INCOME TAX - I

Semester – V
B.com

Student Workbook

Edition: 2020
#44/4, District Fund Road, Behind Big Bazaar, Jayanagar 9th Block, Bengaluru, Karnataka
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 V SEMESTER
Program: B.COM Semester: V
Subject: Income Tax - I
Total Lecture Hours: 60 Credits: 04

Objectives:
To appraise students with various provisions of Income tax act and finance and computation of
Taxable income under various head and Calculation of Tax liability

Module – 1
BASIS OF CHARGE and IT Authorities’ 6 hours
Introduction to income tax, Concept of income tax, Finance bill and act, Definitions: Assesse, income,
person, assessment year, previous year, Gross total income and total income,
Income tax officers – Central Board of Direct Taxes, Commissioner of income tax – Powers and
functions, Brief explanations of return of income- E – filing, PAN

Module – 2
EXEMPTED, AGRICULTURE INCOME, CAPITAL AND REVENUE 6 hours
Exempted incomes, Definition of agriculture, Integration of agriculture income with non –
agricultural income (simple problems) Capital and revenue receipts, Capital and revenue
expenditure, Capital and revenue losses, Place of effective Management

Module – 3
RESIDENTIAL STATUS AND INCIDENCE OF TAX 8 hours
Basic and additional conditions as per section 6(1) and 6(6), Scope of total income based on
residential status and on source basis, Problems on determination of residential status, Incidence of
tax

Module – 4
INCOME FROM SALARIES 26 hours
Definition of salary, characteristics of salary, format of computation of salary income
Salary u/s 17(1) – Allowances – Perquisites – Profits in lieu of salary, Receipts which are includible
under the head salaries but exempted u/s 10, Deductions u/s 16, Problems

Module – 5
INCOME FROM HOUSE PROPERTY 14 hours
Basis of charge, Exempted incomes from house property, Annual value, Determination of annual
value – Let out – Self occupied – Deemed to be let out – partly let out and partly self-occupied
Deductions u/s 24, problems

Reference Books:
1. Dr. Vinod k Singhania – Direct Taxes Law and Practice, Taxman.
2. T N Manoharan – Students hand book on Income Tax Law, Snow white.
3. Bhagwathi Prasad – Direct Taxes Law and Practice, VishwaPrakashana.
4. Gaur and Narang – Income Tax Law and Practice, Kalyani Publishers.
5. Dr. H C Mehrotra& Dr. S P Goyal– Income Tax Law and Practice, SahityaBhawan Publishers

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 Income Tax Slab Rate for AY 2020-21 for Individuals:
Individual (resident or non-resident), who is of the age of less than 60 years on the last
day of the relevant previous year:

Net income range Income-Tax rate

Up to Rs. 2,50,000 Nil
Rs. 2,50,000- Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Resident senior citizen, i.e., every individual, being a resident in India, who is of the age
of 60 years or more but less than 80 years at any time during the previous year:

Net income range Income-Tax rate

Up to Rs. 3,00,000 Nil
Rs. 3,00,000 – Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Resident super senior citizen, i.e., every individual, being a resident in India, who is of
the age of 80 years or more at any time during the previous year:

Net income range Income-Tax rate

Up to Rs. 5,00,000 Nil
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Plus:-
 Health and Education cess: - 4% of income tax and surcharge.

 Surcharge: -
Rs. 50 Lakhs to Rs. Rs. 1 Crore to Rs. 2 Rs. 2 Crores to Rs. 5 Rs. 5 crores to Rs. 10 Exceeding Rs. 10
1 Crore Crores Crores Crores Crores

10% 15% 25% 37% 37%

Note: - A resident individual is entitled for rebate under section 87A if his total income does
not exceed Rs. 5, 00,000. The amount of rebate shall be 100% of income-tax or Rs. 12,500,
whichever is less.

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 Module – I

INTRODUCTION TO INCOME TAX

Tax is levied by the government to form a pool of resources to be used for the collective
benefit of the public. Taxes collected would be used by the government for public welfare
programs, maintenance of law and order in the country, running public sector undertakings
etc.
There are two types of taxes – Direct and Indirect. Direct tax is a type of tax where the tax is
imposed on a person and it is paid by the same person. That means the incidence and the
impact of tax are on the same person. When the incidence and impact of tax are on different
persons, it is called indirect taxes.

OBJECTIVES OF THIS MODULE:

1. To understand the basic concepts of tax.
2. To know various terminologies used.
3. To give a clear idea about, how individuals are treated under taxing system.
4. To be familiar with the authorities related to income tax and their functioning.

1.Brief History of Income Tax:

The concept of income tax was introduced in India for the first time by Sir James
Wilson in the year 1860 in order to recover the expenditure incurred by the Government on
account of Sepoy Munity in 1857 (First war of Indian Independence). Thereafter several
amendments were made in 1918, 1921 etc. In 1961, based on the recommendation of the
Direct Tax Committee and in consultation with the Law Ministry a Bill was framed and
introduced in the Parliament on 1st September 1961 and the same came to force with effect
from 1st April 1962.
The comprehensive Income Tax Act 1961 includes 14 section and sub section running
into thousands and many amendments which were made since 1961. Finance minister
presents budget every year in the parliament with a view to change rates and laws of income
tax if any needed in the interest of the nation building.
Income tax is levied by the Central Government and administered by Central Board of
Direct Taxes (CBDT). Income tax shall be levied only on those persons whose income
exceeds certain limit. Total tax revenue collected by the Central Government is shared by
Central and State Government on the basis of recommendation of finance commission.

1.2 Legal framework:

Income tax is a direct tax. It is levied and collected from the public who have income more
than the exempted limit for a given financial year. Income tax is a central subject and it is
levied, collected, administered, regulated and monitored by the Central Board of Direct Taxes
(CBDT) under the Ministry of Finance, Government of India. The scope of Income tax
subject covers the following aspects. Viz
1. Income Tax Act,1961 (Bare Act – subjected to many amendments from time to time
till date)
2. Income Tax Rules 1962
3. Finance Act (passed in the Parliament every year)
4. Judicial pronouncements relating to various issues in Income Tax.
5.

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1.3 Tax:

It is compulsory levy under certain conditions and it is meant for the general purposes of the
state.

1.3.1 Features of tax:

1) It is a compulsory payment to be paid by the citizens who are liable to pay it, and any
refusal to pay tax is a punishable offence.
2) It is levied to meet public expenditure incurred by the government in the common interest
of the nation.
3) The payment of tax by a person does not entitle him to receive any direct benefits from
the government in return for the tax.
4) There is no direct relationship between the tax paid by the person and the benefits that he
may receive as a result of government expenditure.
5) It has to be paid regularly and periodically as determined by the tax authority.

1.3.2 Types of taxes:

1) Direct Taxes: It is a kind of tax where incidence and impact are on the same person.
‘Incidence’ means liability to pay tax to the Government and
‘Impact means burden of paying the tax.
E.g. Income Tax, Wealth Tax, Property Tax etc.

