shares of Mercedes (received 60 % in India) 1,50,000

11 Sale of Shares of Reliance Industries Limited 75,000

12 Gift from Mitsubishi for being a loyal customer 1,75,000

13 Gift from Microsoft for being the best employee of the year 1,25,000

14 Dividend received from Maruti 15,000

Cash received from dad for Business purposes, deposited into

15 50,000
ICICI Bank

16 Interest on savings bank deposit in Citibank 55,000

17 Gifts received on Birthday 45,000

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18 Dividend received from Audi in Germany 75,000

19 Producing a small-scale music video 1,00,000

Compensation from Government for damages caused by Cyclone

20 1,25,000
Fani

Residential status-related Calculation (Incidence of Tax)

S.no. Particulars Ordinary Non-Ordinary Non-Resident

Salary received from Standard Chartered

1
Bank in Hyderabad. 7,00,000 7,00,000 7,00,000

Profits from a partnership with an Arab friend

2 controlled in India, received in India (55/45 55,000 55,000 55,000
profit share)

Bonus from Nokia, US for helping them

3 5,00,000
install a Microsoft System, received in India not taxable not taxable

Income from a Garage owned by Remo,

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received in India. 2,00,000 2,00,000 2,00,000

5 Winning a reality show in Abu Dhabi 35,000 not taxable not taxable

Profits from an Indian Startup set in Belgium,

6 1,05,000 1,05,000 not taxable
received in rupees through HSBC Bank

Income from profit of shares of Pharma

7 65,000 65,000 65,000
company due to covid surge in India

Income from villa on rent in Dubai received in

8 not taxable not taxable not taxable
India through ICICI Bank

Income from Islands rented in Nicaragua,

9 which is received and deposited in Central 5,00,000 not taxable not taxable
Bank of Nicaragua

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 Sale of shares of Mercedes (received 60% in
10 1,50,000 90,000 90,000
India)

11 Sale of Shares of Reliance Industries Limited 75,000 75,000 75,000

Gift from Mitsubishi for being a loyal

12 1,75,000 1,75,000 1,75,000
customer

Gift from Microsoft for being the best

13 1,25,000 1,25,000 1,25,000
employee of the year

14 Dividend received from Maruti 15,000 15,000 15,000

Cash received from dad for Business

15 50,000 50,000 50,000
purposes, deposited into ICICI Bank

16 Interest on savings bank deposit in Citibank 55,000 55,000 55,000

17 Gifts received on Birthday exempted exempted exempted

18 Dividend received from Audi in Germany 75,000 not taxable not taxable

19 Producing a small scale music video exempted exempted exempted

Compensation from Government for damages

20 exempted exempted exempted
caused by Cyclone Fani

Total Income 28,80,000 17,05,000 16,00,000

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CALCULATION OF TAX LIABILITY -Under the new and old regime

1.

Anubhav-Ordinary Resident

Particulars Old Tax Regime New Tax Regime

Income from salary 28,80,000 28,80,000

Less: Standard Deduction 50,000

Less: Interest on savings bank deposit 55,000

Total Taxable Income 27,70,000 28,80,000

Old Regime
Upto Rs. 2,50,000 = Nil
Rs.2,50,000 - Rs.5,00,000 - 5% = 12,500
Rs.5,00,000 - Rs.10,00,000 - 20% = 1,00,000
On Balance Rs.17,70,000 - 30% = 5,31,000

New Regime
Upto Rs. 2,50,000 = Nil 643,500 601,500

Rs.2,50,000 - Rs.5,00,000 - 5% = 12,500

Rs.5,00,000 - Rs.7,50,000 - 10% = 25,000
Rs.7,50,000 - Rs.10,00,000 - 15% = 37,500
Rs.10,00,000 - Rs.12,50,000 - 20% = 50,000
Rs.12,50,000 - Rs.15,00,000 - 25% = 62,500
On Balance Rs.13,80,000 -30% = 4,14,000

Cess: Health and Education @4% 25740 24060

Total Tax Liability 669,240 625,560

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2.

Anubhav-Non Ordinary Resident

Particulars Old Tax Regime New Tax Regime

Income from salary 17,05,000 17,05,000

Less: Standard Deduction 50,000

Less: Interest on savings bank deposit 55,000

Total Taxable Income 16,00,000 17,05,000

Old Regime
Upto Rs. 2,50,000 = Nil
Rs.2,50,000 - Rs.5,00,000 - 5% = 12,500
Rs.5,00,000 - Rs.10,00,000 - 20% = 1,00,000
On Balance Rs.6,00,000 - 30% = 1,80,000

New Regime
Upto Rs. 2,50,000 = Nil 2,92,500 2,49,000

Rs.2,50,000 - Rs.5,00,000 - 5% = 12,500

Rs.5,00,000 - Rs.7,50,000 - 10% = 25,000
Rs.7,50,000 - Rs.10,00,000 - 15% = 37,500
Rs.10,00,000 - Rs.12,50,000 - 20% = 50,000
Rs.12,50,000 - Rs.15,00,000 - 25% = 62,500
On Balance Rs.2,05,000 - 30% = 61,500

Cess: Health and Education @4% 11,700 9,960

Total Tax Liability 304,200 258,960

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3.

