TAXATION

A Person or Company is chargeable

to Tax
Not on what his pocket saves
but
on What goes into.
 INCOME -TAX
• Income Tax is a Tax on Income.

• In the legal Sense, Income-tax is an Annual tax levied

on every person in respect of his income exceeding a
specified limit.

• It is levied in every assessment year in respect of the

income of the previous year at the rate prescribed for
the assessment year.

•
 Income (Sec 2(24)
• The income tax Act has defined the term “Income”.
• In the case of CIT Vs. Shaw Wallace & Co. Sir George
observed
“Income Connotes a periodical Monetary return
coming in with some sort of Regularity or Expected
Regularity from Definite sources.

So Income means any Monetary Receipts, either in

Cash or in Kind, coming in from a Definite source
with some sort of Expectation.
Principles which clarify the concept of Income
• Income tax Act has not thrown any light on the principles
applicable to Income. it can understood from the judgment of
court laws.
• Monetary return or receipts coming in with some sort of
expectation.
• Definite Source , Such as Salaries, Interest on Securities, House
Property, Business or Profession.
• Sources of Income must be External.
• Gifts of Personal Nature (Birth Day Gift/ Wedding Gift etc) will
not treated as income.
• PIN money Received from Husband by a wife for her personal
expenses and Saving made by a wife out of the amount
received from her Husband for meeting the household
expenses are not Taxable incomes in the hand of Wife.
• It is not Necessary that the income must be
received Periodically or regularly. Even lumpsum
receipts are taxable as income.
• Income may be Permanent or Temporary.
• It is not Necessary that the Income must be
Actually Received . Even an accrued income is
taxable.
• Both Profits as well as Losses must be taken into
for the computation of Total Income.
• An income tax Attract Tax liability whether it is Legal
or Illegal.
• A Person is chargeable to Tax not on what his
pocket saves but on What goes into.
 Income Chargeable to Tax
• Profit and Gains.
• Dividends.
• Voluntary Contribution revived by a Trust or an
Institution created wholly or Partly for Charitable or
Religious purposes or an approve Scientific research
association or Sports or A fund or Institution of
national importance notified by the Government.
• The Value of any perquisite or profit in lieu of Salary
taxable under the head Salaries.
• Any Special Allowances granted by An Employer to
an employee to meet the expenses incurred for the
performance of the office duties.
• Any allowances granted to an employee either to
meet his Personal expenses at the place where the
duties of an office are ordinarily performed or at a
place where he ordinarily resided or to Compensate
him for the Increased cost of living.
• Capital gains arising from the transfer or sales of
any capital assets.
 Assessee (Section 2(7)
• A person by whom any tax or any other sum of
money is payable .
• Person (Sec 2(31)) may be
• An Individual
• An Hindu Undivided Family
• A Company
• A Firm
• An Association of person or Body of Individuals.
• A local Authority (Municipality /District board)
• Every artificial Juridical person not falling in any of
the above categories
 Gross Total Income (Sec 80 B (5))
• Income from Salaries
• Income From House Property
• Profit and Gains of business or profession.
• Capital gains
• Income from other sources.
 RESDENTIAL STATUS AND TAX LIABILIYT
• Residential Status or Residence.
• Under Section 4 of the Income –Tax Act,
• Income tax is charges on the total income of an
assessee earned in the previous year at the rates
fixed by the Annual Finance Act for the Assessment
year.
• Under Sect.(5) of the IT Act,
• The Scope of the total income of an assessee is
determined on the basis of his residential status or
residence in India in the previous year.
CLASSIFICATION OF ASSESSEEs on the Basis of their Residential Status.

• Person Who are ordinarily resident of India.