2) Indirect Taxes: It is a kind of tax where ‘incidence’ and ‘impact’ are on two different
persons.
E.g. Customs Duty, GST

Difference between Direct tax and Indirect Tax

Particulars Direct Tax Indirect Tax

Meaning It is a kind of tax where incidence
It is a kind of tax where ‘incidence’
and impact are on the same and ‘impact’ are on two different
person. persons.
Nature of Tax Progressive in nature. Regressive in nature.
Taxable event Taxable income of the Assessee Purchase/Sale/Manufacture of goods
and or rendering of services.
Levy and Levied and collected from the Levied and collected from the
Collection Assessee. consumer but paid or deposited to the
exchequer by the Assessee or Dealer.
Shifting of Tax burden is borne by the person Tax burden is shifted to the
Burden on whom it is levied. Hence, the subsequent or ultimate user.
burden cannot be shifted.
Tax Collection Tax is collected on the basis of At the time of sale or purchase or
annual income. rendering of services.
Examples Income Tax, Wealth Tax, Excise Duty, Customs Duty, Sales
Property Tax etc. Tax, Service Tax etc.

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1.3.3. Principles or Canons of taxation:

1) Canon of Equality:
According to this canon taxes imposed should be in accordance with an individual’s
ability to pay. That is it should be impartial and based on one’s ability to pay.

2) Canon of Certainty: The amount to be paid, the time and the method of payment should
be clear and certain for the tax payers to adjust his/her income and expenditure
accordingly.

3) Canon of Convenience: This canon says that the time of payment and the manner of
payment should be convenient to the tax payer.

4) Canon of Economy: Every tax involves a collection cost. It is important that the cost of
collection should be the minimum possible. The tax is economical, in the sense that the
cost of collection is very small.

5) Canon of Productivity: The tax system should sufficiently yield the revenue needed to
meet the requirements of the state. Productivity again means that the government should
not depend upon deficits.

6) Canon of Elasticity: Elasticity is closely connected with fiscal adequacy. This canon
implies that yield from taxation should grow along with increase in population and
development of economy.

7) Canon of Simplicity: Calculation of taxable income and taxable liability should be

simple and understandable to the tax payer.

8) Canon of Flexibility: Income tax authorities should revise the tax structure at the right
time in order to meet the changing needs of the economy.

1.4 BASIC TERMINOLOGIES UNDER INCOME TAX:

1.4.1. Income Tax: It is a tax on the income earned by an assessee during the previous year
and the tax is payable in the assessment year at the rates prescribed by the relevant Finance
Act. It is a tax levied by the Central Government on the income earned by an assessee every
year.

1.4.2. Assessment U/S 2(8):

According to section 2(8) of Income Tax Act, 1961 the term assessment means-
1) Computation of total income or taxable income
2) Computing the tax on the income and
3) Imposition of tax liability

1.4.3. Assessment Year U/S 2(9):

Assessment year is defined as “the period of twelve months starting from 1st of April and
ending on 31st March every year”. The current Assessment year is 2020-21.

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1.4.4. Previous Year U/S 3

It is the financial year immediately preceding the Assessment year. In other words, the year
in which income is earned is known as previous year. The previous year for the assessment
year 2020-21 is 2019-20.

1.4.5. Difference between Previous year and Assessment year

Previous year Assessment year

The year in which income is earned. The year in which the income of the
previous year is assessed to tax.

It always precedes the assessment year. It always succeeds the previous year.
It may be either a full year or part of the year. It is always a full year
The present previous year is 2019-20. The present assessment year is 2020-21.

1.4.6. Exception to the General Rule Previous Year:

Normally all the incomes of the P.Y are assessed to tax in the A.Y. But there are certain
exceptions to this rule. In these cases, the income of a financial year is assessed to tax in the
same year. They are:
1) Sec. 172 – Income of non-resident from shipping business.
2) Sec. 174 – Income of persons leaving India either permanently or for a long period of
time.
3) Sec. 174 (A) – Income of bodies formed for short duration.
4) Sec. 175 – Income of a person trying to transfer his/her assets to avoid the payment of
tax.
5) Sec. 176 – Income of a discontinued business.

1.4.7. Assessee Sec 2(7):

An assessee means a person by whom any tax or any other sum is payable under the Income
Tax Act of 1961, it includes:
a) Every person in respect of whom any proceeding under this Act has been taken for the
assessment of income or any refund due to him or to such other person.
b) Deemed Assessee.
c) Deemed Assessee in default.

1.4.7(1) Deemed Assessee:

A person may be liable not only for his own income but also on the income of other persons.
A person who is liable to pay any tax or file return of income for the income earned by a
minor, agent of non-resident or by any other person is called Deemed Assessee.
Deemed assessee is a person who is assessable for the income of any other person under this
act and includes the following.
1) The executors or the legal heirs of a deceased person
2) The guardian of a minor, lunatic or idiot having taxable income
3) The agent of any non – resident Indian having income in India.

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1.4.7(2) Assessee in Default: When a person is responsible for doing any work under the
Income Tax Act and fails to do it, he is called as assessee in Default. E.g. A company is
treated as assessee in default for non-deduction of TDS.

1.4.8. Person Sec 2(31):

The term person includes:

a) An individual
b) A Hindu Undivided Family
c) A Firm
d) A Company
e) An association of persons/body of individuals
f) A Local Authority
g) Artificial Juridical Person

1.4.9. Income Sec 2(24):

The term income includes

1) Profit and gains of business
2) Dividends
3) Voluntary contribution received by a Trust or an Institutions
4) Perquisites of profit in lieu of salary/Allowance
5) Capital Gains
6) Winning from Lottery/ Cross word Puzzle/ Race
7) Sum received under Keyman insurance policies including bonus thereon
8) Gifts as per section 56
9) Any consideration received for issue of share as exceeds the fair market value of
shares as referred in clause of (vii)(b) of section 56(2)
10) Any sum of money referred to in section 56(2)(ix) received as an advance or
otherwise in course of negotiations for transfer of Capital Asset, if it is forfeited and
negotiations do not result in transfer of such capital asset.

1.4.10. Casual Income:

An income becomes casual income, if it contains the following feature: It is

unanticipated, it is non-recurring in nature, it arises from an unknown source, no specific
efforts were put in to earn such income. For example,
1) Winning from lottery
2) Income from cross word Puzzles and card games
3) Tips given to taxi drivers
4) Prize awarded for coin or stamp collection

1.4.11. Heads of Income:

Different heads of income are:
1) Income from Salary
2) Income from House Property
3) Profits and gains from Business or Profession
4) Capital Gains
5) Income from Other Sources

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 Income from Salary All the money you receive while rendering your job as
a result of an employment contract

Income from house Income from house property you own; property can be
property self-occupied or rented out.

Income from Income/loss arising as a result of carrying on a

business and business or profession. Freelancers income come
profession under this head.

Income from capital Income earned from the sale of a capital asset (mutual
gains funds or house property).

Income from other Income accrued from fixed deposits and savings
sources account come under this head.

