Residential Status and tax incidence

Mr. X furnishes the following particulars of his income during the P.Y. relevant to the assessment year 2012-13 : 1. Interest from Germen Development Bonds (one-sixth received in India) Rs. 36,000/ 2.Income from agriculture in Pakistan received there but later on Rs. 86,000/- is remitted to India-Rs. 3,41,000/-

Residential Status and tax incidence

RELEVANCE OF RESIDENTIAL STATUS :- There are two types of taxpayers-resident in India and non-resident in India. Indian income is taxable in India whether the person earning income is resident or non-resident. Conversely, foreign income of a person is taxable in India only if such person is resident in India. Foreign income of a non-resident is not taxable in India. DIFFERENT TAXABLE ENTITIES :- All taxable entities are divided in the following categories for the purpose of determining residential status : (a) an individual (b) a HUF (c) a firm or AOP (d) a Joint stock company (e) every other person. DIFFERENT RESIDENTIAL STATUS- An assessee is either (a) resident in India, or (b) non-resident in India. However, a resident individual or a Hindu undivided family can either be :

Residential Status and tax incidence

(a) resident and ordinarily resident in India, or (b) resident but not ordinarily resident in India; or (c) non-resident in India. RESIDENTIAL STATUS FOR EACH PREVIOUS YEAR :- Residential status of an assessee is to be determined in respect of each previous year as it may vary from previous year to P.Y. DIFFERENT RESIDENTIAL STATUS FOR DIFFERENT ASSESSMENT YEARS :- An assessee may enjoy different residential status for different assessment years. For e.g. an individual who has been regularly assessed as resident and ordinarily resident has to be treated as non-resident in a particular A.Y. if he satisfies none of the conditions of section 6(1) in that year.

Residential Status and tax incidence

Basic conditions to test as to when an individual is resident in India :- Under section 6(1) an individual is said to be resident in India in any previous year, if he satisfies at least one of the following conditionsBasic condition (a) Basic condition (b) 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.

Residential Status and tax incidence

ADDITIONAL CONDITIONS TO TEST AS TO WHEN A RESIDENT INDIVIDUAL IS ORDINARILY RESIDENT IN INDIA :- Under section 6(6), a resident individual is treated as resident and ordinarily resident in India if he satisfies the following two additional conditions :Additional condition (i) Additional In brief condition (ii) He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year. He has been in India for a period of 730 days or more during 7 years it immediately can be said that an becomes resident preceding theindividual relevant previous year.

and ordinarily resident in India if he satisfies at least one of the basic conditions{i.e. (a) or (b) and the two additional conditions [i.e. (i) and (ii)]

Residential Status and tax incidence

RESIDENT BUT NOT ORDINARILY RESIDENT [Sec.6(1)]- An individual who satisfies at least one of the basic conditions [i.e. condition (a) or (b)] but does not satisfies the additional conditions [i.e. (i) and (ii)] is treated as a resident but not ordinarily resident in India in any of the following circumstances :
Case 1 Case 2 If he satisfies at least one of the basic conditions [i.e. (a) or (b)] but none of the additional conditions [i.e. (i) or (ii)] If he satisfies at least one of the basic conditions [i.e. (a) or (b)] and one of the two additional conditions.

Non-resident :- An individual is a non-resident in India if he satisfies none of the basic conditions.

Residential Status and tax incidence

Mr. X is a foreign citizen. During the financial year 2012-13, he comes to India for 85 days . Determine his residential status for the A.Y. 2013-14 on the assumption that during the financial years 1998-99 to 2011-12, he was present In India as follows :
1998-99 1999-2000 2000-2001 2001-02 2002-03 2003-04 2004-05 85 days 310 Days 6 days 5 days 65 days 180 days 360 days 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 16 days 360 days 181 days 305 days 65 days 10 days 126 days

Residential Status and tax incidence

Tax incidence for Individual and HUF is as under:Resident and ordinarily resident in India
Indian Income Foreign Income Taxable in India Taxable in India

Resident but not ordinarily resident in India

Taxable in India

Non-resident in India
Taxable in India

Note-1- If it is business income and business is controlled wholly or partly from India. Note-2- If it is income from profession which is set up in India.

Only two types of Not taxable in foreign incomes (i.e. India as per note-1 and Note-2 given below ) are taxable in India

Residential Status and tax incidence

The following is the broad principal for tax incidence on the basis of Residential status: 1. Indian Income:-Indian income is always taxable in India irrespective of the residential status of the tax payer. 2. Foreign Income:- Foreign Income is taxable in the hands of resident or resident and ordinarily resident in India. Foreign income is not taxable in the hands of non-resident in India. In the hands of resident but not ordinarily resident taxpayer, foreign income is taxable only if it is (i) 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 tax payers.

