Tax Law Residential Status & Chargeability

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Semester: Seventh
B.A.LL.B/BB.A.LL.B
Name of the Subject: TAX LAW
UNIT-II
Residential Status, Chargeability
FACULTY NAME: Mr. Sunil Kumar
Assistant Professor (Law)

RESIDENTIAL STATUS
 Residential status of an assessee is important in determining the scope of income
on which income tax has to be paid in India.
The different types of Residential Status are:
 Resident (R)
An individual or HUF assessee who is resident in India may be further
classified into
resident and ordinarily resident (ROR) and
resident but not ordinarily resident (NOR).
 Non Resident (NR)
 To be determined in each previous year (1 April to 31 March next)

Importance of Residential Status:
Resident – World income is taxable in India
Non Resident – Only income arising or accruing in India is taxable in India
Resident but Not Ordinarily Resident – Income accruing or arising outside India
may also be taxable in India
Section:6 “Resident”
An individual is said to be resident in India in any previous year, if he satisfies any of
the 2 basic conditions –
a. Physical presence in India for 182 days or more in a previous year
OR
b. Physical presence in India for 60* days or more in the previous year and
365 days or more during the 4 years preceding the previous year *

the above is subject to the following:
I. Citizen leaves for employment or as member of crew of an Indian
ship – instead of 60 days, it is 182 days
II. Citizen or Person of Indian Origin already abroad comes on a visit -
instead of 60 days, it is 182 days
Individual - Resident but Not Ordinarily Resident
Satisfies any one Basic condition and two Additional conditions –
a. Such person has been a non resident in India in at least 9 out of 10 previous
years preceding the relevant previous year;
or
b. The person has been in India for a period of 729 days or less during 7 years
preceding the relevant previous year

Hindu Undivided Family
1. Resident unless Control and Management of affairs wholly outside India
2. R-NOR if Manager (Karta) is a non resident in India in 9 out of 10 preceding
previous years or is in India for 729 days or less in 7 preceding previous years
 Company
 Resident in India
• If an Indian Company – Section 2(26)
• If Control and Management of its affairs is situated
wholly in India
Firm, Association of Persons and Any other person
Resident unless control and management of its affairs is situated
wholly outside India

SCOPE OF TOTAL INCOME
The scope of Total Income depends on the Residential Status of the tax payer. The
incidence of tax under different circumstances is given in the following table:
ROR RNOR NR
Income received in India Yes Yes Yes
Income deemed to be received in India Yes Yes Yes
Income accruing or arising in India Yes Yes Yes
Income deemed to accrue or arise in India Yes Yes Yes
Income received/ accrued outside India
from a business in India Yes Yes No
Income received/ accrued outside India
from a business controlled outside India Yes No No

INCOME THAT IS EXEMPT FROM
TAX
In the following cases Income is exempt from Income Tax:-
Agriculture Income [Sec. 10(1)]
Payments received from family income by a member of HUF [Sec. 10(2)]
Share of profit from a firm [Sec. 10(2A)]
 Interest received by a non resident from prescribed securities [Sec. 10(4)]
Interest received by a person who is resident outside India on amounts credited in
the non-resident (External) account [Sec. 10(4)]
Leave travel concession provided by as employer to his Indian citizen employee
[Sec. 10(5)]

Remuneration received by foreign diplomats of all categories [Sec. 10(6)]
Salary received by a foreign citizen as an employee of a foreign enterprise provided
his stay in India does not exceed 90 days [Sec. 10(6)(vi)]
Salary received by a non-resident foreign citizen as a member of ship’s crew
provided his total stay in India does not exceed 90 days [Sec. 10(6)(vii)]
Remuneration received by an employee, being a foreign national, of a foreign
government deputed in India for training in a Government establishment or public
sector undertaking [Sec. 10(6)(xi)]
Tax paid on behalf of foreign companies [Sec. 10(6A)]
Tax paid by Government or an Indian concern in case of a non-resident / foreign
company [Sec. 10(6B)]