1.4.12. Gross Total Income:

It is the aggregate of the income computed under various heads of income after allowing set-
off of losses according to the provision of Income Tax Act. Section 14 deals with the Gross
Total Income and it includes:

1) Income from Salary

2) Income from House Property
3) Profits and gains from Business or Profession
4) Capital Gains
5) Income from Other Sources

1.4.13. Total Income Sec 5:

Total income of an assessee is Gross Total Income after making deductions u/s 80C to
80U.This is also called taxable income.

1.5. Income tax Authorities

To discharge executive and administrative functions efficiently, the following authorities

have been constituted under section 116 of the income tax act, 1961:
i. The Central Board of Direct Taxes (CBDT)
ii. Director General of Income Tax (DGIT) or Chief Commissioner of Income Tax
(CCIT)
iii. Directors of Income Tax (DIT) or Commissioners of income tax or commissioners of
income tax (appeals)
iv. Additional Directors of Income Tax (ADIT) or Additional Commissioners of Income
Tax (ACIT) or Additional Commissioners of Income Tax (appeals)

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 v. Joint Directors of Income Tax (JDIT) or Joint Commissioners of Income Tax (JCIT)
vi. Deputy Directors of Income Tax (DDIT) or Deputy Commissioners of Income Tax
(DCIT) or Deputy Commissioners of Income Tax (appeals)
vii. Assistant Directors of Income Tax (ADIT) or Assistant Commissioners of Income
viii. Tax (ACIT)
ix. Income Tax Officer (ITO)
x. Tax Recovery Officers (TRO)
xi. Income Tax Inspectors (ITI)

1.5.1 Appointment of Income Tax Authorities (117)

The following authorities have the power to appoint Income Tax Authorities:
I. Central Government
II. Board or Director-general or Chief Commissioner or Commissioner of IT department.
III. Appoint of executive or ministerial staff by an income tax authority, authorized by the
board.

1.5.2. Power and Functions of Central Board of Direct Taxes (CBDT)

It is the top most authority in the sphere of direct taxes. The CBDT is created under the
Central Boards of Revenue Act, 1963. CBDT works under the Ministry of Finance.

1.5.2(1) Powers of CBDT:

i. To make rules for carrying out the objectives of IT act
ii. To issue orders and instructions to subordinate authorities for proper administration of IT
act
iii. To authorize other IT authorities to accept application of claims for any exemption,
deduction, refund or any other relief after the expiry of the prescribed period
iv. To exercise control over IT authorities
v. To decide jurisdiction of IT authorities
vi. To empower authorities with the power of search

1.5.3. Commissioner of Income Tax (CIT)

He is vested with the following powers:

i) To review the order of the assessing officer
ii) To set-off refund against arrears of tax
iii) To appoint an IT authority below the rank of an Assistant Commissioner or Deputy
Commissioner
iv) To authorize Joint Commissioner to exercise the powers of an assessing officer
v) To transfer cases from one subordinate assessing officer to another
vi) To authorize any Joint Commissioner, Assistant Commissioner or Deputy Director or IT
Officer to make search and seizure
vii) To make any enquiry under this act
viii) To sanction the re-opening of an assessment after the expiry of 4 years.

1.5.4. Income Tax Officer (ITO)

ITO is the person with whom an assessee comes into direct contact. The important powers
and functions of ITO are narrated below:

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i) To grant refunds
ii) To impose penalty for a non-payment of tax
iii) To re-assess the escaped income
iv) To allot permanent account number
v) To exercise power of search and seizure, if authorized by the designated authority
vi) To inspect register of companies
vii) To issue a certificate prescribing lower rate of deduction of tax at source
viii) To determine appropriate proportion of expenses for deduction in respect of premises
partly used for business or profession

1.6 Procedure of Assessment:

Every person whose total income during the previous year exceeds the minimum taxable
limit, shall, on or before the due date, furnish his return of income in the prescribed form

1.6.1 Types of Assessment

1. Self-Assessment
2. Assessment on the basis of return
3. Regular Assessment
4. Re- Assessment or Income escaping Assessment
5. Precautionary Assessment

1.6.1 (a) Self-Assessment:

The assessee has to compute the tax liability by adding heads of Income and giving the
deductions u/s 80s finally applying the provisions of set off and carrying forward of losses.

1.6.1(b) Assessment on the basis of returns:

This assessment is also known as summary assessment [Us 143 (1)] under this provision,
where a return has been filed under Section 139 or in response to a notice under Section 142
(1)
i. If any tax or interest is found on the basis of such return, an intimation will be sent to the
assessee specifying the sum payable by him and such intimation will be deemed to be a
notice of demand issued under Section 156 and
ii. If any refund is due on the basis of such return, it will be granted to the assessee.

1.6.1(c ) Regular Assessment:

Regular assessment means the assessment made on the following basis:

i) Basis of evidence U/s 143 (3)- When the assessing officer considers it necessary to verify
the correctness or completeness of the return, to ensure that the income has not been under-
stated or the tax has not been underpaid, he can serve a notice on the assessee either to attend
his office or to produce, on a date specified, any evidence on which the assessee may rely in
support of the return. Such a notice can be served on the assessee only during the financial
year in which the return is filed, or within six months from the date of filing the return,
whichever is later.

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ii) Best judgment assessment U/s 144 - are of two types:

a) Compulsory Best judgment assessment: Best judgment assessment (Eec.144): The

Assessing Officer is to make an assessment to the best of his judgment against a person
who is in default as regarding supplying information. Sec. 144 provides that the
Assessing Officer shall make assessment to the best of his judgment in the following
cases:
 Where the assessee has failed to make voluntary return under Sec.139 (1) or has
not filed belated return under Sec. 139 (4) or revised return under Sec. 139 (5).
 Where there has been a failure to comply with all terms of notice under Sec. 142
(1) requiring the assessee to produce accounts or other documents or information
specified therein or fails to get the accounts audited under Sec. 142 (2A).
 Where the return has been made but the Assessing Officer considers it to be
incorrect or incomplete and serves a notice under Sec.143 (2) upon the assessee
requiring his appearance or the production by him of evidence in support of his
return, but the assessee does not comply with the terms of the notice.

b) Discretionary Best judgment assessment: Where the Assessing Officer is not

satisfied about the correctness of the accounts of the assessee or where no method of
accounting has been regularly employed by the assessee, the Assessing Officer may at his
discretion make the best judgment assessment

1.6.1 (d) Re-Assessment (Section 147):

This assessment is also known as income escaping assessment. If the assessing officer has
reason to believe that any income chargeable to tax escaped assessment for any assessment
year he may assess or reassess such income keeping in view the provisions of Section 148 to
153.

1.6.1 (e) Precautionary Assessment:

Where it is not clear as to who has received the income and primafacie, it appears that the
income may have been received either by A or by B or by both together, the assessing officer
can commence proceedings against both A and B to determine the question as who is
responsible to pay tax.

1.7. Rectification of Mistakes:

The rectification of mistakes can be done by the concerned authority on its own or on an
application made by the assessee. Further, the order of rectification shall be passed in writing
by the concerned authority only. If an application for rectification is made by the assessee,
the concerned authority shall pass an order within a period of six months from the end of the
month in which the application is received by it, either accepting to make the amendment or
refusing to allow the claim.

