BASIS OF CHARGE

Charge of Income Tax

• Section 4 is the charging Section- it imposes income tax
upon a person with respect to his income
• Income tax to be charged on the basis of central act-
Annual Finance Act. (independent of the finance act, but
until it passed no income tax can be levied. – reference
case( Chatturam Horitram V C.I.T,1953)
• The subject to the Act is not income of the assessment year
but the Previous Year- (assessment year- assessing officer)-
in exceptional situation the income of the assessment year
can be tax in the very year.
• “assessment year” means the period of twelve months
commencing on the 1st day of April every year.
• “Assessing Officer” means the Assistant Commissioner [or Deputy
Commissioner] [or Assistant Director] [or Deputy Director] or the
Income-tax Officer who is vested with the relevant jurisdiction by
virtue of directions or orders issued under sub-section (1) or
subsection (2) of section 120 or any other provision of this Act,
and the [Additional Commissioner or] [Additional Director or]
[Joint Commissioner or Joint Director] who is directed under
clause (b) of sub-section (4) of that section to exercise or perform
all or any of the powers and functions conferred on, or assigned
to, an Assessing Officer under this Act ;
Residential status and Tax Liability
• Residence not Citizenship is the basis of Taxation- the
incidence of the taxation varies with changes in the
residential status of the assessee.
• The residential status of the assessee is determine
with reference to the previous year not with reference
to the assessment year.- (reference case- Wallace Bros
& co. ltd V C.I.T, 1948)
• The residential statutes is determined for each of the
previous year, a person may be a resident in one
previous year but may not be so in the next.
 Individual- The division
• Determination of residential status for the
taxable enities may be divided into the following
categories
• Resident and Ordinarily resident in India
• Resident but not ordinarily resident in India
• Non- Resident- and not ordinarily resident
• This is three categories only for Individuals and
HUF, others persons- only two – resident and non
resident
Residential status of the Individuals
• RESIDENT AND ORDINARILY RESIDENT IN INDIA
• Section 6
1. An individual is said to be resident in India in any previous year, if
he-
a. is in India in that year (i.e the Previous year of the assessment
year in respect of which the residence of the individual is being
determine)for a period or periods amounting in all to one
hundred and eighty-two days or more; or
c. having within the four years preceding that year been in India for a
period or periods amounting in all to three hundred and sixty five
days or more, is in India for a period or periods amounting in all to
sixty days or more in that year)365- 60
• [Explanation.—In the case of an individual-
• being a citizen of India,
– who leaves India in any previous year as a member of the
crew of an Indian ship as defined in clause (18) of section
3 of the Merchant Shipping Act, 1958 (44 of 1958), or
– for the purposes of employment outside India,
the provisions of sub-clause (c) shall apply in relation to
that year as if for the words “sixty days”, occurring therein,
the words “one hundred and eighty-two days” had been
substituted ;
• Resident and ordinarily resident in India- (changed law in finance
Act, 2020)
What Law was-
• being a citizen of India, or a person of Indian origin within the
meaning of Explanation to clause (e) of section 115C,
• " non- resident Indian" means an individual, being a citizen of India or a person of
Indian origin who is not a" resident". Explanation.- A person shall be deemed to
be of Indian origin if he, or either of his parents or any of his grand- parents, was
born in undivided India;
• who, being outside India, comes on a visit to India in any previous
year, the provisions of sub-clause (c) shall apply in relation to that
year as if for the words “sixty days”, occurring therein, the words
“one hundred and [eighty-two] days” had been substituted.
• As per the current provisions of the Income-tax
Act 1961 (Act), an individual is qualified as
Resident of India, if he satisfies either of the
following conditions:
• (i)    Stay in India is at least 182 days during the
FY; or
• (ii)   Stay in India is at least 60 days during the
FY and at least 365 days during 4 preceding FYs.
• The relaxation is provided to an Indian citizen or a Person of
Indian Origin (PIO) who, being outside India, comes on a visit to
India by providing an extended period of 182 days instead of 60
days , the Finance Act, 2020 has reduced the said extended
period of 182 days to 120 days for those Indian citizens or PIOs
having total income, other than income from foreign sources
exceeding Rs 15 lakhs during the Financial Year.
• This is an anti-abusive provision as it is noticed that many
individuals, who are actually carrying out substantial economic
activities from India, manage their period of stay in India to be
less than 182 days to remain a Non-Resident (NR) in India.
• To the existing condition laid down under the
Act , for an individual to qualify as a NOR,
additional condition has been inserted under
the FA which states that an Indian citizen or a
PIO, who, being outside India, comes on a visit
to India in any FY shall be considered NOR if –
• (i)     His total income, other than the income
from foreign sources, exceeds Rs 15 lakhs; and
• (ii)    His stay in India is 120 days or more
 Introduction of provision of ‘Deemed Residency’

