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Module 1 Concept and Introduction
Can government remove income tax? Where does exchequer invest the money collected as tax Importance of Income tax
Income tax act 1961
Income tax act imposes tax on income other than agricultural income. Tax on agricultural income can be imposed by state governments.
Finance act ± amendments made every year Importance of Finance act
Types of taxes in india Direct taxes ± Income tax ± Wealth tax ± Property tax Indirect tax ± Sales ± Vat ± Excise ± Custom duty .
Terminology Assessment year [sec 2(9)] The period starting from 1 April and ending 31 March of the next year. Previous year [sec 3] Year in which the income is earned or year preceding assessment year Newly set business organization Previous year can be 12 or less months. .
Example Raj¶s previous year is 2007. Which year will he pay the tax for? Company ABC ltd paid advance tax on September 2009. What is his assessment year? Raj¶s assessment year is 2009. which year will he pay the income tax? Raj paid individual income tax on 31 July 2008. Which is the assessment year? A Financial year has double role to play .
. University.Terminology Assessee [sec 2(31)] ± a person by whom any tax or any sum of money is payable under income tax act. Eg: Deity. Person includes [sec 2(7)] ± ± Individual ± HUF ± Company (under Indian company act 1956) ± Firm (Under Indian partnership act 1932) ± association of person whether incorporated or not ± local authority like municipality ± Other artificial judicial person ± Not falling in any of the above category. Guru Granth Sahib and trust etc.
guardian of a minor.Terminology Deemed assessee ± Who has been treated as an assessee only by law. trustee of the trust. . ± Is assessed on income or loss of any other person. Eg: The legal representative of the deceased.
. Ex: Person required to deduct tax at source does not deduct tax or having deducted fails to pay it to the central government.Terminology Deemed to be an assessee in default ± A person deemed to be an assessee in default if he does not comply with the statutory duty under the income tax act.
Terminology Income is periodical monetary return with some sort of regularity Income [sec 2(24)] ± it includes ± Profit and gains ± Dividend ± Voluntary contribution received by a trust ± Perquisite in the hands of the employee ± Any specific allowance or benefit ± City compensatory allowance .
Terminology ± Any benefit of perquisite to a director ± Any benefit or perquisite to a representative or assessee ± Capital gains ± Insurance profit ± Banking income of a co-operative society ± Winning from a lottery ± Employee contribution towards provident fund ± Amount received under keyman insurance policy ± Amount exceeding Rs50.000 by way of gift .
000 on behalf of X.000 as a gift X hold 20% shares in A ltd. . X gets Rs 3000 as salary and Rs 3000 as conveyance allowance.Examples X is a director in a company. X gets a car worth Rs 3. The company provides a domestic help and is paid by the director.00. A ltd repays a loan of Rs 15.
Terminology Gross total income [sec 14] As per the section income is computed under the following five heads : ± Income from Salaries ± Income from house property ± Income from business or profession ± Income from Capital gains ± Income from other sources Aggregate income under these heads is termed as ³gross total income´ .
Terminology Total income means total income computed in accordance with the provisions of the act after making any deduction under sections 80c to 80u. .
± Eg: profit on sales of capital assets may be a capital receipt but will still be taxable as capital gain Revenue receipt ± are taxable unless they are expressly exempt from tax .Capital and revenue receipts Capital receipt ± are exempt from tax unless they are expressly taxable.
Sequence of taxation Heads of Income Exempt income Gross total income Deductions Total income Rate of income tax Rebate Relief from tax Advance tax Tax at source Refunds .
Residential status Different taxable entity ± Individual ± HUF ± Firm or an Association of person ± Joint stock company ± Every other person .
Resident status An assessee is either ± resident in India or ± Non-resident in India An individual or HUF has to be ± Resident and ordinarily resident ± Resident but not ordinarily resident All other assessee can be ± Resident in India ± Non-resident in India .
then you are resident and ordinary resident. If you pass one test. A person is deemed to be of Indian origin if he/she or parents or any grand parent was born in undivided India. you are resident (but may not be ordinary resident). .Residential status Residential status ± There are two test. If you pass both the test.
if he satisfies at least one of the following condition ± He is in India in the previous year for a period of 182 days or more ± He is in India of 60 days or more during the previous year and 365 days or more during 4 year immediately preceding the previous year .st 1 test for residential status U/S 6(1) An individual is resident in India in any previous year.
Problems Determine residential status for 2008-09 ± He came to India on 1 April 2009 at 11 a.m. he has been visiting India for 3 month from April to June every year Since 2002 . ± He comes to stay in India from Japan on 3 October 2009 and stays for entire financial year.m. and left India on 29 September 2009 at 11 p. Prior to this.
Thus he is not a resident of India . Thus resident of India 2 The person is staying in India for more than 60 days in previous year but less than 182 days and less than 365 days in the 4 preceding years prior to previous year.1 Total days of stay is 182 days.
nd 2 test for ordinarily status U/s 6(6) ± He has ³resident in India´ status in at 2 out of 10 previous years immediately preceding the relevant previous year and ± He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year .
Status for assessment year 2009-10 . for a period of 53 days. 2007. Determine the residential status for the assessment year 2009-10 X came to India for the first time on 16-04-06.Practice questions X left India for the first time on May 20. he came back once on may 27. During the financial year 2009-10. During his stay in India up to 5-10-08 he stays in Delhi up to 10-04-08 and there after remains in Chennai till his departure from India.
Answers 1 Since the person does not fulfill the condition of 182 days nor 60 days in previous year and 360 days in 4 years preceding previous year. Thus the person is a Non resident .
Practice question Previous year 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Presence in India 126 10 65 305 181 360 16 360 180 65 5 6 310 85 R Resident or non resident .