If the rectification enhances the liability of the assessee or reduce the refund, the concerned
authority shall give notice to the assessee, asking him to pay the tax immediately. On the

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other hand, if the rectification reduces the liability of the assessee, the authority shall make
arrangements to refund the amount, which is due to the assessee.

1.8. Permanent Account Number (PAN) – Section 139 (A)

PAN or Permanent Account Number is a ten-digit alphanumerical number (a number

containing a combination of alphabets and numerals), issued by the Regional Computer
Centre of the Income Tax Department. A typical PAN is AFRPP1595D

1.8.1 Who should have a PAN?

The following persons are required to obtain PAN:

i) Any existing assessee or tax payer or person who is required to furnish a return of
income (even on behalf of others)
ii) Any person carrying on business or profession whose total sales, turnover, gross
receipts in any financial year is more than Rs.5 lakhs
iii) Any person who intends to enter into economic or financial transactions where
quoting PAN is compulsory

PAN may be allotted or asked for by other persons also:

i) The Assessing Officer may allot PAN to any person either on his own or on a specific
request from such person.
ii) Any other person can apply for and obtain PAN?

Assessment is the process where in an assessee calculates the taxable income, tax liability
and files the income tax returns with the Department of Income Tax. This process is usually
done in the year following the financial year that is in Assessment Year.

1.9. Filing of Returns:

Every person if his total income exceeds the maximum amount not chargeable to tax i.e.
basic exemption limit has to file a return of income in Income Tax Department. Filing of
Return is compulsory even if tax payable is nil or refundable.
a) Loss return-Sec.139 (3): Any person who sustained loss in any previous year and claims
that such loss should be carried forward shall furnish a return of loss within the time allowed
u/s. 139(1) in the prescribed form.
b) Belated return-Sec.139 (4): Any person who has not furnished a return within the time
allowed u/s.139 (1) or within the time allowed by the notice issued u/s.142 (1), can file a
belated return, for any previous year at any time before one year from the end of the relevant
assessment year or before the assessment is completed, whichever is earlier.
c) Revised return-Sec.139 (5): If the assessee discovers any omission or any wrong
statement in the return filed earlier. Such revised return can be furnished at any time before
the expiry of one year from the end of the relevant assessment year or before completion of
assessment whichever is earlier.

1.9.1. Due date of Filing of return of Income:

(a) For company assessee By 30th September, the Assessment Year

(b) For all non-corporate persons whose accounts By 30th September, the Assessment Year

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 are subject to audit and working partners of a
firm whose account are subject to audit
(c) For all other persons By 31st day of July of the Assessment
Year

TERMINAL QUESTIONS:

Section A – 2 Marks Questions

1. What is Indirect Tax? Give examples.

2. Define a) Assessee
b) Assessment
c) Assessee in default
d) Deemed Assessee
e) Previous Year
f) Assessment Year
g) Person
h) Income
4. Expand ‘CBDT’ and ‘CIT’.
5. Mention four important Income Tax Authorities
6. What is Assessment Procedure?
7. What is Best Judgment Assessment?
8. What do you mean by PAN?
9. What do you mean by Precautionary Assessment?
10. What is Re-assessment?

Section B – 5 Marks Questions

1. 1.Briefly explain the exceptions to the general rule of previous year.

2. Briefly Explain the Power and Function of CBDT.
3. Explain the types of Assessments.
4. What is Filing of Return? Explain in brief different types of Filing the Return of
Income.

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 Module: II

EXEMPTED, AGRICULTURE INCOME, CAPITAL AND REVENUE:

Exempted incomes
The exempted incomes are given u/s 10(1) to 10 (49) of the act and are not included for the
calculation of total income of the assessee. Some of these incomes are listed below:

1. Agricultural income from a land in India – fully exempted u/s 10(1).

2. Share of income from HUF- fully exempt u/s 10(2)
3. Share of income from firms assessed as firm u/s 184 or 185 is fully exempt u/s 10(2A)
4. Any income from investment by an NRI in bonds and securities –fully exempted u/s10
(4)(i). No exemption on such bonds issued after 1.6.2002.
5. Any income from interest on Non-resident (external) account – fully exempted u/s 10
(4)(ii).
6. Leave travel concession to an Indian citizen employee – exempted up to limits laid down
u/s 10(5)
7. Tax paid by government or an Indian concern on behalf of foreign company (sec 10(6A))
8. Perquisites and allowances given by the government to its employees posted abroad - fully
exempted u/s 10 (7).
9. Any income of employees of foreign countries working in India under co-operative
technical assistance programme – fully exempted u/s 10(8).
10. Amount of retrenchment compensation given to workers – fully exempted u/s
10(10B)
11. Compensation received in case of any disaster [sec 10(10BC)] – in case an individual or
his legal heir receives any compensation on account of any disaster from central or state
Government or a local authority, the same shall be exempted.
12. Any amount received from life insurance corporation on maturity of policy with or
without bonus – fully exempt u/s 10(10D). The sum assured shall be exempt along with
bonus in the following cases:
a) If any sum received from insurance company on insurance of a dependent
handicapped member
b) If any sum received from insurance company when a dependent, or a member of
family is suffering from a notified disease,
c) Any sum received under a key man insurance policy
13. Payment received out of statutory provident fund – fully exempt u/s 10(11)
14. Payment received out of recognized provident fund – fully exempt u/s 10(12)
15. House rent Allowance – exempted as per conditions given u/s 10 (13A).
16. Income from certain exempted securities u/s 10(15).
17. Educational scholarships given by government or any other organisations - fully exempt
under sec 10(16).
18. Allowances received by MPs/MLAs – exempted u/s 10(17) up to the following extent:
 Daily allowance and Constituency allowance – fully exempted.
19. Any Awards instituted or notified by central or state government in the following fields–
fully exempt u/s 10(17 A)
a) Literary, scientific or artistic work or attainment
b) Services alleviating the distress of the poor, the weak and the ailing
c) Proficiency in sports or games
d) Gallantry awards (paramveerchakra, mahaveer chakra) approved by the government

FOR PRIVATE CIRCULATION ONLY 15

20. Any pension received by winners of paramveer chakra, mahaveer chakra and veer chakra
and family pension received by their dependents- fully exempted under sec 10(18)
21. Family pension received by family members of armed forces. u/s 10(19).
22. Annual value of any one palace of an ex-ruler of Indian states shall be fully exempt u/s
10(19A)
23. Income of a local authority – exempted as per conditions given u/s 10(20)
24. Income of a scientific research association – exempted as per conditions given u/s 10(21).
25. Income of a fund set up for welfare of employees or their dependents exempted as per
conditions given u/s 10(23AAA).
26. Any income of a trust or society approved by Khadi and Village Industries Commission
u/s 10(23B).
27. Income of mutual fund – exempted as per conditions u/s 10(23D).
28. Income of a venture fund - exempted as per conditions u/s 10(23FA)
29. Income by way of dividend from an Indian company –fully exempted u/s 10(34)
30. Income from units of UTI and other mutual funds (sec 10(35)
Any income by way of:
a) Any income received by way of dividend from a domestic company.
b) Income received in respect of units from the specified company.
31. Income from sale of shares in certain cases [sec 10(36)]
Any income arising from the transfer of a long term capital asset, being an eligible
equity share in a company purchased on or after march 1, 2003 and before march 1, 2004 and
held for a period of twelve months or more.
32. Any income from long- term capital asset being self-cultivated urban agricultural land on
compulsory acquisition [section 10(37)]- in case of an assessee, being an individual or a
Hindu Undivided family, capital gain arising from the compulsory acquisition of self-
cultivated land shall be fully exempted.
33. Income from international sporting event (sec 10(39))
Any specified income of specified persons from any international event held in India shall be
fully exempt if:
a) Such event is approved by the international body regulating the international sport
relating to such event;
b) It has participation by more than two countries; and
c) It is notified by the central government in this regard.

