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Chapter 2 residential status

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income tax

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Chapter 2 residential status

  1. 1. Residential Status and Incidence of Tax (Section 6) • Resident • Not-Ordinarily Resident • Non-Resident
  2. 2. General Rules • Citizenship and residential status are separate • Determined on the basis of residence of the PY • Status varies from year to year - It may change from one PY to another PY • Stay at one place - Assesse may have different places of residence in the same PY • Stay in India Continuously/frequency- May be in and out of India any number of times • Type of accommodation for stay is immaterial • Day of arrival in India as well as the day of departure shall be counted as stay in India. • Person of Indian origin
  3. 3. Residential status Individuals and HUF – Resident Resident but Not Ordinarily Resident Non Resident For others Resident Non Resident
  4. 4. Rules for Individuals Basic conditions- A - Assessee has resided in India in the previous year for 182 days or more  B – Assessee has resided in India for 60 days or more in the PY and 365 days or more in the four years before PY Additional conditions-  A - Assessee is resident in at least 2 out of 10 years before PY  B – Assessee has been in India for 730 days or more during 7 years before PY
  5. 5. Exceptions (only basic condition A is applicable) • Indian citizen who leaves India during the PY for the purpose of employment • Indian Citizen who leaves India during the PY as member of the crew of Indian ship • Indian Citizen or person of Indian Origin who comes on visit to India during the PY. • Meaning of Person of Indian Origin
  6. 6. Examples 1. X left India for the first time on May 20, 2013. During the financial year 2015-16, he came to India once on May 27 for a period of 53 days. Determine his residential status. 2. X was born in Chennai in 1992. Later he migrated to Canada in June 2009 and took citizenship of that country with effect from December 26, 2014. His parents were born in Bengal in 1960 and his grandparents were born in India in 1946. He comes to India during 2015-16 for a visit of 150 days. During earlier four years he was in India for 400 days. Find the residential status of X for the AY 2016- 17.
  7. 7. 3. X, comes to India for the first time on April 16 , 2013. During his stay in India up to October 5, 2015, he stays at Delhi up to April 10, 2015 and thereafter remains in Chennai till his departure from India. Determine his residential status for AY 2016-17. 4. X, a foreign national not being a person of Indian origin comes to India for the first time on April 15,2011. During the financial years 11-12, 12-13,13-14, 14-15 and 15-16 he is in India for 130 days, 80 days, 13 days ,210 days and 75 days respectively. What is the residential status of X for the AY 2016-17?
  8. 8. • 5. X an Indian citizen who is appointed as a senior taxation officer by the government of Nigeria, leaves India for the first time on September 26, 2015 for joining his duties in Nigeria. During the previous year 2016-17, he comes to India for 176 days. Determine the residential status of X for the AY 2016-17 and 2017-18.