• As per the current provisions of the Act, an individual’s

residential status in India is characterised as Ordinary Resident
(OR) or NOR, based on his number of days stay in India. Hence,
some Indian citizens used to shift their stay in low / no tax
jurisdiction to enjoy the status of NR in India.
• To prevent such abuse, FA has introduced the provision of
‘Deemed Residency’. As per this provision, Indian citizen shall
be deemed to be Resident of India (ROI), if –
– (i)  His total income, other than income from foreign sources,
exceeds Rs 15 lakhs during the FY; and
– (ii) He is not liable to tax in any other country or territory by reason
of his domicile or residence or any other criteria of similar nature.
• The residential status of an Indian citizen who is deemed
Resident of India shall be ‘Not Ordinarily Resident (NOR)’.
• It is important to note here that while an Ordinary Resident is
taxable in India on his global income as against NOR whose
income from outside India is taxable in India only if it is derived
from a business controlled in or a profession set up in India.
• This in fact requires for every individual who was erstwhile taking
the benefit of these provisions of the Act are now in a way
coming within the purview of the Indian tax net. Pursuant to the
above changes introduced in the residency provisions, it is
important for Indian citizens and PIOs to carefully evaluate their
residential status and assess their tax liability in India accordingly.
 “not ordinarily resident” in India
• Section 6(6)
• {section 2 (30) “non-resident” means a person who is not a
“resident” 62[, and for the purposes of sections 92, 93 63 and 168,
includes a person who is not ordinarily resident within the
meaning of clause (6) of section 6] }
• A person is said to be “not ordinarily resident” in India in any
previous year if such person is-
• an individual who has been a non-resident in India in nine out of
the ten previous years preceding that year, or
• has during the seven previous years preceding that year been in
India for a period of, or periods amounting in all to, seven hundred
and twenty-nine days or less
 Finance Act,2020
• (c) a citizen of India, or a person of Indian origin,
having total income, other than the income from
foreign sources, exceeding fifteen lakh rupees during
the previous year, as referred to in clause (b)
of Explanation 1 to clause (1), who has been in India
for a period or periods amounting in all to one
hundred and twenty days or more but less than one
hundred and eighty-two days; or
• (d) a citizen of India who is deemed to be resident in
India under clause (1A).
Old Law
• Section 6 (1)
• A person will be resident if he
satisfy any one of the following
two conditions –
• If he is in India for 182 days or
more during the previous year
OR
• If he is in India for 60 days or
more in previous year and 365
days or more during 4 previous
years preceding to that year.
New law
• Section 6(1)
• A person will be resident if he
satisfy any one of the following
two conditions –
• If he is in India for 182 days or
more during the previous year
OR
• If he is in India for 60 days or
more in previous year and 365
days or more during 4 previous
years preceding to that year.
Old Law
• Explanation. 1—In the case of an
individual,—
• (a) being a citizen of India, who leaves
India in any previous year as a member
of the crew of an Indian ship as defined
in clause (18) of section 3 of the
Merchant Shipping Act, 1958 (44 of
1958), or for the purposes of
employment outside India, the
provisions of sub-clause (c) shall apply
in relation to that year as if for the
words “sixty days”, occurring therein,
the words “one hundred and eighty-
two days” had been substituted
New Law
• Explanation. 1- In case of an Individual
• being a citizen of India, who leaves
India in any previous year as a
member of the crew of an Indian ship
as defined in clause (18) of section 3 of
the Merchant Shipping Act, 1958 (44
of 1958), or for the purposes of
employment outside India, the
provisions of sub-clause (c) shall apply
in relation to that year as if for the
words “sixty days”, occurring therein,
the words “one hundred and eighty-
two days” had been substituted
Old Law
• Explanation 1 clause (b) –
• A person 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,
then in his case 60 days in
above provision needs to be
read as 182 days.
New Law
• A person will be resident if he satisfy any one of the
following two conditions –
• 1. If he is in India for 182 days or more during the
previous year OR
• 2. If he is in India for 60 days or more in previous
year and 365 days or more during 4 previous years
preceding to that year.
• Explanation 1 clause (b) –
• A person 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, then in his case 60
days in above provision needs to be read as 120
days.
• Further the application of explanation 1 clause (b) is
restricted only to that Indian citizen or a person of
Indian origin whose total income, other than
income from foreign sources, exceeds Rs. 15 lakhs
during the previous year.
Old Law
• Earlier a person can be a
resident of India only if he
satisfies any of two
conditions discussed above
in OLD PROVISION,
AMENDMENT 1 above.
New Law
• According to new clause (1A) in section
6, an India citizen shall be deemed to
be the resident if he is not liable to tax
in any other country or territory by
reason of his domicile or residence or
any other criteria of similar nature.
• Further the application of New clause
(1A) in section 6 is restricted only to
that Indian citizen or a person of Indian
origin whose total income, other than
income from foreign sources, exceeds
Rs. 15 lakhs during the previous year.
 Residential status of the HUF
• Section 6 (2)
• A Hindu undivided family, firm or other association of
persons is said to be resident in India in any previous
year in every case except where during that year the
control and management of its affairs is situated
wholly outside India
• Reference case- C.I.T v Raja Textiles Ltd, 1977- control
and management of its affairs is situates in India either
wholly or partly , it will be non- resident if the control
and management of its affairs is wholly out side.
 When it be an non resident
• Section 6 (6) (2)
•  a Hindu undivided family whose manager has
been a non-resident in India in nine out of the
ten previous years preceding that year, or has
during the seven previous years preceding
that year been in India for a period of, or
periods amounting in all to, seven hundred
and twenty-nine days or less- karta
The meaning of control and management