Anubhav-Non Resident

Particulars Old Tax Regime New Tax Regime

Income from salary 16,00,000 16,00,000

Less: Standard Deduction 50,000

Less: Interest on savings bank deposit 55,000

Total Taxable Income 14,95,000 16,00,000

Old Regime
Upto Rs. 2,50,000 = Nil
Rs.2,50,000 - Rs.5,00,000 - 5% = 12,500
Rs.5,00,000 - Rs.10,00,000 - 20% = 1,00,000
On Balance Rs.4,95,000 - 30% = 1,48,500

New Regime
Upto Rs. 2,50,000 = Nil 2,61,000 2,17,500

Rs.2,50,000 - Rs.5,00,000 - 5% = 12,500

Rs.5,00,000 - Rs.7,50,000 - 10% = 25,000
Rs.7,50,000 - Rs.10,00,000 - 15% = 37,500
Rs.10,00,000 - Rs.12,50,000 - 20% = 50,000
Rs.12,50,000 - Rs.15,00,000 - 25% = 62,500
On Balance Rs.1,00,000 -30% = 30,000

Cess: Health and Education @4% 10,440 8,700

Total Tax Liability 2,71,440 226200

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EXPLANATION

With the help of the following case presented, we could easily look into Mr. Anubhav Income and
Tax Liability with respect to three different residential statuses. Firstly, with the help of a few
cases, we determined the different residential statuses of Mr. Anubhav as per Section 6 (1) - Basic
Conditions and Section 6 (6) (a) - Additional Conditions.
Then we proceeded with determining the incidence of tax for Mr. Anubhav if he was an Ordinary
Resident, Non-Ordinary Resident, or a Non-Resident. Here we were able to identify various types
of Income that he could possibly generate and determined his taxable Income.
After this, the third and final step was the calculation of the tax liability of Mr. Anubhav under
both the new and old regimes. Let’s look at some of the recommendations that Mr. Anubhav can
follow to reduce his tax liability.

RECOMMENDATIONS
Out of the three different cases of Residential Status, we know that it is obvious that if a person is
a non-resident, he will have a comparatively lower taxable income and hence will have to pay less
tax. Similarly out of the three, the case in which Mr. Anubhav is an ordinary resident has his
taxable income higher than the other two cases, which increases his tax liability.

● In the case of Mr. Anubhav being an Ordinary resident, his total taxable income stands at
Rs.28,80,000. After calculating his total tax liability, it comes at Rs.6,69,240 under the old
regime and Rs.6,25,560 under the new regime. Therefore, it is best advisable for Mr.
Anubhav to calculate and pay his taxes as per the new regime even though his taxable
income is higher as per that. By doing so, he can easily save approximately Rs.45,000 from
giving it to the government.

● When Mr. Anubhav becomes a Non-Ordinary Resident, his total taxable Income comes at
Rs. 17,05,000. Now as per the old regime his tax liability comes at Rs.3,04,200 while here
as well his tax liability is much lesser under the new regime and is Rs.2,58,960. Therefore

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 if Mr. Anubhav becomes a Non-resident , then also as per his current earnings he should
pay his taxes as per the new regime in order to save again roughly Rs.45,000.

● In the third scenario, when Mr. Anubhav is a Non-Resident, his total taxable income is
Rs.16,00,000. Here as well his tax liability under old regime is higher which is Rs.2,71,440
while as per old regime it is Rs.2,26,200. So, once again Mr. Anubhav can save upto Rs.
45,000 if he decides to proceed as per the new tax regime.

Apart from these here are some tips as to how Mr.Aunbhav can reduce his tax liability.

1. Use up your Rs 1.5 lakh limit under Section 80C : Now each Individual gets upto Rs.1.5
lakh of limit under the section 80C whereby one can invest in certain funds like:
○ Tax-Saver FDs : These carry a fixed rate of interest currently between 7-8%. The
interest on these FDs is however taxable. But if still one can avail tax benefits of
upto 1.5 lakhs.
○ PPF (Public Provident Fund): PPF (Public Provident Fund) is a government-
sponsored savings plan with a 15-year term that is accessible at most Indian banks
and post offices. PPF interest is tax-deferred.

○ National Savings Certificate (NSC): A National Savings Certificate has a 5-year

term and a set interest rate. Currently, the rate is at 8%. If no other investments are
used up the Rs 1.5 lakh 80C limit, the interest on NSC is immediately credited
toward the limit and is tax-deductible.

○ Premiums for several types of insurance plans, such as ULIPs, term insurance, and
endowment policies, are tax deductible up to a maximum of Rs 1.5 lakh.
Note: There are many more schemes but these are all subject to a Rs 1.5 lakh limit. To put it
another way, they're either/or investments, and making one will reduce the room for the other.
Also these can be availed irrespective of the residential status.

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2. Get a deduction on rent: Mr. Anubhav can get House Rent Allowance (HRA) and can claim a
tax deduction. There is no top limit, but the maximum HRA deduction is capped by a series of
restrictions. If he does not receive HRA but pay rent even though he is a non-ordinary or non-
resident, he can deduct up to Rs 60,000 per year under Section 80GG.
3. Keep some money in your savings account: Mr. Anubhav can possibly claim the simplest
deduction under the Income Tax Act. Section 80TTA exempts interest on savings accounts up to
Rs 10,000 per year.
4. Contribute to charity: Mr. Anubhav can even deduct charitable contributions from his taxes.
The maximum for most donations to NGOs is 50 percent of the amount contributed plus up to 10%
of your adjusted total income.
5. Get a deduction on the interest on your home loan: If Mr. Anubhav has a home loan, then
the interest payable on it is tax deductible under Section 24 of the Income Tax Act up to Rs 2 lakh
per annum.

So, Mr. Anubhav can make use of these recommendations and choose various others schemes as
mentioned under the Income Tax Act and can get multiple tax redemptions. However, one cannot
escape from paying taxes.

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