  9. 9. Residential Status of HUF • Basic Condition – Control and management of the affairs is situated either completely or partially in India • Additional Conditions – A – The Karta is resident in at least 2 out of 10 years before PY – B – The Karta has been in India for 730 days or more during 7 years before PY • WHEN is a HUF? – Resident – Not-Ordinarily Resident – Non-Resident • Meaning of “Management and Control
  10. 10. Residential Status of Firm/AOP • Basic Condition- – Control and management of the affairs is situated either completely or partially in India • WHEN is a firm or AOP? – Resident – Non-Resident
  11. 11. Residential Status of Company • Basic Condition – Indian Company OR – Control and Management of affairs situated wholly in India • WHEN is a company? – Resident – Non-Resident
  12. 12. Rules for others Control and Management of the affairs of the taxpayer Wholly in India Wholly outside India Partly inside and partly outside India HUF Resident NR Resident Firm Resident NR Resident AOP Resident NR Resident Indian Co Resident Resident Resident Non Indian Co Resident NR NR Any other Resident NR Resident
  13. 13. Tax incidence on the basis of Residential status R-OR R- NOR NR Indian Income Taxable Taxable Taxable Foreign Income Taxable Only two types of Foreign income taxable Non taxable For Resident and Ordinarily Resident Both Indian and Foreign Income are taxable For Resident but Not Ordinarily Resident Indian Income are taxable Only two types of Foreign Income are Taxable** **Case 1 – If it is business income and business is controlled wholly or partly from India **Case 2 –If it is income from Profession which is set up in India For Non-Resident Only Indian Income is Taxable
  14. 14. Meaning of Indian and Foreign Income • Indian Income- – If during the PY income is- • Received in India OR • Deemed to be received in India OR • Accrues in India OR • Deemed to accrue in India OR • Foreign Income • Income is not received or deemed to be received in India AND • Income is not accrued or deemed to be accrued in India
  15. 15. • Meaning of - – Received in India – – First receipt – Cash vs Kind – Deemed to be received in India- – Interest credited to RPF – Contribution of employer to PF – TDS – Accrue or arise in India – Deemed to accrue or arise in India -
  16. 16. Deemed to accrue or arise in India 1. Income from Business Connection- a) Maintaining a branch office in India b) Appointing an agent in India c) Erecting a factory in India d) Forming a local subsidiary company 2. Income from any property/ asset/ source of Income situated in India 3. Income through transfer of capital asset situated in India 4. Income under “salaries” if services are rendered in India 5. Salary payable abroad by Government to citizen of India 6. Dividend paid by an Indian Company 7. Income by way of interest/ royalty/ technical fees- • When received from central or state govt • When received from Resident • When received from Non resident
  17. 17. Example 1 X is resident in India for the Assessment Year 2016-17. He gives the following information in respect of his income for the PY 2015-16. Find his Taxable income if he is Resident, Non Resident and R-NOR. – Capital gain on sale of house situated in Pune (sale consideration received in Nepal ) Rs 10 lakhs – Salary received in Sri Lanka for rendering service in Tamil Nadu Rs 1,60,000 – Interest received from Govt of India (it is paid to him in Sri Lanka the money is utilized by the Govt outside India) Rs 2,56,000 – Royalty received from A ltd (A foreign company non resident in India) outside India. Royalty is paid for a manufacturing business situated outside India – Rs 92,00,000
  18. 18. Example 2 Following are the incomes of Shri Agrawal during the previous year 2015- 16: a) Rs.5,000 received in India which accrued in Bangladesh. b) Rs.10,000 earned in India but received in Sri Lanka. c) Rs.8,000 earned and received in Japan from a business which was controlled and managed from India. d) Earned income of Rs.2,000 from house property in Pakistan which was deposited in bank there. e) Rs.6,000 earned in England and received there, out of which Rs.4,000 brought in India. f) Foreign income of Rs. 4,000 which was earned in year 1990 was brought in India during the previous year. Compute Total Income of Shri Agrawal for the assessment year 2016-17 if he is a: (i) Resident; (ii) Not –ordinarily resident; and (iii) Non – resident.
  19. 19. Source Of income Resident (Rs.) Non-ordinarily resident (Rs.) Non- Resident (Rs.) (a) (b) (c) (d) (e) Received in India but accrued in Bangladesh Earned in India but received in Sri Lanka Earned and received in Japan (Business controlled from India Income from house property in Pakistan & deposited there Earned in England but out of which 4,000 brought in India 5,000 10,000 8,000 2,000 6,000 5,000 10,000 8,000 ---- ---- 5,000 10,000 ---- ---- --- Statement of Gross Total Income of Shri Agrawal for the Assessment Year 2013-14
  20. 20. Example 3 The following are the incomes of Shri Sohan lal for the previous year: Rs. a) Rent received in Denmark from house property situated in Denmark 10,000 b) Salary received in India for service render in Japan 15,000 c) Income from business in England which is controlled from India 15,000 d) Passed untaxed foreign income which was brought in India 20,000 e) Profit earned in business at Kanpur 8,000 f) Salary received in Canada for the service rendered in India 4,000 Find out income covered in the scope of Income Tax of Shri Sohan lal for the Assessment Year 2013-14, if he is (i) A Resident (ii) Non-ordinarily resident (iii) and Non-Resident .