• De facto
• Subbayya Chettiarji v C.I.T, 1951
• Normally a HUF is presumed to be resident in India,
• unless it proved by accessee that the control and
management of its affairs situated wholly out side
India.
• control and management signifies controlling and
directive power the head and the brain, situated
implies the function of such power at a particular place
with some degree of performance
• The word affairs, means affairs which are relevant for the
purpose of the income tax act and which have some
relations with income sought to be accessed
• The seat of management and controlled may be divided
and if so it may have more than one residence.
• If the seat of management and controlled is situated out
side Indian, the bare activities in India would not be
enough to support finding that the seat of management
and control has shifted (part management) or that second
centre for such management and control has been started
in India.
 Company
• S. 6 (3) A company is said to be a resident in India in
any previous year, if—
• (i) it is an Indian company; or
• (ii) its place of effective management, in that year, is in
India.- not an Indian compnay
• Explanation.—For the purposes of this clause "place
of effective management" means a place where key
management and commercial decisions that are
necessary for the conduct of business of an entity as a
whole are, in substance made.
• Section 6(3)(i) : Indian Company
• Always Resident in India.
• An Indian company is always resident in India. Even if
an Indian company is controlled from a place located
outside India (or even if shareholders of an Indian
company controlling more than 51 per cent voting
power are non-resident and/or located outside
India), the Indian company is resident in India. An
Indian company can never be non-resident.
• Section 6(3)(ii) :  A Foreign Company (whose turnover/gross
receipt in the previous year is more than Rs. 50 crore)
• It will be resident in India if its place of effective management
(POEM), during the relevant previous year, is in India .
•  For this purpose, the place of effective management means a
place where key management and commercial decisions that
are necessary for the conduct of the business of an entity as a
whole are, in substance made. For this purpose, a set of
guiding principles (to be followed in determination of POEM)
have been issued by the Board in Circular No. 6/2017, dated
January 24, 2017.
• Section 6(3)(iii) :  A Foreign Company (whose
turnover/gross receipt in the previous year is Rs. 50 crore
or less)
• Always Non-Resident in India
• Provisions of section 6(3)(ii) shall not apply to a foreign
company having turnover or gross receipts of Rs. 50 crore
or less in a financial year – Circular No. 8/2017, dated
February 23, 2017. In other words, a foreign company
(whose annual turnover/gross receipts is Rs. 50 crore or
less) cannot be resident in India from the assessment year
2017-18 onwards.
 Residential Status of a Company is
determined as follows a Table Format.
Company Residential Status
• Section 6(3)(i)- Indian Company • Always Resident in India
• Section 6(3)(ii)-A foreign • It will be resident in India if
company (whose turnover/gross its place of effective
receipt in the previous year is
more than Rs. 50 crore)
management (POEM),
• Section 6(iii)- A foreign company
during the relevant previous
(whose turnover/gross receipt year, is in India.
in the previous year is Rs. 50 • Always non-resident in India
crore or less)
Residential status of firm and AOP and BOI