 Income arising to notified foreign companies from services provided in or outside
India in project connected with the security of India [Sec. 10(6C)]
Commuted value of pension and any payment received by way of commutation of
pension by as individual out of annuity plan of LIC or any other insurer from a fund
set up by that corporation or insurer [Sec. 10(10A)]
Leave salary [Sec. 10(10AA)]
Retrenchment compensation [Sec. 10(10B)]
Compensation received by victims of Bhopal gas leak disaster [Sec. 10(10BB)]
Compensation from the Central Government or a state Government or a local
ahorityut received by an individual or his legal heir on account of any disaster [Sec.
10(10BC)]

Compensation received from a public sector company at the time of voluntary
retirement or separation [Sec. 10(10C)]
Tax on perquisite paid by employer [Sec. 10(10CC)]
Any sum (including bonus) on life insurance policy (not being a key-man insurance
policy) [Sec. 10(10D)]
Any amount from provident fund paid to retiring employee [Sec. 10(11)]
Special allowance granted to an employee [Sec. 10(14)]
Interest from certain exempted securities [Sec. 10(15)]
Amount from an approved superannuation fund to legal heirs of the employee [Sec.
10(13)]

House rent allowance subject to certain limits [Sec. 10(13A)]
Payment made by an Indian company, engaged in the business of operation of an
aircraft, to acquire an aircraft on lease from a foreign Government or foreign enterprise
[Sec. 10(15A)]
Scholarship granted to meet the cost of education [Sec. 10(16)]
Daily allowance of a member of parliament or state Legislature (entire amount is
exempt), any other allowance subject to certain conditions [Sec. 10(17)]
Rewards given by the central or state Government for literary, scientific or artistic
work or attainment or for service for alleviating or for service for alleviating the distress
of the poor, the weak and the ailing, or for proficiency in sports and games or gallantry
awards approved by the Government [Sec. 10(17A)]

Pension and family pension of gallery award winners [Sec. 10(18)]
Family pension received by family members of armed forces [Sec. 10(19)]
National property income of any one place occupied by a former ruler [Sec.
10(19A)]
Income from local authorities [Sec. 10(20)]
Any income of housing boards constituted in India for planning, development or
improvement of cities, town or villages [Sec. 10(20A)]
Any income of an approved scientific research association [Sec. 10(21)]
Income of specified non- agencies [Sec. 10(22B)]

Any income (other than interest on securities income from property income received
for rendering any specific services and income by way of interest or dividends) of
approved professional bodies [Sec. 10(23A)]
Any income received by any person on behalf of any Regimental Fund or non public
fund established by the armed forces of the union for the welfare of the past and
present members of the such forces or their dependents [Sec. 10(23AA)]
Income of funds established for the welfare of employees [Sec. 10(23AAA)]
Any income of the pension fund set by LIC or any other insurer approved by the
controller of insurance or Insurance Regulatory and Development Authority [Sec.
10(23AAB)]
Any income (other than business income) of a trust or a society approved by Khadi
and village industries commission [Sec. 10(23B)]

Income of an authority whether known as Khadi and village industries board or
by any other name for the development of Khadi and village industries [Sec.
10(23BB)]
Income of the European Economic Community derived in India by way of,
interest, dividends or capital gains in certain cases under the European
Community International Institutional Partners Scheme, 1993 [Section
10(23BBB)]
Any income arising to anybody or authority established, constituted or
appointed under any enactment for the administration of public religious or
charitable trusts or endowments or societies for religious or charitable purposes
[Section 10(23BBA)]
Income of SAARC Fund for Regional Projects, set up by Colombo Declaration
[Section 10(23BBC)]