• Person who are not ordinarily resident in India.
(Resident but Not Ordinarily Resident)
• Person Who are not resident of India.
 Individual
• Resident: (Sect. 6 (1)) an Individual is said to be
resident in India in any previous year If:
• He / She has been in India in that previous year for
a periods amounting in all to 182 days or more.
• Or
• He/ She has been in India for a periods
amounting in all to 365 days or more
During the 4 year preceding that previous year.
• Besides satisfying any one of the previous two basic
condition, an individual, to become a resident of
India in any previous year, should also satisfy the
following two condition (Subsequent condition).
• That he has been resident In India for a period or
periods amounting in all to 729 days or more during
7 years preceding the relevant previous year.
• That he has been resident in India in at least 9 out of
10 years preceding the relevant previous year.
• In short an Individual is said to be resident, popularly
known as ordinarily resident in India in any previous
year if he satisfies any one of the basic condition and
both the subsequent conditions.
 Not Ordinarily Residents Sec. 6(6)
• If an Individual Satisfies any one of the two basic
conditions but does not satisfy both subsequent
condition, he becomes a NOT ORDINARILY
RESIDENTS.
• NON-RESIDENT: if an Individual does not satisfy any
one of the basic condition, he is said to be a Non-
Residents.
 Illustration

• Arun is a citizen of India. He has been serving in the

Mumbai office for the last 12 years. On 19.04.2009
he has been transferred to London office and he left
India on the Same day to take charge of that office.
he is transferred back to Mumbai office and comes
back to India on 15.03.2010.
• What is his residential status for the assessment
year 2011-12?
• Yogesh was sponsored by his employer in India for
some training in USA. He left India on 3rd June,2003.
He came back to India on the 5th April, 2004.
Determine Yogesh’s residential status for the
assessment year 2004-05. Assuming that he did not
go out of India previously.
• Mr. Vincent an American National, came to India from
USA for the first time on 30th September 1997 to join
an American concern. After reporting duty , he left
for Japan on 2nd October 1997 and stayed here till 31st
July 2002 when he went back to USA. He came back
to join duty on 13th November 2003. what is his
residential status for the previous year 2003-04 and
give reasons
 Rules of Residence
Resident and Resident but not Non-Residents
Ordinarily Resident Ordinarily Resident

Must Satisfy at least Must Satisfy at least Must Satisfy

one of the Basic one of the Basic none of basic
condition and both condition and One Condition
the Additional or None of the
conditions Additional condition
 Basic condition at a Glance.
In the case of Indian In the case of An Indian In the case of an individual
Citizen who leaves India Citizen or a Person of (other than 1and 2)
during the previous year Indian Origin (who is
for the purpose of Abroad) who comes on a
employment visit to India during the
previous year

A. Presence of a t least A. Presence of a t least A. Presence of a t least

182 days in India 182 days in India 182 days in India
during the previous during the previous during the previous
year. year. year.

B. Non – functional B. Non – functional B. Presence of at least

60 days in India during
the previous year and
365 days during 4
years immediately
preceding the relevant
previous year.
 Additional Condition at a Glance
• Resident in India at least 2 out of 10 years
immediately preceding the relevant previous
year
• Presence of at least 730 days in India during 7
years immediately preceding the relevant
previous year
 Residential Status of a Hindu Undivided Family
Place of Control Residential Status Ordinarily
of Family Resident or Not
Control and
Management of the
affairs of a Hindu
undivided Family is:
1. Wholly In India 1. Resident
2. Wholly outside India
3. Partly in India and 2. Non-
Partly Outside India. Resident
3. Resident

Hindu Undivided family is ordinarily resident in India if

KARTA or Manager of the family (including Successive Karta)
satisfies the following two additional condition
Kind of Income Resident Not Ordinarily Non
Resident Resident
Income or Received or deemed
to be Received in India during the Taxable Taxable Taxable
Previous year,
whether accrued or arisen in
India or Outside India
Income Accrued or arisen or
Deemed to accrued or arise in Taxable Taxable Taxable
India during the previous year ,
Whether received in India or
outside India.
Income accrued or arisen and
also received outside India during Taxable Taxable Not
the previous year from a business Taxable
controlled from India or
profession set up in India,
whether remitted to India or not
Kind of Income Resident Not Ordinarily Non
Resident Resident
Income Accrued or arisen
and also received outside Taxable Not Not
India During the Previous Taxable Taxable
year from any other source
(i.e Any source other than
the business s controlled
from India or Profession Set
up In India)
Income Accrued or Arisen
and also received outside Not Not Taxable Not
India in the earlier years Taxable Taxable
prior to the previous year
and remitted or bought to
India during the previous
year.