Residential Status and tax incidence

3. Interest from property in USA received outside India-Rs. 3,40,000/ 4. Income earned from business in Iran which is controlled from New Delhi (Rs.70,000/- is received in India) Rs. 4,05,000/ 5.Dividend paid by a foreign company but received in India on May 20, 2011.-Rs.30,000/ 6.Past untaxed profit of 2007-08 brought to India in June-2011.-Rs.10,00,000/-

Residential Status and tax incidence

7.Profits from a business in Delhi and managed from outside India- Rs. 37,500/ 8. Profits on sale of a building in India but received in USA Rs. 15,00,000/ 9. Pension from a former employer in India, received in Bangladesh Rs.3,00,000/ 10. Gift in foreign currency from a friend received in India on 06-10-2011. Rs. 90,000/-

Residential Status and tax incidence

11. Capital gain on sale of a house situated in Madras (Sale consideration is received in Pakistan) Rs. 50,000/ 12. Salary received in Sri Lanka for rendering service in Gujarat Rs. 1,00,000/ Find out the gross total income of X (i) If he is resident and ordinarily resident in India. (ii) If he is resident but not ordinarily resident in India, and (iii) he is non resident for the assessment year 2012-13.

Salary
Discuss the tax treatment that may be accorded to each of he following items in the hands of Mr. X 1. Company pays college fees of Rs. 1,800/during the year directly to the college for his son, while his daughter is getting free education in an institution run by the company. She is also given free transport in factory bus to and from the school.

salary
2.Mr. X availed 15 days leave out of 30 days to which he was entitled, he encashed the balance leave of 15 days and got Rs. 40,700/which he claimed to be exempt 3.He got an interest free loan of Rs.50,000/for construction of a house at his native place. The company accepts deposits at 7% from the public. However, SBI lending rate is 8%.

salary
4. Company pays Rs.1,000/- per annum on accident insurance policy for the benefit of X. 5. Company has reimbursed his club fee of Rs. 500 per annum and club bills of Rs. 4,000/ 6. The company made a car (800cc) available to him for official use and personal use. He reimbursed the company at Rs. 2.50 per kilometer for personal use.

salary
7. Medical bills reimbursement : Rs.44,000/(out of which Rs. 12,000/- is in respect of treatment in a Governments hospital) 8. Leave travel concession Rs.51,300/- (Actual expenditure is more than Rs.51,300/-) 9. Suppose Mr. X is a retired Government and gets a sum of Rs. 14,700/- per month as pension from the Government.

Salary-Valuation of perquisite in respect of free education

Fixed education allowance :-Fixed education allowance given by the employer to the employee to meet the cost of education of the family members of the employee is exempt from tax to the extent of Rs. 100/- per month per child (up to a maximum of two children). Moreover, any allowance granted to an employee to meet the hostel expenditure of his child is exempt from tax to the extent of Rs. 300/- per month per child for a maximum of two children.

Salary-Valuation of perquisite in respect of free education

Payment of school fees of employees children School fees of the family members of the employees, paid by the employer directly to the school is taxable as a perquisite in all cases Reimbursement of school fees of employees children:- Reimbursement of expenditure incurred for the education of the family members of the employee, is taxable as a perquisite in all cases.

Salary-Valuation of perquisite in respect of free education

Education facility in employers institute.:Where the educational institution is owned and maintained by the employer and educational facility is provided. Ans:- In the case of above said facility if cost of education does not exceed Rs. 1,000/- then amount chargeable to tax will be NIL. If the cost is more than Rs. 1000/- than the expenditure more than Rs. 1,000/- will be chargeable to tax.

Salary-Example
Mr. X is in the Gujarat Government service till his retirement on May 31, 2008 when he joins A ltd. In which 35% equity shares are held by the Gujarat Government. During the pervious year 2011-12, he gets the following from A. ltd Basic salary: Rs. 20,000/- per month, D.A. Rs.2000/- per month (half of which is part of salary for retirement purposes): Rs. 2000/- per month, over time allowance up to 31-05-2011 Rs. 2,000/-helper allowance for office use Rs.1,000/per month(expenditure Rs. 800/- per month)

