Basic Framework of Tax Law in India

Compiled By: Vishal Chopra

Assessment Year:
Assessment year means the period of twelve months starting from
April 1 of every year and ending on March 31 of the next year.

e.g. the assessment year 2007-08, will commence on April 1,2007, will
end on March 31,2008.

Previous Year:
The year in which income is earned is known as previous year and
the next year in which income is taxable is known as assessment
year.

e.g. income earned during 2006-07.

Previous Year= ?
Assessment year= ?
Contd..
Person:
The term person includes:

a: an individual
b: a Hindu undivided family
c: a company
d: a firm
e: an association of persons or a body of individuals, whether
incorporated or not;
f: a local authority
g: every artificial juridical person, not falling within any of the
preceding categories.
Contd..

Assessee:
Assessee means a person by whom any tax or any other sum of
money( i.e., penalty or interest) is payable under the Act.

Charge of Income-tax:

Annual tax- Income tax is an annual tax on income.

Tax rate of assessment year- Income of previous year is chargeable in

the next following assessment year at the tax rates applicable for the
assessment year.

Rates fixed by Finance Act-

Contd..

Income:
Income means “ that which comes in as the periodical product of
one’s work, business, lands, or investment( commonly expressed in
terms of money); an annual or periodical receipts accruing to a
person or a corporation.

“ Income connotes a periodical monetary return ‘coming in’ with some

sort of regularity, or expected regularity from definite sources.

For the purpose of taxation, income is broadly defined as the true

increase in the amount of wealth which comes to a person during a
stated period of time.
Contd..

 Lump Sum Receipt

 Temporary and Permanent Income
 Personal Gifts
 Tax free Income
 Income includes loss
 Prize on winning a motor rally
 Capital Gain
 Insurance profit
Contd..

Gross Total Income:

1. Salaries
2. Income from house property
3. Profits and gains of business or profession
4. Capital gains
5. Income from other sources

In other words gross total income means total income computed in

accordance with the provisions of the Act before making any
deduction under sections 80C to 80U.
Contd..

Total Income and Tax Liability:

Total income of an assessee is gross total income as reduced by
amount deductible under sections 80C to 80 U.

Capital Receipts Vs. Revenue Receipts:

Receipts are of two types

i) Capital : exempt from tax unless they are expressly taxable
ii) Revenue : are taxable unless they are expressly exempt from tax.
Residential Status and tax incidence
Different taxable entities:

a: an individual
b: a Hindu undivided family
c: a company
d: a firm or an association of persons or a body of individuals;
e: every other person

Person of Indian Origin:

A person is deemed to be of Indian origin if he, or either of his
parents or any of his grand-parents, was born in undivided India. It
may be noted that grand parents include both maternal and
paternal grand parents.
Residential Status of an Individual
An Individual may be:
a) Resident and ordinary resident

b) resident but not ordinary resident

c) non-resident
Rule of residence
Resident and ordinary
resident
In case of an Indian
citizen who leaves India
during the previous year
for the purpose of
employment or who
leaves India as a member
of the crew of an Indian
ship.
a. Presence for at least
182 days in India
during the previous
year.
b. Not functional
Resident but not Non-resident
ordinarily resident
In the case of an Indian In the case of an
citizen or a person of individual (other than
Indian origin (who is that mentioned in
abroad) who comes to column (1) and (2)
India on a visit during
the previous year
a. Presence for at least a. Presence for at least
182 days in India 182 days in India
during the previous during the previous
year. year.
b. Presence in India for
b. Not functional at least 60 days
during the previous
year and 365 days
during 4 years
Contd..

Additional Condition at a glance:

i) Resident in India in at least 2 out of 10 years immediately

preceding the previous year.
ii) Presence in India for at least 730 days during 7 years
immediately preceding the previous year
Residential status of a Hindu undivided family

A Hindu undivided family is either resident in India or non-resident

in India. A resident Hindu undivided family is either ordinarily
resident or not ordinarily resident.
A Hindu undivided family is resident or non-resident:

Place of Control Residential status of Ordinarily resident or

family not
Control and
management of the
affairs of a Hindu
undivided family is-

1. Wholly in India Resident see condition

Non-resident
2. Wholly out of India Resident see condition
Contd..

When a resident Hindu undivided family is ordinarily resident

in India:

Condition (i) Karta has been resident in India in at

least 2 out of 10 previous years
immediately preceding the relevant
previous year.
Condition Karta has been present in India for a
(ii) period of 730 days or more during 7
years immediately preceding the
If Karta does not previous
satisfy the two additional conditions, the family is
year.
treated as resident but not ordinarily resident in India.
Residential status of the firm and association of persons

Place of Control Residential Status

1. Wholly in India Resident
2. Wholly outside India Non-Resident
3. Partly in India and partly Resident
outside India
Residence status of a company
Contd..

Control and Management:

The term “control and management” refers to head and brain
which directs the affair of policy, finance, disposal of profits
and vital things concerning the management of a company.
Control is not necessarily situated in the country in which
company is registered. Under the tax law a company may
have more than one residence.
Residential status of every other person
Every other person is resident in India if control and
management of his affairs is wholly or partly situated within
India during the relevant previous year.

On the other hand, every other person is non-resident in

India if control and management of his affairs is wholly
situated outside India.
Q. 1
X, a foreign national, came to India for the first time from USA
on July 11,2000. He stayed here for a stretch of 3 years and
left for Japan on July 11,2003. He returned to India on April
10,2004 and remained here till August 17,2004, when he
went back to USA. He again came back to India on Jan.
30,2007 at 11:59 p.m. and continued to stay in India
thereafter. Determine his residential status for the
assessment year 2007-08.