Docstoc

Residential Individual Income Tax

Document Sample
Residential Individual Income Tax Powered By Docstoc
					    RESIDENTIAL STATUS AS PER INCOME TAX ACT
•    Residential Status of a person determines
    whether the person‟s income is chargeable
    to tax in India or not.

• It is necessary because total income of a
  person cannot be assessed until and unless
  his/ her residential status is determined as
  per the rules prescribed in the Income tax
  Act‟ 1961.

                  www.agbsindia.webs.com
• PLEASE NOTE :
• Residential Status determination is very crucial being the First Step
  in the Assessment of Income, hence calculations should be made
  strictly as per the prescribed rules only.
• Residential Status has to be determined for each previous year as
  per the assessment of income of each previous year.
• Assessment of wrong Residential Status may lead to wrong
  assessment of Income and may attract various Penalties as stated
  in Section 271 of the Income Tax Act’ 1961.
• A person may be resident in more than one country for any previous
  year. The chargeability of tax may be subject to Double Taxation
  Avoidance Treaty if exists between the two countries.
• Citizenship and Residential status of a person are separate
  concepts, since former has a direct reference to the Constitution of
  India, while latter has reference to Indian Income Tax Act only.
• For the purpose of determining Residential Status of a Firm or a
  HUF, the Residential Status of Partner of the firm or the members of
  the HUF is immaterial except in cases where the residence of the
  Partners or the Family members affects its control & management.
                          www.agbsindia.webs.com
         CATEGORIES OF Residential Status


Category Individuals/ HUF                 Any Other forms of
                                          Person
         Resident in India                Resident in India
A
         • Ordinarily Resident.
         • Not Ordinarily Resident


         Non resident in India            Non resident in India
B



                      www.agbsindia.webs.com
      RULES FOR DETERMINING THE RESIDENTIAL
                    STATUS OF A PERSON
•   Let’s bifurcate the answer to this question in Five Parts:
•   Part A : Residential Status of an Individual
•   Part B : Residential Status of an Hindu Undivided
    Family (HUF)
•   Part C : Residential Status of Firms and Association
    of Persons
•   Part D : Residential Status of a Joint Stock
    Company.
•   Part E : Residential Status of every other Artificial
    Juridical p


                       www.agbsindia.webs.com
          RESIDENTIAL STATUS OF AN INDIVIDUAL,sec(6)

• For determining the Residential Status of an Individual one has to
  pass the litmus test of two broad situations, First is the testing of two
  Basic Conditions, and Second is the testing of other two Additional
  Conditions.

• BASIC CONDITIONS:
Basic Condition (a)           He is in India in the previous year for a
                              period of 182 days or more.


Basic Condition (b)           He is in India for a period of 60 days or
                              more during the previous year and 365
                              days or more during 4 years
                              immediately preceding the previous
                              year
                            www.agbsindia.webs.com
• The above period of 60 days gets extended to 182 days in the
  following three situations:

• 1) If you being an Indian Citizen leave India during the previous
  year for the purpose of employment outside India; or,

• 2) If you being an Indian Citizen leave India during the previous
  year as a member of the crew member of an Indian Ship.

• 3) If you being an Indian Citizen or a Person of Indian Origin
  come to visit India during the previous year.

• So if any Individual/ HUF satisfies at least one of two basic
  conditions subject above exemptions he gets qualified for the
  second round of tests i.e., testing of two additional conditions.



                         www.agbsindia.webs.com
ADDITIONAL CONDITIONS:
(a)   He has been “resident” in India in at
      least 2 out of 10 previous years
      immediately preceding the relevant
      previous year.
(b)   He has been in India for a period of 730
      days or more during 7 years
      immediately preceding the relevant
      previous year

                www.agbsindia.webs.com
• Here you must note that unlike testing of the two
  basic conditions as mentioned above here the
  Individual has to satisfy both the
  conditions simultaneously to qualify him/
  herself as a ‘Resident and Ordinarily Resident’
  Abbreviated as ROR,sec 6(1)
• However if an Individual is able to satisfy either
  none or only one of the two additional conditions
  specified above he qualifies himself as a
  ‘Resident but not Ordinarily Resident’
  Abbreviated as RNOR
• Non Resident satisfies none of the basic
  conditions and the additional conditions are
  irrelevant.
                   www.agbsindia.webs.com
          RESIDENTIAL STATUS OF A HUF
• Hindu Undivided Family can either be Resident or a Non Resident in
  India. Like an Individual, HUF can also be ROR, RNOR or a Non
  Resident. Following are the conditions when a HUF can either be a
  Resident or Non resident:-
• Situation I: HUF qualifies as a „RESIDENT‟

Basic Condition            The Control and
                           Management of affairs of
                           the HUF is wholly or partly
                           situated in India.

                         www.agbsindia.webs.com
• The term Control and Management refers to the
  decisions taken regarding affairs of the HUF;
• Once it is determined that the HUF is Resident
  for the Previous year then one has to assess
  whether it is ROR or RNOR. If the HUF satisfies
  both of the below mentioned Additional
  Conditions simultaneously it qualifies as ROR
  but if none or only one of the additional
  conditions is satisfied the HUF qualifies as
  RNOR for the relevant Previous Year.
                  www.agbsindia.webs.com
Additional Condition (a)               Karta has been “resident” in
                                       India in at least 2 out of 10
                                       previous years immediately
                                       preceding the relevant previous
                                       year




Additional Condition (b)               Karta has been in India for a
                                       period of 730 days or more
                                       during 7 years immediately
                                       preceding the relevant previous
                                       year.