An Institutions [Section 10(23BBD)]
Income of Insurance Regulatory Authority [Section 10 (23 BBE)]
Income of North Eastern Development Financial Corporation to the extent of 60
% for assessment y income of Secretariat of Asian Organisation of Supreme Audit
year 2007-08 [Section 10(23 BBF)]
Income of the Central Electricity Regulatory Commission (applicable from the
assessment year 200809) [Section 10(23BBG)]
Any income received by any person on behalf of specified national funds and
approved public
Income of Insurance Regulatory Authority [Section 10 (23 BBE)]
Income of North Eastern Development Financial Corporation to the extent of 60
% for assessment year 2007-08 [Section 10(23 BBF)]

Income of the Central Electricity Regulatory Commission (applicable from the
assessment year 200809) [Section 10(23BBG)]
Any income received by any person on behalf of specified national funds and
approved public charitable institution, educational institute and hospital [Section
10(23C)]
Income of Mutual Fund set up by — a public sector bank or a public financial
institution [Section 10(23D)]
Income of investor protection fund [Section 10(23EA)]
Income of Credit Guarantee Funds Trust for Small Industries [Section 10(23EB)]
Income of Investor Protection Fund by way of contributions from commodity
exchange and the members thereof (applicable from the assessment year 2008-09)
[Section 10 (23EC)]

Any income by way of dividend, or long term capital gains of venture capital funds
and venture capital or undertaking [Section 10(23FA)]
 Income of venture capital fund/venture capital company [Section 10(23FB)]
Income by way of interest on securities, property income and income from other
sources of a registered trade union or an association of registered trade unions
[Section 10(24)]
Any income received by a person on behalf of statutory provident fund, recognized
provident fund, approved superannuation fund, approved gratuity fund and approved
coal-mines provident fund [Section 10(25)]
Income of Employee’s State Insurance Fund [Section 10 (25A)]

Income of a member of Scheduled Tribe, living in Nagaland, Manipur, Tripura,
Arunachal Pradesh and Mizoram from any source arising by reason of his
employment therein and income by way of dividend and interest on securities
[Section 10(26)]
Income of Sikkim individual which accrues or arise to him/her from any source in
the state of Sikkim or income from dividend/interest on securities from anywhere in
the world (exemption available to a Sikkim woman who, on or after April 1, 2008,
marries a Non- Sikkim individual) [Section 10 (26AAA)]
Any income of a statutory Central or State corporation or of a body/institution,
financed by the Government formed for promoting the interest of Scheduled
Castes/Tribes [Section 10(26B)]
Income of National Minorities Development and Finance Corporation [Section 10
(26BB)]

Income of ex-serviceman corporations [Section 10 (26BBB)]
Income of co-operative society formed for promoting interests of members of
Scheduled Castes/Scheduled Tribes [Section 10(27)]
 Income of certain Commodity Boards/Authorities [Section 10(29A)]
Income by way of subsidy from Tea Board for replanting or replacement of tea
bushes or for the purpose of rejuvenation or consolidation of areas used for
cultivation of tea in India [Section 10(30)]
Subsidy received by planters of Rubber, Coffee etc. [Section 10(31)]
Income of a minor child up to Rs. 1,500 in respect of each minor child whose
income is includible under section 64(1A) [Section 10(32)]

Capital gains on transfer of US-64 units [Section 10(33)] Dividend on or after April,
2003 from domestic companies [Section 10(34)]
Income on units of Mutual Funds on or after April 1, 2003 [Section 10(35)]
Capital gains on transfer of listed equity shares [Section 10(36)]
Capital gain on compensation received on compulsory acquisition of urban
agriculture land [Section 10(37)]
Long term capital gain on transfer of securities not chargeable to tax in cases covered
by transaction tax [Section 10(38)]
Income of an international sporting event held in India [Section 10(39)]
Grant received by subsidiary company from holding company [Section 10 (40)]

Capital gain in above case [Section 10 (41)]
Income of notified non-profit body/authority [Section 10(42)]
Any amount received by an individual as a loan (either in lump sum or
installment in transaction of reverse mortgage) [Section 10(43)]
Any income received by any person, or on behalf of, the New Pension System
Trust (established on February 27, 2008) [Section 10(44)]
Allowance or Perquisite to the chairman of UPSC [Section 10(45)]
Income arising to a body, authority or Board or trust or Commission [Section
10(46)]
Income of an infrastructure debt fund [Section 10(47)]