2.1 Agriculture income

According to Sec 2 (IA) Agriculture income means:

1) Any rent or revenue received from land which is used for agricultural purpose and
situated in India.
2) Any income derived from such land by agricultural operations including processing of
agricultural produce, raised or received as rent in kind so as to render it fit for the
market, or sale of such produce.
3) Income attributable to a farm house subject to the condition that building is situated
on or in immediate vicinity of the land and is used as a dwelling house, store house
etc.

2.1(a) Examples of Agricultural Income:

1) Income from sale of replanted trees.

2) Rent received from agricultural land.

FOR PRIVATE CIRCULATION ONLY 16

 3) Income from growing flowers and creepers.
4) Share of profit of a partner from a firm engaged in agricultural operations.
5) Interest on capital received by a partner from a firm engaged in agricultural
operations.
6) Income derived from sale of seeds, straw, dried Tobacco leaves.
7) Land leased for grazing of animals required for agriculture purpose.
8) Insurance money received for destruction of agricultural produce.

2.1(b) Examples of Non- Agricultural Income:

1) Income from sale of earth for brick making.

2) Income from stone quarries and fishing
3) Income from sale of spontaneously grown trees.
4) Income from dairy farming, poultry farming.
5) Interest received by a money lender in the form of agriculture products.
6) Income of salt produced by flooding the land with sea water.
7) Royalty income from mines.
8) Income from butter and cheese making.
9) Maintenance allowance charged on agriculture land.
10) Remuneration received as an employee of an agriculture farm.
11) Dividend received from a company engaged in agricultural operations.

Illustration
Determine whether the following incomes are agricultural incomes or not.
1. Income from interest on arrears of rent payable in respect of land used for agricultural
purpose.
2. Income from use of land for grazing of cattle required for agricultural operations.
3. Income from the sale of trees spontaneously grown.
4. Income from the sale of replanted trees in the forest.
5. Lease rent for letting out a tea estate by the assessee doing the business of growing
and manufacturing tea.

Solution:
1. Non-agricultural income as the income is derived from a financial activity and not
from direct agricultural activity.
2. Agricultural income as it is an agricultural activity.
3. Non-agricultural income because no agricultural activity is involved.
4. Agricultural income as there is some agricultural activity involved.
5. It is agricultural income as the estate is used for agricultural activities

2.1(c) Partly Agricultural Income:

Sometimes, there is composite income which is partially agricultural and partially non-
agricultural income. For certain crops, income tax act gives fixed percentages to segregate
agricultural and non- agricultural incomes. Agricultural income is not taxable and the non-
agricultural portion would be taxable.

FOR PRIVATE CIRCULATION ONLY 17

 Table 1.1
PARTLY AGRICULTURAL AND PARTLY NON-AGRICULTURAL INCOME
Crop Rule Agricultural Non-
income agricultural
income
1) Growing and manufacturing of tea 8 60% 40%
2) Rubber manufacturing business 7A 65% 35%
3) Coffee grown and cured by seller 7B(1) 75% 25%
4) Coffee grown and cured, roasted 7B(1A) 60% 40%
and grounded by the seller in India
with or without mixing chicory or
other flavoring agents

2.2. Integration of Agricultural Income with Non-Agricultural Income: [sec 2(2)]:

Agricultural income is exempt from tax u/s 10(1) but it is included in the total income for tax
liability calculation. The object of aggregating the net agricultural income with non-
agricultural income is to tax the non-agricultural income at higher rates.

2.2.1. Conditions for aggregation:

 Integration is done only in case of Individuals, HUF, Firms assessed as association of

persons (AOP), Association of persons, Bodies of individuals, artificial juridical
persons.
 Integration is done only if Non-agricultural income of persons mentioned above
exceeds the exempted limits which are Rs.2,50,000 for individuals and HUF, and Rs.
3,00,000 for senior citizens in the relevant previous year.
 Integration is done if net agricultural income of all these persons exceeds Rs. 5000 in
the relevant previous year, companies and co-operative societies.

2.2.2 Calculation of net agricultural income:

It is computed in accordance with the rules laid down u/s 2(iA) of the Income tax act 1961
and rules 7 & 8 of the income tax rules 1962. These rules are:
1. Rent or revenue derived from agricultural land will be computed on the same basis which
is adopted for computation of income under the head income from other sources u/s 57 to
59 of the income tax act.
2. Income derived from agricultural operations will be computed as if it is income
chargeable to tax under the head profits & gains of business or profession. Depreciation
and loss on the death of animals used in agricultural operations are allowed as expenses.
3. Income from agricultural house property will be computed as if such income is
chargeable to tax under the head ‘income from house property’ and provisions under
section 22 to 27 shall be applicable.
4. For computing share of income from tea business income is computed under rule 8 which
shall be considered to be agricultural income.

FOR PRIVATE CIRCULATION ONLY 18

5. For computing share of income or loss of a firm assessed as AOP same rules are
applicable as provided in income tax act for computing share of profits and losses from
firm assessed as firm.
6. Loss incurred in agriculture will be allowed to be set off only against agricultural
incomes.
7. Any sum payable by the person on account of any tax levied by State Govt. on
agricultural income will be allowed as deduction.
8. Where the net result of agricultural income from the various sources stated above in a
particular previous year is a loss, such loss will be disregarded and net agricultural
income shall be taken as nil.

2.3 Capital and Revenue:

2.3.1 Introduction
It is necessary to understand the distinction between capital and revenue items to determine
the tax treatment of expenses and incomes. For the understanding of the concepts it is divided
into three parts:
i) Receipts
ii) Expenditure
iii) Losses

Capital Receipt Revenue Receipt

1.Amount of fixed capital received is a 1.Amount received as circulating capital is a
capital receipt. revenue receipt.
2.A receipt in substitution of a source of 2. A receipt in substitution of an income is a
income is a capital receipt. E.g. revenue receipt. E.g. Bonus received by an
Compensation received from his employer employee from his employer is a revenue
for the termination of service is a capital receipt.
receipt.
3.An amount received as a compensation for 3. An amount received under an agreement as
the surrender of certain rights under an compensation for loss of future profits is a
agreement is a capital receipt. E.g. Amount revenue receipt. Compensation paid for
paid to a retiring director of a company for breach of agreement is a revenue receipt
not starting a competing business after his
retirement
4. If the asset is used by the assessee as an 4. If the asset is kept in the business as stock
investment then the sale proceeds thereof will in trade i.e. for the purpose of making profit
be a capital receipt. E.g.: Motor car used by a from its sale then the sale proceeds thereof is
business is a capital asset and the sale a revenue receipt. E.g. Sale proceeds of
proceed thereof is a capital receipt. motor cars maintained by vehicle dealer.
5. Subsidies or grants received from the 5. Subsidies or grants received from the
government for specific capital purpose. E.g., government for meeting foreign competition
For any development scheme or renovation or otherwise assisting the trader in his
or modernization is a capital receipt. business are revenue receipts.
6. Insurance money received for a capital 6. Insurance money received for a trading
asset is capital receipt. asset is revenue receipt.