                           www.agbsindia.webs.com
     Situation II: HUF qualifies as a „NON-RESIDENT‟

 Basic Condition                The Control and Management
                                of affairs of the HUF is totally
                                Outside India



• RESIDENTIAL STATUS OF FIRMS OR AOP
• A Firm or Association of Persons can either be
  Resident or a Non Resident in India. Unlike an
  Individual / HUF, a firm or AOP can not be assessed
  as ROR or RNOR. Following are the conditions when
  a Firm or AOP can be treated as a Resident or Non
  resident for a previous year:
                     www.agbsindia.webs.com
    The term Control and management herein refers to in
   case a firm is in the hands of the Partner and in case of
    AOP in the hands of the Chief Officer and in no sense
   refers to the management of day to day business affairs

Status                           Control and Management of
                                 Affairs

RESIDENT                         Is situated Wholly in India
                                 Is situated Partly in India

NON RESIDENT                     Is situated totally Outside
                                 India
                      www.agbsindia.webs.com
RESIDENTIAL STATUS OF A JOINT STOCK COMPANY
• A Company can be assessed as Resident or a Non Resident in
  India on the same lines as a Firm or an AOP can be assessed.
  Following are the conditions when a Company can be treated as a
  Resident or Non resident for a previous year.
• The term Control and management herein refers to Central
  Controlling Power and has no reference to the day to day affairs of
  the Company
An Indian      A Foreign Company          Control and Management
Company                                   of Affairs

RESIDENT       RESIDENT                   Is situated Wholly in India

                                          Is situated Partly in India
               NON-RESIDENT
                                          Is situated totally Outside India
                          www.agbsindia.webs.com
    RESIDENTIAL STATUS OF EVERY ARTIFICIAL JURIDICAL
                        PERSON

• Every other person can be assessed as Resident or a
  Non Resident in India on the same lines as a Firm/ AOP
  or a Company can be assessed. Following are the
  conditions when an artificial juridical person can be
  treated as a Resident or Non resident for a previous
  year:-

Status                           Control and Management of Affairs

RESIDENT                         Is situated Wholly in India
                                 Is situated Partly in India

NON RESIDENT                     Is situated totally Outside India

                     www.agbsindia.webs.com
Relationship between residential status and Incidence
                 of Tax (Section 5) :-

• The below diagrammed table will provide distinct clarity on Income
  Chargeability on the basis of one’s Residential Status:-



                ROR
Type of                            RNOR               Non Resident
Income


Indian          Taxable in India   Taxable in India   Taxable in India
Income
                           www.agbsindia.webs.com
Type of Income      ROR             RNOR           Non Resident


Foreign Income
                    Taxable in      Taxable in     Not Taxable in
If it is Business
Income              India           India          India
business is
control wholly
or partly from
India


It is from          Taxable in      Taxable in     Not Taxable in
Income from
Profession          India           India          India
which is setup
in India


                          www.agbsindia.webs.com
If it is Business   Taxable in       Not          Not
Income &
business is         India            Taxable in   Taxable in
controlled from                      India        India
outside India
It is from Income   Taxable in       Not          Not
from Profession
which is setup      India            Taxable in   Taxable in
outside India                        India        India

Any other           Taxable in       Not          Not
Foreign Income      India            Taxable in   Taxable in
                                     India        India

                         www.agbsindia.webs.com
 ANY OTHER FORM OF PERSON

Type of Income Resident                   Non Resident


Indian Income   Taxable in India Taxable in India


Foreign Income Taxable in India Not Taxable in
                                India

                 www.agbsindia.webs.com
   RECEIPT OF INCOME vs. REMITTANCE OF
                       INCOME
• As per the Act all Income received in India is
  taxable irrespective of residential status of a
  person, but a clear difference infact exists
  between receipt & remittance of income, the
  former if received in India becomes taxable in
  India and latter if received outside India, but
  remitted to India afterwards, becomes non
  taxable in India.

                   www.agbsindia.webs.com
                       Example
• Mr. A, an Indian Citizen received $4000 in out of Fixed
  Deposits made by him in Bank of America, USA. Which
  he later remitted to India at an exchange rate of 1$= Rs.
  40/- (i.e., 1,60,000/- INR), Is his Income taxable in India
  or USA?

• The Answer is that his Income is not taxable in India but
  is taxable in USA. The reason behind this is the Income
  out of Interest aroused & was received in USA by the
  assessee, only later it was remitted to India. Herein the
  law clearly states that only receipts in India are taxable
  and not remittances made after any receipt of such
  Income outside India

                       www.agbsindia.webs.com
                   CASH vs. KIND

• It is not necessary that an Income should be
  actually received in Cash form only, even if the
  Income is received in Kind form it is taxable in
  India, e.g., Mr. A received a Maruti Car on
  winning Kaun Banega Badshaah? contest. In
  this case tax calculated at applicable rates on
  cost of Maruti car as on the date of receipt or
  accrual, whichever is earlier will have to be paid
  to Govt. in cash.
                   www.agbsindia.webs.com

				
DOCUMENT INFO
Description: Residential Individual Income Tax document sample