Complete tax holiday for industrial units situated in free trade zones [Section 10 A]
Special provision in respect of newly established 100% export oriented
undertakings [Section 10B]
Special provision in respect of certain industrial undertakings in North-Eastern
region [Section 10C]

Heads of Income ( Sec 14, 14 A )
A person receives income i.e. taxable income from different sources. All
these different sources of income are classified & Assessed under certain
group or heads. These are know as
“ Heads of Income”.
Income From Five Heads are as Follows:
1. Income from salary
2. Income from house property
3. Income from profit or gain from business or profession.
4. Income from capital gain.
5. Income from other sources

Complete Process of Computation of Taxable Income
& Tax
1) Determine the residential status of the assesse
2) Determine the incidence of tax
3) Classify income after considering specific exemption into respective head.
4) Aggregate the income.
5) Apply clubbing Provision.
6) Setoff/Carry forward losses (if any)
7) Balance shall be gross total income.
8) Allow deduction 80C to 80U chpt VI A.
9) Balance shall be total income.
10) Determine the tax payable, applying the rates applicable
11) Deduct rebate/relief of tax.
12) Add surcharge.
13) Add educational cess.
14) Balance is tax payable.
15) File return of income before the due date of filing.

Income from Salary
Meaning
 Salaries U/ S 17 ( 1 ) include the following:
1.Wages
2.Pension
3.Gratuity
4.Any Fees, Commission, Perquisite, Profit in Lieu of Salary
5.Any Advance Salary
6.Bonus
7.Annuity
8. Income From Provident Fund
9.Leave Encashment
10.Allowances

Basis of Charge
Income is taxable under head “Salaries”, only if there exists Employer - Employee
Relationship between the payer and the payee.
The following incomes shall be chargeable to income- tax under the head
“Salaries”:-
1.Salary Due
2.Advance Salary [u/s 17(1)(v)]
3.Arrears of Salary Note:
(i)Salary is chargeable on due basis or receipt basis, whichever is
earlier.
(ii)Advance salary and Arrears of salary are chargeable to tax on
receipt basis only.

List of Allowances exempt from Tax
• Conveyance Allowance
•House Rent Allowances
•Entertainment Allowance
• Any Allowance granted to an employee to meet the hostel expenditure of his
child
• Children Education Allowance
• Overtime Allowance

PERQUISITE
Perquisite may be defined as any Casual Emolument or Benefit attached to an
office or position in Addition to Salary or Wages. It also denotes something that
benefits a man by going in to his own pocket. Perquisites may be provided in cash
or in kind. Perquisites are included in salary income only if they are received by
an employee from his employer.
The term “perquisites” is defined by section 17 (2) as including the following
items:
1.The value of Rent-free Accommodation provided to the assessee
by his employer
2.The value of any concession in the matter of rent respecting any
accommodation provided to the assessee by his employer

3. The value of any benefit or amenity granted or provided free of cost or at
concessional rate in any of the following cases :
i. By a company to an employee who is a director thereof ;
ii. By a company to an employee, being a person who has
substantial interest in the company ;
iii. By any employer (including a company) to an employee to
whom provisions of (i) and (ii) above do not apply and whose income under the
head “salaries” exclusive of the value of all benefits or amenities not provided for
by way of monetary benefits, exceeds Rs. 50,000
4. Any sum paid by the employer in respect of any obligation which but for such
payment would have been payable by the assessee. Obligation of Employee met
by Employer.

5. Any sum payable by the employer, whether directly or through a fund other than
a recognized provident fund or approved superannuation fund or a deposit-linked
insurance fund, to effect an assurance on the life of the assessee or to effect a
contract for an annuity
6. The value of any other fringe benefits or amenity as may be prescribed

Tax Law Residential Status & Chargeability

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