FOR PRIVATE CIRCULATION ONLY 19

2.3.2. Capital Expenditure and Revenue Expenditure:

Capital expenditure is not deductible from the gross income of the business but the revenue
expenditure is deductible therefore, it is essential to know the difference between the two:

Capital expenditure Revenue expenditure

1. Cost of acquisition and installation of a 1. Purchase price of goods bought for
fixed asset is a capital expenditure. resale along with expenses on their
purchase is revenue expenditure.
2. An expenditure incurred to discharge a 2. An expenditure incurred to discharge a
capital liability is a capital expenditure. revenue liability is revenue expenditure.
3. An expenditure incurred for acquiring a 3. An expenditure incurred for earning an
source of income is a capital expense. e.g. income is a revenue expense.
acquisition expenses of a business
4. An expenditure incurred for increasing 4. An expenditure incurred for
the earning capacity of a business by maintaining a fixed asset in good
improving its fixed assets is a capital condition is revenue expenditure.
expenditure.
5. Capital expenditure is a non- recurring 5. It is recurring in nature.
item.
6. Expenditure in obtaining capital by 6. Expenditure incurred in raising loans or
issuing shares is a capital expenditure. issuing debentures is revenue expenditure.

2.3.3 Capital and revenue Losses:

Loss on the sale of a capital asset is a capital loss whereas loss on sale of goods of the
business is a revenue loss. Loss sustained on account of embezzlement done by an employee,
destruction of goods or non-recovery of any amount due in connection with business is a
revenue loss. Loss sustained by theft committed by an employee during usual business hours
or outside business hours is a revenue loss being incidental to the trade.

2.3 Summary:

 Agricultural income from India is exempt from tax.

 Classification of receipts and payments is very essential for determining the taxability of
the transaction.

 Capital receipts are not taxed whereas revenue receipts are taxed.

 Capital losses are not allowed as expenses in calculation of taxable income whereas
revenue expenses and losses are allowed to be subtracted from income.

2.4 Terminal Questions:

C. Two marks questions:

1. What are Capital receipts?
2. What are Revenue receipts?

FOR PRIVATE CIRCULATION ONLY 20

 3. Explain Capital Expenditure
4. Explain Revenue Expenditure
5. What are Capital Losses?
6. What is revenue Losses?

D. Five marks questions:

1. Distinguish between Capital and Revenue Receipt.

2. How capital expenditure is different from Revenue expenditure?
3. Briefly explain rules of segregating partly agricultural income.

4. Explain with reasons which of the following incomes are agricultural incomes and which
non-agricultural incomes according to the point of view of income tax :
a. Income from growing flowers and creepers.
b. Income from salt production, by flooding the land with sea- water.
c. Dividend from a company engaged in agricultural operations.
d. Profit on sale of standing crops after harvest and sale by cultivator.
e. Compensation received from insurance company for damage to crop by flood.
f. Interest on arrears of rent, payable in respect of agricultural land.
g. Income from sale of sugar, converted from sugarcane grown by sugar mill.
h. Interest on loan given to a farmer.
i. Income from agricultural land situated in Srilanka.
j. Income from dairy farming.

5. Compute the tax liability for the assessment year 2019-20

a) Mr. A’s total income from all other sources is Rs 1,54,000 and net agricultural
income is Rs 1,00,000.
b) Mr. D’s total income from all sources is Rs 2,66,000 and net agricultural income
Rs 10,000.
c) A HUF has total income of Rs 4,64,000 and net agricultural income of Rs 50,000.
d) Non-agriculture income Rs 2,20,000 agricultural income is Rs 15,000. And
unabsorbed agricultural loss Rs 5,000 brought forward from the assessment year
2020-21.

6. State whether the following is capital or Revenue Loss.

a) Loss on sale of machinery
b) Theft in office premises
c) Embezzlement of cash by an employee
d) Issue of the shares less than the face value

7. State whether the following is Capital or Revenue Receipts

a) Compensation received for the Revenue profits
b) Receipt of amount on maturity on LIC policy
c) Damages received on account of contract not executed on time
d) Profit on sale of technical know and how
e) Profit made on sale of shares held by a company as a short term or current
investment

8. State whether the following is Capital or Revenue expenditure

FOR PRIVATE CIRCULATION ONLY 21

 a) Purchase cost and installation expenditure incurred on Plant, Machinery, land
& building by a manufacturing company
b) Expenses incurred in curing defect to the title of an asset.
c) Commission paid to own employees as an incentive to achieve sales targets
d) Sales tax, excise duty, freights and marketing charges
e) Expenditure incurred in connection with promotion of a company

FOR PRIVATE CIRCULATION ONLY 22

 Module - III

RESIDENTIAL STATUS AND INCIDENCE OF TAX

3.1 Introduction:
Under section 4 of the act income tax is charged on the total income of a person. Section 5 of
the act defines the total income of a person on the basis of his or her residential status. This
section divides a person into three categories:
a) Resident and ordinary resident
b) Resident but not ordinary resident
c) Non-resident.
The status of the assessee is determined every year as it may change.

It refers to the status of an individual, which determined on the basis of his/her total stay in
India. Under section 6, the residential status of an individual is divided into the following
categories.

Residential status of an individual

Resident Non- Resident

Ordinary Resident Not Ordinary Resident

3.2. Determination of residential status of individual:

An individual’s residential status is decided on the basis of basic conditions and additional
conditions.

Basic Conditions u/s 6

(i) An assessee must be in India for a period of 182 days or more during the previous
year
OR
(ii) An Assessee must be in India for a period of 60 days or more during the previous
year and 365 days in 4 years preceding the relevant previous year.

Exception: II Basic condition is subject to the following exceptions

(i) In case of an assessee who is an Indian citizen leaves India for employment
purpose or as a crew member of an Indian ship.
(ii) In case of an assessee who is of an Indian origin comes to India during the
previous year for a visit.

FOR PRIVATE CIRCULATION ONLY 23

In the above cases 60 days, as suggested u/s 6 (1) shall be replaced by 182. In other words,
the second basic condition shall not be applicable.

Additional Conditions u/s 6(6)

(i) An assessee must be a Resident for 2 or more years out of 10 years preceding the
relevant previous year.
AND
(ii) An assessee must have been in India for at least 730 days in 7 years preceding the
relevant previous year.