Salary-Example
Medical bills reimbursement : Rs. 55,000/-(out of which Rs. 15,000/- in the private hospital but approved by the Chief Commissioner of I.T.), Free Gas and electricity only for personal use :Rs. 24,000/-, free telephone at residence Rs. 9,000/-; free lunch in office: Rs12,000/- (amount paid directly to canteen @ Rs. 40 per day for 300 days), interest-free loan for house Rs. 2,00,000/for six years (SBI lending rate on 01-04-2011 : 10.25%),

Salary-Example
Earned leave encashment: Rs. 16,000/-(as per service rules X is entitled for 2 days leave for each month of service and during 2011-12, X has encashed 24 days leave earned during the year), medical insurance on life of X Rs.5,060/Medical insurance premium on the life of Xs brother who is not dependent upon X: 4,100/(the amount is reimbursed to X), Leave travel concession for X and his family: Rs. 46,500/(no journey is undertaken)

Salary-Example
Up to May 31, 2011, X has been paid house rent allowance of Rs.4,000/- per month(rent paid at Delhi : Rs. 4,000/- per month). With effect from June 1,2011, X has been provided a rent-free furnished house at Delhi whose lease rent is Rs. 15,000/- per month( rent of furniture provided with effect from September 15, 2011 :Rs. 20,000/-). Further A Ltd. Bears the expenses of repairs Rs.10,000/-

Salary-Example
Income of X from other sources is Rs. 6,00,000/- (which includes Government pension of Rs. 1,20,000/-) Find out the taxable income of X for the A.Y. 2012-13 on the assumption that Mr. X annually contributes Rs. 30,000/- towards P.F. and Rs. 20,000/- in public provident fund.

Salary-Example
X, posted at Ahmedabad, received following emoluments from his employer during the previous year 2012-13 :- Basic salary Rs. 80,000, salary in lieu of leave for the current year Rs.8,000, bonus Rs. 9,600, reimbursement of medical expenses Rs.6,000, entertainment allowance Rs.8,000, car provided by the employer Rs, 7000, electricity expenses borne by the employer Rs. 5,000 income-tax paid by the employer Rs.4,000 and special allowance 8,400. The employer provides a rent-free house (owned by the employer) whose particulars are : fair rent Rs. 86,400, salary of gardener Rs.4,800,house repairs Rs.11,000 Determine the value of the perquisite in respect of rent free house, if (a) X is a officer of the Government of Gujarat whose services have been lent to LIC, and accommodation to him has been allotted by the State Govt. and Rs.10,000 is the license fee of the accommodation occupied by X as per the Govts rules, (b) and X is the employee of PQR Ltd.

Salary-Example
Salary for the purpose of computing the value of rent-free accommodation is Rs. 1,14,000 (Basic-80,000+Salary in lieu of leave-8000 + Bonus-9600 +entertainment allowance-8000 + Special allowance-8400) If Mr.X is an officer of the Government of Gujarat and his services have been lent to LIC-Rs. 10,000 (being licence fee of the house as per the Governments rule) is the value of the perquisite. If Mr. X is an employee of PQR Ltd., then 15% of salary i.e. Rs. 17,100 (15% of 1,14,000) is taxable value of the perquisite.

Salary-Example
Mr.X an employee director has received following emoluments during the P.Y. 2012-13- Calculate the taxable income for the A.Y. 2013-14. Salary Rs.2,56,000, entertainment allowance Rs. 1,06,000, bonus Rs.1,11,200, education allowance Rs.2000 (for his grand children) Income-tax penalty paid by the employer Rs.1,500, Medical expenses reimbursed by the employer Rs. 15,000, leave travel concession Rs. 51,300, free residential telephone Rs. 13,000, reimbursement of gas bill Rs. 11,500, furnished house at concessional rate-lease rent of the house Rs. 1,60,800, cost of maintenance of garden (including salary of gardener) Rs. 2000, salary of two watchman Rs.11,000, salary of sweeper Rs. 6,200, rent of A.C. Rs.2,000, Cost of furniture Rs.18,000, Rent of furnished house paid to the employer Rs. 11,200, Car owned by

Salary-Example
the employer given partly for official and partly for private use (1900cc), payment of delegation fee to FICCI for attending 31st All India Conference of Corporate Managers and Tax Executives Rs. 52,000, employers contribution towards recognised provident fund Rs. 47,920,interest credited in P.F. A/c @ 14% Rs.14,000,Arrears of bonus of 2010-11 (not taxed earlier) Rs. 52,000,Mr.x is a retired Government employee. He gets a sum of Rs. 14,700 per month as pension from the Government. Professional tax paid by Mr.X Rs. 1,650