Answer Previous year 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Presence in India 126 10 65 305 181 360 16 360 180 65 5 6 310 85 Resident or non resident R NR R R R R NR R R R NR NR R R .
on 01-09-08 he leaves India for Nepal. 80 days. 13 days. 210 days. X a foreign national comes to India for the first time on 15-04-04. . He stays during 2004.Examples X is a foreign citizen comes to India for the first time on 20-03-08. 2007 and 2008 for 10 days. Determine the residential status for X for assessment year 2009-10. 2006. 75 days respectively. Determine the residential status for 2009-10. 2005. He comes back on 26-02-09.
it is possible to have an income from a proprietary firm ( in individual capacity) as well as income from business of HUF. . Such income is not treated as income of HUF.HUF HUF consist of all persons lineally descended from a common male ancestor (Joint family). However. Thus. Income earned by an individual member in HUF in their individual and personal capacity is taxed as their personal income.
Number of HUF Each male person can form one separate HUF All the decisions of the HUF will be taken by the male head of that HUF called KARTA .
If control and management of its affair is wholly or partly situated in India. . If control and management of its affair is wholly out in India.Residential status of HUF U/S 6(2) In case of HUF. it will be non-resident in India. it will be resident in India.
. ± Karta has been present in India for a period of 730 days or more during 7 years immediately preceding the previous year.Ordinarily status of a HUF Both the condition need to be satisfied ± Karta has been a resident in India for 2 out of 10 previous years immediately preceding the relevant previous year.
During the previous year a HUF whose karta is X since 1970 are partly managed from Delhi and partly from Nepal. is resident but not ordinarily resident in India for the assessment year 2010-2011.Problem X an individual. . Determine the residential status of HUF.
It will be Non-resident in India . If control and management of their affairs are situated wholly outside India.Firm¶s or AOP¶s residential status« U/S 6(2) A partnership firm and an association of person will be resident in India if control and management of their affairs are wholly or partly situated within India during the relevant previous year.
Residential status of a company U/S 6(3) A company incorporated in India is an Indian company. control and management of its affair is situated wholly in India else it will be non-resident . is resident in India only.e. A foreign company (i. if during the previous year. It will always be resident in India. company incorporated abroad).
It will be Non-resident in India . situated within India during the relevant previous year.Residential status of every other person U/S 6(4) Every other person will be resident in India if control and management of his affairs is wholly or partly. If control and management of his affairs is situated wholly outside India.
The affairs of assessee company are looked after by two managers under two powers of attorney which confer upon them the widest power and authority.Case study XYZ ltd. The directors retain the complete control over the matter delegated to the managers and from time to time give directions to the managers as to how things should be done and managed. Is the company fully controlled from India. The meetings o the board of directors and shareholders are held in Bombay. . The business of the company is stevedoring in Sri Lanka. is registered in Sri Lanka and is a subsidiary of an Indian company.
Incidence of tax U/S 5 Incidence of tax of a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income. Incomes can be of two types:± Indian income ± Foreign income .
Income types Income will be Indian income if any of the three is satisfied:± if income is received or deemed to be receive in India during the previous year or at the same time it accrues or deemed to be accrue in India during the previous year ± In income is received in India but accrues outside India ± If income is received outside India but it accrues in India Income will be foreign income if the income is received outside India and it accrues outside India .
Resi.Incidence Of Tax For Individual & HUF Residential Status Indian Income Foreign Income Business Income when business is controlled wholly or partly from India Income from profession set up in India Business Income when business is controlled from outside India Income from profession set up outside India Ord. Resi.) India . Taxable in India Taxable in India Taxable in India Taxable in India Taxable in India Not Ord. Taxable in India Taxable in India Taxable in India Not taxable in India Not taxable in India Not taxable in India Non Resident Taxable in India Not taxable in India Not taxable in India Not taxable in India Not taxable in India Not taxable in India Any other foreign Income Taxable in (like rent salary interest etc.
000 ± Royalty received from a foreign company.000 ± Interest received from GOI (paid in Sri Lanka and utilized there) 60. outside India.Problems X is ordinarily resident for assessment year 2009-2010. 70. in India.000 ± Salary received in Sri Lanka for services rendered in India 50.000 . ± Capital gain on sales on house 40.
000 .000 used in Canada and rest remitted to India 86.000 remitted to India ( activity controlled there) 1.000 Income from agriculture in Bangladesh received there but 50.000 received in India) 65.Problem Find gross total Income for 2009-10 Interest on German development bond (2/5 is received in India) 60.000 Income from property in Canada received outside India (76.000 Income earned in Kampala which is controlled from Delhi (15.81.
2009 46. received in Rangoon 36.000 Profits from business in Madras and managed from outside 27.000 Gift in foreign currency from a friend received in India on January 20.000 .000 Profit on sales of a building in India but received in Sri Lanka 14.80.500 Past untaxed profit of 1997-98 brought to India in 200910 10. 2009.000 Pension from a former employee in India.Problem contd. 80. Dividend paid by a foreign company but received in India on April 10.43.
000 50.480.000 1.480.000 1.480.Par ar r r an bond ( r d in india) r an bond ( r ived outside) ncome from agri in Bangladesh 181.000 27.000 36.000 0 Dividend paid by foreign company 46.000 Pofit on sale of building in India 1.000 Income from Kampala received outside 50.000 .500 46.000 Gift from friend 80.500 Past untaxed profit brought to India 0 0 0 Profits from business in Madras 27.000 36.000 27.000 Pension received in Rangoon 36.000 80.000 15.000 0 0 Income from Kampala received in india 15.000 80.000 15.000 0 0 Income from property in canada 86.500 46.
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