3.3 Types of Residential Status

An individual who satisfies any one of the above Basic conditions u/s 6(1) is treated as a
resident for the previous year.
1) Ordinary Resident (O.R): An individual who satisfies any one of the basic conditions
and both the additional conditions.
2) Not Ordinary Resident (N.O.R): An individual who satisfies any one of the basic
conditions and any one or none of the additional conditions
3) Non-Resident (N.R): An individual who does not satisfy any of the basic conditions will
be treated as Non-Resident; here the additional conditions are irrelevant.

Illustration 1:
Mr. Prakash an Indian citizen left India on 15 August 2019 for the first time to U.K. for the
purpose of employment. He plans to visits India every year and stay here from 15th April to
10th September from 2020 onwards. What will be his residential status for A.Y. 2020-2021?

Solution:
STEP 1:
Basic condition
a) An assessee must be in India for a period of 182 days or more during previous year
Or
b) An assessee must be in India for a period of 60 days more during the previous year
and 365 days in 4 years preceding the relevant previous year.

Additional condition

a) Assesse must be a resident in India at least two out of ten previous years preceding years
preceding the relevant previous year,

And

b) An assessee must have been in India for at least 730 days or more during the seven
previous years preceding the previous year.

STEP 2:
Calculation of Number of Days Stayed
Stay in India during the P.Y.2019 -2020.
1st April 2019 to 15th August 2019 = 137days.

FOR PRIVATE CIRCULATION ONLY 24

STEP 3:
RESIDENTIAL STATUS
Mr. Prakash being an Indian citizen and left India for the purpose of employment will come
under the categories of exception to 2nd basic condition. Hence 60days or more in second
basic conditions will be replaced by 182 days. Since the basic condition is not satisfied, he is
a non-resident for the assessment year 2019 – 2020

Illustration 2:
Mr. Ajith went to England for studies on 5th August 2019 and came back to India on 25th
February 2020. He had never been out of India before. What is his residential status for the
A.Y 2020– 2021?

Solution:
STEP 1:
Basic condition
a) An assessee must be in India for a period of 182 days or more during previous year
Or
b) An assessee must be in India for a period of 60 days more during the previous year and
365 days in 4 years preceding the relevant previous year.

Additional condition
a) Assesse must be a resident in India at least two out of ten previous years preceding the
relevant previous year,
And

b) An assessee must have been in India for at least 730 days or more during the seven
previous years preceding the previous year.

STEP 2:
Calculation of Number of Days Stayed

Mr.Ajith’s stay in India from during the previous year is as under:

1st April 2019 to 5th August 2019 = 127 days
25th February to 31st March 2020 = 35 days
Total no. Of days = 162 days
He was in India in the earlier previous year completely.

STEP 3:
Residential Status
Mr.Ajith’s stayed in India during the previous year 2019– 2020 for 162 days and satisfies the
second basic condition. Since he leaves India in the previous year for the first time he has
been resident for more than two years and also stayed for more than 730 days in past
preceding years. He satisfies second basic condition and both the additional conditions.
Hence he is a resident and Ordinary Resident for the A.Y 2020-21.

Illustration 3: Mr. Irfan comes to India for the first time on April 16, 2019. He has stayed in
India up to October 5, 2019. Determine his residential status for the A.Y 2020-21.

STEP 01: Apply Basic Conditions and Additional Conditions (write down)

FOR PRIVATE CIRCULATION ONLY 25

STEP 02: Calculation of Number of Days Stayed
a) In the previous year – 01/04/2019-31/03/2020
16/04/2019 -05/10/2019 = 173days
b) In preceding to previous years, he has not been in India, as he has come to India for
the first time in the year 2019.

STEP 03: RESIDNETIAL STATUS

Mr. Irfan is not an Indian citizen as he came to India for the first time in the year
2019. His stay in India is for a total period of 173days. Thus, he does not satisfy any of
the basic as well as additional condition. So, he is considered as a NON-RESIDENT for
the AY 2020-2021.

Incidence of tax or taxability of total income on the basis of residence:

1) Resident: Total income of any previous year of a person who is an “Ordinary Resident”
includes all income from whatever source derived which:
a) Is received or deemed to be received in India
b) Accrues or arises or is deemed to accrue or arise to him in India
c) Accrues or arises to him outside India during the previous year.

2) Resident but not Ordinary Resident

The total income of a person who is a resident but not ordinary resident includes all income
from whatever source derived which:
a) Is received or deemed to be received in India
b) Accrues or arises or deemed to accrue or arise to him in India
c) Accrues or arises to him outside India from a business controlled in or a profession setup
in India.

3) Non–resident
Total income of a Non-resident includes all income from whatever source derived which:
a) Is received or deemed to be received in India
b) Accrues or arises or is deemed to accrue or arise to him in India during such year.

The tax incidence can be understood from the following table:

Whether taxable or not
Not
Incomes Ordinary Non
Ordinary
Resident Resident
Resident
1. Any income earned or deemed to be earned in
Yes Yes Yes
India irrespective of the place of receipt.
2. Any income earned or deemed to be earned in
Yes Yes Yes
India irrespective of the place of accrual.
3. Any income from business setup outside India but
Yes Yes No
being controlled from India.
4. Any other income earned and received outside
Yes No No
India
5. Any past untaxed profit / foreign income brought
No No No
into India, during the previous year.

FOR PRIVATE CIRCULATION ONLY 26

 TABLE SHOWING NUMBER OF DAYS PER MONTH FOR THE AY 2020-2021
PY: 01/04/2019-31/03/2020 AY: 01/04/2020-31/03/2021

MONTH DAYS MONTH DAYS

April 2020 30 October 31
May 31 November 30
June 30 December 31
July 31 January 2021 31
August 31 February 28
September 30 March 31

Illustration 4: Kishan, a foreign national furnishes the following particulars of his income
relevant for the previous year 2019-20.
1. Profit on sale of plant at London (one half is received in India) 1,46,000.
2. Profit on sale of plant at Delhi (one half is received in London) 1,02,000
3. Salary from an Indian company received in London (one half is paid for services rendered
in India) Rs.60, 000.
4. Interest on UK development bonds (entire amount received in London) Rs. 40,000
5. Income from property in London received there Rs. 30,000
6. Profit from a business in Delhi managed from India Rs. 49,000
7. Income from agriculture in London received there, half of which is used for meeting hostel
expenses of his son and remaining amount is later on remitted to India Rs. 25,000.
8. Dividend (gross) received in London from a company registered in India but mainly
operating in London Rs.17,000.
9. Rental income from a property in Nepal deposited by the tenant in a foreign branch of an
Indian bank operating there. Rs. 12,000
10. Gift from a relative in foreign currency (one third of which is received in India and
remaining amount is used for meeting education expenses of Kumar’s son in USA) Rs.
3,90,000.

Determine gross total income of Kishan for the assessment year 2020-21, if he is
a) Resident and ordinary resident
b) Resident but not Ordinary resident, and
c) Non-resident.

