Income Tax Law & Practice

Unit 1

Presented By:
Dr. Pooja Sharma
Assistant Professor
DME Management School
p.sharma@dme.ac.in

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 Unit 1- Introduction

1.1 Introduction to Income Tax Act, 1961

1.2 Salient features and Basic concepts

Previous year, Assessment year, Person

1.3 Gross Total Income

1.4 Agriculture Income
1.5 Residential Status
1.6 Incidence of Tax
1.7 Exempted Income

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 1.6
Incidence of Tax

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 Suggested Readings

Author: Ahuja, Girish and Gupta, Ravi,

Title of the Book:Systematic Approach to Income Tax,
Bharat Law House
Ch ap ter ’s Name: Scope of Total Income and
residential Status

Author: Singhania, V.K. and Singhania, Monica,

Title of the Book:Student’s Guide to Income Tax
Ch ap ter ’s Name: Residential Status and Tax
Incidence

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Relationship between incidence of tax and
residential status of the Assessee.
In case of incidence of tax on a tax payer or subjecting a tax payer to
income tax or imposing tax on an assesee, as per the Act,

We need to see these things:

1. What is the Type of Income- Indian or Foreign Income. This thing

depends upon the Place of accrual or deemed accrual and/or place of
receipt or deemed receipt of the concerned income

2. Incidence of tax for Indian and Foreign Incomes and link

with Residential status of the particular Assessee in question.

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 Meaning of Indian Income and
Foreign Income
Place where income is Place where income is Type of Income – Indian
received or deemed to be accrued or is deemed to or Foreign?
received : accrue :

India India Indian Income

Abroad India Indian Income

India Abroad Indian Income

Abroad Abroad Foreign Income

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 Incidence of tax for Indian and Foreign
Income for Individual and HUF Assessee
Type of Income Individual and HUF Assessee
Resident and Resident and Non Non- Resident
Ordinary Resident In Ordinary Resident In In India
India India
Indian Income Taxable in India Taxable in India Taxable in
India

Foreign Income Taxable in India Case 1: If the foreign Not taxable in

Income is a business India
Income and business is
controlled wholly or
partly in India
Case 2: Income from a
profession set up in India
All other foreign
incomes say salary or
rent or interest
received on securities
are non taxable
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Incidence of tax liability for other Assessee
types- AOP, Firm, Company and other legal
persons including BOI, Cooperatives etc.

Type of Income Resident In India Non resident in India

Indian Income Taxable in India Taxable in India

Foreign Income Taxable in India Non taxable in India

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 Indian income is always taxable whether the assessee is Resident
(ordinary and non ordinary inclusive) and/or non resident.

 Foreign income (all types) is taxable in the hands of :

 Resident in India (firm, AOP, BOI, Cooperatives, Company and
every other person)
 Resident and Ordinary Resident in India (Individual and HUF)

 Foreign Income from business controlled wholly or partly in India

and/or profession completely set up in India is taxable in the hands
of Resident and non ordinary resident. Rest all foreign income
types are not taxable for him.
 Foreign Income is completely non taxable in case it’s a non –
resident (individual/HUF/AOP/BOI/Firm/Company).
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Incidence of tax, type of income and residential
status

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 Meaning of Income received and
deemed to be received……..??
• Income received in India= Indian income, which is taxable in for all
assessee regardless of residential status of assessee. Example-Person having
business abroad receives income in India.

• Income received in India can be in cash or kind; example value of free

residential house provided to employee by employer.

• Income receipt and income remittance are different. Receipt of income

means when recipient gets control of money for the first time and
remittance means transmitting income received earlier, to any other place
for any purpose. Remittance is not taxable.

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 Income deemed to be received in
India:

 Income can be actually received by the taxpayer or assessee or income can be

deemed to be received in India….

 Following incomes shall be deemed to be received in India even in the

absence of actual receipt:
 Contribution by the employer to recognized provident fund in excess of 12% of
the salary of employee
 Interest credited to RPF in excess of 9.5%
 Transferred balance from unrecognized PF to RPF
 Contribution by Government/Employer to notified pension scheme

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 Income accrues or arise in India:
• Income accrue or arise in India is taxable for all for all categories
of assesses viz. ROR, RNOR & NR. It does not matter whether such
income is received in India or outside India (income accrued or deemed
to accrue = Indian Income)
• 'Accrue' means 'to arise or spring as a natural growth’.