  21. 21. Source Of income Resident (Rs.) Non-ordinarily resident (Rs.) Non- Resident (Rs.) 1.Income from salary: (i) Received in India for the services in Japan (ii) Received in Canada for the services in India 2. Income from House property: Situated in Denmark 3. Income from Business: (a) at Kanpur (b) at England, controlled from India 4. Past untaxed foreign Income brought in India 15,000 4,000 10,000 8,000 15,000 ----- 15,000 4,000 ---- 8,000 15,000 ---- 15,000 4,000 ---- 8,000 ---- ---- Statement of Gross Total Income of Shri Sohan Lal for the Assessment year 2013-14 Income 52,0 00 42,000 27,000
  22. 22. Example 4 Following are the particulars of taxable income of Shri Madhusudan Garg for the previous year ended 31st March, 2013: a) Income from House Property in England Rs.2,00,000 which was deposited in a bank in England and then Rs. 80,000 was remitted to India. b) Income from business earned in Pakistan Rs.50,000 of which Rs. 30,000 were received in India. This business is controlled from India. c) Income from Sale of House Rajasthan Rs. 60,000. Half of this amount was received in Canada. d) Gift (mobile Set) in foreign currency Rs. 40,000 from a friend received in India. e) Royalty received from Govt. of India Rs. 48,000. f) Interest received from Shri Manish Agrawal, a non –resident against a loan provided to him to run a business in India Rs. 10,000. g) Income from investment in Japan Rs.20,000. This amount was received in Japan by his authorized representative and sent to India through bank draft. h) Income from business in India Rs.80,000. This business is controlled from England Rs.40,000 were remitted to England. i) Royalty received from Shri Manoj Kumar a resident for technical service provided to run a business outside India Rs.40,000. j) Past untaxed foreign income which was brought in India Rs 40,000.
  23. 23. S. No Source Of income Resident (Rs.) Non-ordinarily resident (Rs.) Non- Resident (Rs.) (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Income from House Property in England which was deposited in a bank in England Income from business in Pakistan controlled from India: (i) Received in India (ii) Received in Pakistan Income from Sale of House property in Rajasthan Gift (mobile Set) from a friend , not income Royalty received from Govt. of India Interest from a non –resident for a loan provided to run a business in India Income from investment in Japan received also in Japan by authorized representative Income from business in India Royalty from a resident for technical service provided outside India Past untaxed foreign income brought in India 2, 00,000 30,000 20,000 60,000 ---- 48,000 10,000 20,000 80,000 40,000 ---- ---- 30,000 20,000 60,000 ---- 48,000 10,000 ---- 80,000 ---- ---- ---- 30,000 ---- 60,000 ---- 48,000 10,000 ---- 80,000 ---- ---- Statement of Gross Total Income of Shri Madhusudhan Garg for the Assessment Year 2013-14
  24. 24. Very Short Answer Type Questions • Explain any one basic condition for an individual to become resident. • Explain the basic conditions for a Hindu Undivided Family to be treated as resident. • When is a firm treated as non- resident? • When is a company said to be resident in India? • What are various types of income?
  25. 25. Short Answer Type Questions • How the residential status of all assessee other than individual is determined? • What do you understand by not – ordinarily resident in India? • What is the relationship of tax liability and residential status? • What do you understand by an income received in India? • What do you mean by income deemed to be received in India? • What do you understand by income accrued or arose in India? • In what circumstances income of non-resident will be treated as aroused in India, out of business connection from India and in what circumstances income will not be treated as out of business connection from India? • Mr. Amit, Who is a citizen of India went to London for first time on 20th October, 2015 and did not return to India up to 31st March, 2016. Explain his residential status for the assessment year 2016-17.

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