Solution:
Computation of Gross Total Income of Kishan for the A.Y 2020-21

Not
Ordinary Non-
Particulars ordinary
resident resident
resident
1. Profit on sale of plant at London 1,46,000 73,000 73,000
2. Profit on sale of plant at Delhi 1,02,000 1,02,000 1,02,000
3. salary from an Indian company 60,000 30,000 30,000
4. Interest on UK development bonds 40,000 ----- -----
5. Income from property in London 30,000 ----- -----
6. profit from a business in Delhi 49,000 49,000 49,000
7. income from agriculture in London 25,000 ----- -----
8. Dividend from an Indian company Exempt Exempt Exempt

FOR PRIVATE CIRCULATION ONLY 27

9. Rental income from property in Nepal
12,000 ---- ----
10. gift from a relative Exempt Exempt Exempt
Gross total income 4,64,000 254,000 2,54,000

TERMINAL QUESTIONS:

Section: A
1. What are the types of residents for income tax purpose?
2. Who is a Not Ordinary Resident?
3. Who is Non-resident?
4. When an individual becomes Ordinary Resident?

Section B and C:

1. Mr. James a citizen of West Indies was appointed as sales manager in India on 1stApril
2015 at Mumbai. On 25 January 2017 he went to Uganda on deputation for period of 3
years, but left his wife and children in India. On 1st May 2018 he came to India and took
with him his family to Uganda on 30th June 2018. He returned to India and joined his
original job on 24th January 2019. Determine his residential status for the A.Y 2020-21.

2. Mr. Raj, citizen of U.S. came to India for the first time on 01.05.2015. He stayed here
without any break for 3 years and left for Bangladesh on 01.05.2019. He returned to India
on 01.04.2019 and went back to U.S. on 01.12.2019. He was posted back to India on
20.01.2019. Determine his residential status for the A.Y 2020-21.

3. Vaishak, a foreign national (not being a person of Indian origin), comes to India for the
first time on April 15, 2013. During financial years 2014-15, 2017-16, 2017-17, 2018-
19,2019-2020 he was in India for 130days, 80days, 13 days, 210 days and 75 days
respectively. Determine his residential status for the A.Y 2020-21.

4. Mr. Anish has the following incomes for the previous year 2019-2020
Rs.
I. Income from salary in India from a company 50,000
II. Dividend from an Indian company received in England and
spent there 10,000
III. Income from house property in India received in Pakistan 20,000
IV. Dividend from a foreign company received in England
deposited in a bank there
10,000
V. Income from business in Kolkata, managed from USA 20,000
VI. Income from business in USA (controlled from Kanpur) 12,000
VII. Income was earned in Australia and received there but brought
into India 25,000
VIII. His maternal uncle sent bank draft from France as a gift
on his marriage 20,000

Compute the gross total income, if he is:

(i) Resident (ii) Not-ordinary Resident (iii) Non-resident.

FOR PRIVATE CIRCULATION ONLY 28

6. Mr. Satya gives you the following information being a Resident Ordinary Resident.
1. Salary Rs.80,000 received in Japan for the services rendered in India.
2. Commission received in India for the services given in Srilanka Rs.1,40,000.
3. House rent of the house situated in Nepal received in India Rs.30,000.
4. Dividend of a England based company received in India Rs.75,000.
5. Profit of the business situated in Japan brought to India Rs.5,00,000.
Determine the residential status of Mr. Satya for the previous year 2019-20 and explain
that on which income he is liable to pay tax in India.
Compute his taxable income for the AY 2020-2021.

7. Krishna is an Indian citizen went out of India on 28th august 2018 for service in a company
in Japan and came back to India on 1st April 2019 to meet his family. During the year 2019-
20, he received the following incomes:
I. Incomes from salary in Japan Rs 28000.
II. Interest on bonds of central government of India Rs28000
III. Taxable income from shares from foreign company Rs 7500 received in Japan.
IV. Income from agricultural land situated in Punjab Rs 10000
V. Interest received from firm in U.K. remitted to India Rs.9200
VI. Payment from public provident fund Rs 20000.
VII. Commission received in India for the services given in Nepal Rs.10000.
VIII. Profit from business in Srilanka Rs.40000 (business controlled from
Chennai) of which Rs15000 was received in India.
IX. Profit of the business in Nepal brought to India. Rs 50000
X. Amount brought to India out of past-untaxed profit earned in Japan Rs 8000.
XI. Share of income from HUF Rs 12000.
Calculate the gross total income of Krishna after ascertaining his residential status for
assessment year 2020-2021.

8.Mr. Jacob is a foreign national furnishes the following particulars of income relevant for the
previous year 2019-2020.
I. Profit on sale of land at London (½ received in India) Rs 1,46,000.
II. Profit on sale of plant at Delhi (1/2 received in Landon) Rs 1,02,000.
III. Salary (net of salary deduction) from Indian co. received in Landon Rs 60000.
IV. Interest on U.K. development bonds Rs 40,000.
V. Income from property in London received there Rs 30000.
VI. Income from agriculture in London received there but later on remitted to
India Rs 2500.
VII. Dividend received in Landon from Co registered in India 17000.
VIII. Profit from a business in Delhi, managed from India Rs 49000.
IX. Rental income from a property in Nepal, deposited by the tenant in a foreign
branch of Indian Bank operating there Rs. 12000.
X. Gift in foreign currency (1/3 of which received in India) 270000.
Determine gross total income of Mr. Jacob for assessment year 2020-21. If he is
(1) Ordinary resident, (2) Not ordinary resident, (3) Non- resident

9. Mr. Naresh is an Indian Citizen. He left India on 16th July 2019 to England and return to
India on 02 Feb 2019. During the Previous Year his details of income were as follows:
(a) Interest on Securities of an Indian Company received in England Rs 22,000
(b) Agricultural Income in Gujarat Rs 30,000
(c) Dividend from Indian Company Rs 10,000

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 (d) Interest received from a firm in England remitted to India Rs 9,500
(e) Amount brought to India out of past untaxed profit earned in England Rs 22,000
(f) Income from business in Pakistan being controlled from India Rs 15,000
(g) Interest earned & received in England from bank & deposited there Rs20,000
(h) Income from Salary received in India for services rendered in England Rs20,000
Determine his Residential Status & Gross Total Income for the AY 2020-21.

10.From the following particulars of Mr. Uday compute his Gross total income for the
A.Y.2020-21 if he is 1. Resident, 2. Not Ordinarily Resident and 3. Non-Resident
(a) Income from business from Raichur Rs. 50,000
(b) Profit from business in U.K. controlled from India Rs 60, 000
(c) Income from house property in Japan not received in India Rs 30, 000
(d) Income from business in India but received in Pakistan Rs 50, 000
(e) Salary received in India for service rendered in USA Rs 70, 000
(f) Interest on deposit with State Bank in Bangalore Rs 10, 000
(g) Profit from business in Ceylon controlled from India (1/3 profit received in India)
Rs 30,000
(h) Salary received in India for service rendered in Kuwait Rs 35, 000
(i) Past untaxed foreign income brought into India Rs 8, 000
(j) Dividend received from Domestic Company Rs 5,000
(k) Interest on Post Office Savings Bank A/c Rs 1,000
(l) Agriculture income earned in Nepal Rs 25,000.
(m) Gift in cash from a relative received in India Rs 60000.
(n) Interest received from a firm in UK later on remitted to India Rs 10000

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