• ‘Arising' means 'coming into existence or notice or presenting itself‘.

• The act which leads to accrual of income can be Some act which has
taken place in India say a Business Activity/performance of contract etc.
• Receipt of income for the act though can be outside India.
• It also includes a Created debt in favour.
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 Incomes Deemed to accrue or arise in
India

 The following incomes shall be deemed to accrue or arise in India:

 Income from a business connection in India. For this two
conditions must be satisfied :
 1. The taxpayer has a business connection in India and
 2. By the virtue of business connections in India, income actually
arises outside India
 If these conditions are satisfied then even if income actually arises
outside India it is called as deemed to accrue in India.
 - Examples of business connection by non-resident includes

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Maintaining branch office in India for sale or purchase of goods,

Appointing an agent for entering into contracts of raw material

purchase, sale of non resident’s finished goods or other business
purpose,

 Subsidiary in India- to sell products of non resident’s parent company.

 Establishing a factory where the raw produce purchased locally is

worked into a form suitable for export abroad

 Financial association between resident and non resident company

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 However in case of non‐resident,
following shall not be treated as business
connection in India:
 Purchase of goods in India by the non resident in India for purpose
of exports only

 Collection of news and views for transmission outside India by

non‐resident who is engaged in the business of running news agency or
of publishing newspapers, magazines or journals.

 Shooting of cinematograph films in India if

 In case of individual – he is not a citizen of India
 In case of Firm – none of the partner is citizen or resident of India
 In case of company – none of the shareholder is citizen or resident of
India
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 Other incomes deemed to accrue or
arise in India are as follows:
 Income from any Property, Asset or Source of income situated in India

 Income from the transfer of any capital asset (means share, or any interest
in company) , situated in India
 Income under the head “salary” payable to a citizen of India by the
government and the citizen is rendering services abroad even if the citizen
is non resident of India. (exceptions allowance and perquisites received are
not taxable as salaries)

 Income under the head Salary for services rendered in India

 Dividend paid by an Indian company outside India

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 Interest payable by Government or resident in India/NRI;

 Royalty payable by Government or A person who is resident in India/NRI

 Fees for technical services payable by Government resident in India/NRI

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 Other incomes accrued or deemed to accrue
in India, (conditions explained) –
1. Interest payable

Interest payable by or received from

Central or state Government or

• Resident in India provided that borrowed money is used by the

resident borrower for the purpose of carrying out any business or
profession or earning any income from any source in India only or

• Non‐resident in India if money is used by the borrower for the

purpose of business or profession in India
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 2. Royalty payable by

a.Government or

b. Resident in India if services are utilized for the purpose of business

b. or profession or earning any income from any source in India or

c. Non‐resident in India if services are utilized for the purpose of
business or profession or earning any income from any source in
India

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 3. Fees for technical services payable by

 Government or

 Resident in India if services are utilized for the purpose of

business or profession or earning any income from any
source in India or

 c. Non‐resident in India if services are utilized for the purpose

of business or profession or earning any income from any
source in India

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 Question: 1

For the assessment year 2021-22, X is employed in India and receives Rs.
1,49,000 as salary. His income from other sources includes –

 Dividend received in Singapore on September 28,

 2020: Rs. 56,000 from a foreign company
 Share of profit received in Singapore on December 1, 2020 from a business
situated in Sri Lanka but controlled from India: Rs. 75,000
 Remittance from Singapore on March 15, 2020 out of past untaxed profit of
2004-05 earned and received there: Rs. 80,000
 Find out the gross total income of X for the assessment year 2021-22 if X is
(a) Resident and ordinarily resident;
(b) Resident but not ordinarily resident and
(c) Non-resident. 21 of 22
Solution

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Incidence of tax contd…….

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  Aggregate value of cash gifts received without consideration
during a financial year (FY) would be taxable as other income in
the hands of the recipient.

 However, if the aggregate value of such gifts is less than Rs

50,000, then it would be exempt from tax

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