• A firm or other associate of person will be

taken as resident in India in a previous year if
the control and management of its affairs is
situated in India either partly or wholly and it
will be treated as non- resident if control and
management of its affairs is situated wholly
outside India.
• Reference case- (B.R Nair v C.I.T, Narotta &
pereira ltd. C.I.T.1953)
 Other person
• Every other person is said to be resident in
India in any previous year in every case,
except where during that year the control and
management of his affairs is situated wholly
outside India
 Scope of total income

s. 5. (1) Subject to the provisions of this Act, the total income of any
previous year of a person who is a resident includes all income from
whatever source derived which—
• (a) is received or is deemed to be received in India in such year by or on
behalf of such person ; or
• (b) accrues or arises or is deemed to accrue or arise to him in India
during such year ; or
• (c) accrues or arises to him outside India during such year :
• Provided that, in the case of a person not ordinarily resident in India
within the meaning of sub-section (6) of section 6, the income which
accrues or arises to him outside India shall not be so included unless it is
derived from a business controlled in or a profession set up in India.
• 2)  Subject to the provisions of this Act, the total income of any previous year of a
person who is a non-resident includes all income from whatever source derived
which—
• (a) is received or is deemed to be received in India in such year by or on behalf of
such person ; or
• (b) accrues or arises or is deemed to accrue or arise to him in India during such
year.
• Explanation 1.—Income accruing or arising outside India shall not be deemed to
be received in India within the meaning of this section by reason only of the fact
that it is taken into account in a balance sheet prepared in India.
• Explanation 2.—For the removal of doubts, it is hereby declared that income
which has been included in the total income of a person on the basis that it has
accrued or arisen or is deemed to have accrued or arisen to him shall not again be
so included on the basis that it is received or deemed to be received by him in
India.
 Scope of Income
section 5
• The incident of tax depends on the residential
status of the assessee. There are certain
income which may be taxable in the hand of
the assessee who are residents in India but
not in the had of the assessee who are not
residents in India. section 5 provides for the
scope of total income of the assesses in the
basis of their residential status .
 Resident and Ordinarily Resident
• subject to provision of the act, the total
income of any previous year, includes all
income from whatever sources,
– Received or deemed to be received in India in
such year by or on behalf of such person
– Accrues or arises(future) or in deemed to accrues
or arises to him in India during such years
– Accrues or arises to him “outside India during such
years.”
 Resident but not ordinarily resident
• Subject to provision of the act, the total income
of any previous year, includes all income from
whatever sources
– Is received or deemed to be received in India in such
year by or on behalf of such person
– Accrues or arises or is deemed to be accrues or arise
to him in India during such year
– Income which accrues or arises to him outside India
derived from a business controlled in India or
Profession set up in India.
 Non- Resident
• subject to provision of the act, the total income
of any previous year, includes all income from
what ever sources
– is received or is deemed to be received in India in
such years by or on behalf of such person
– Accrues or arises or is deemed to be accrue or arises
to him in India during such year.
As per the provision of Act. Non- resident is been
taxed only in respect to their Indian income not in
respect to their foreign Income.
 Incident of tax
• Income received or deemed to be received in
India-
– taxable in the hand of all types of assessee.
– It is taxable where arise or accrue or deemed to
be arise or accrue in India
• Income accrues or arises or is deemed to
accrue or arise in India-
– also taxable in the had of all types of assessee,
whethere it is received in India or outside.
• Income accrues or arises or deemed to be
accrues or arises any sources any sources
outside India and not received in India, received
outside India.
– Taxable – resident and ordinarily resident and
resident but not ordinarily resident, but non-resident
– In case of resident but not ordinarily resident-
• it will be taxable in the hands, only when if the income is
derived from a business controlled in India or from a
profession set up in India
• Income earned and received outside India in
the year preceding the previous year and
brought into India during the previous year
– Not taxable in the hand of any assessee.
 The Two Expression

“Income Received or deemed to be received in

India”
“Income accrues or arises or is deemed to
accrue or arise in India”
Income Received and deemed to be Received

• Receipt – actual and constrictive- receipt means first

received means income can only received once
• Deemed to be received- income deemed to be received in
India are include in the total income of an assessee. Income
deemed to be received in India means the income, though
not actually received, the law treats them as “income
received” for the purpose of taxation. Section 7 and 8 deals
with it
• Provident funds related payments
• Any devident declayed by a company or distributed or paid
by it shall be deemed to be the income.
Income accrues or arise- deemed to be

• Accrues- Right to receive that income

• Accrue and arise- The difference between
“accrue” and arise is this income accrue ,
when right to receive come into existence, but
arise when the method of accounts shows it.
 Deemed to be accrue or arise in India

• Income through or from any business

connection in India
• Income through or from any property in India
• Income through or from any asset or source in
India
• Income through the transfer of a capital assets
situated in India
• Salaries earned in India