B WHATIS REGARDED AS "INCOME" UNDER THE INCOME-TAX ACT

term
6. The definition of the term "income" in section 2(24) is inclusive and not exhaustive. Therefore, thethings
"income" not only includes those things which are included in section 2(24) but also includes such
which the term signifies, according to its general and natural meaning. Before discussing the definition of
income given in section 2(24), it is imperative to know meaning of "income" as generally understood.
6.1 Meaning of incomeas generally understood- Income is a periodical monetary return with some sort of
in the amount of wealth
regularity. It may be recurring in nature. It may be broadly defined as the true increase
which comes to a person during a fixed period of time.
broad principles
6.1-1 BROAD PRINCIPLES WHICH CLARIFY THE CONCEPT OF INCOME - A study of the following
will be helpful for understanding the concept of income :
" Regular and definite source - The term "income" connotes a periodical monetary
return coming in with some
sort of regularity or expected regularity from definite sources.
in kind. When income is received in kind, its
" Diferent forms of income - Income may be received in cashinorthe
valuation is to be made according to the rules prescribed Income-tax Rules. If, however, there is no
prescribed rule, valuation thereof is made on the basis of market value.
basis. Income may accrue to a
Receipt vs. Accrual - Income arises either on receipt basis or on accrual
deemed to accrue or arise to a person
taxpayer without its actual receipt. Moreover, in some cases, income is
without its actual accrual or receipt.
between income accrued or arisen from a
Illegal inCome - The income-tax law does not make any distinction
legal source and income tainted with illegality.
postponed merely because of existence of a
" Disputed title - Income-tax assessment cannot be held up or
dispute regarding the title of income.
Relief or reimbursement of expenses not treated as income - Mere relief or reimbursement of expenses is not
" to an employee is not an income.
treated as income. For instance, reimbursement of actual travelling expenses
of income - Any expenditure/investment, after income is
" Diversion of income by overriding title vs. Applicationthe Act, which is chargeable to tax, is income
received, is application of income. "Income" under Income-tax such income is deductible only if it is
out of
before application of income. Any expenditure/investment Income-tax Rules.
permitted by a provision under the Income-tax Act or
to some other person. When an assessee
"Diversion of income" is where by an obligation, income is diverted
on it is diverted to such person, it is known as
on behalf of some other person receives income and later
diversion of income and, consequently,it is not chargeable to tax.
 ONE MUST KNOW
Para 6.1 BASIC cONCEPTS THAT 6

Provisions illustrated
and corporate law weekly magazine, on thee
Xand Yprepare an article for publication in Taxman, atax
that remuneration will be shared equally. The article is published
2021. Xreceives the entire remuneration of Rs. 9,000 (as per payment
practice ofofthe
understanding
in August 8, 2021 issue of Taxmnan. On
magazine, the remuneration Sept ember
is paid
Rs. 4,500 by X to Y is diversion f d to
the first author), a half of which is later on paid by X to Y. The of Rs. 4,500 to Y will not be treated
by overriding title. The taxable income of X will be Rs. 4,500 (payment as
of X as it is diverted by an overriding title). income
himself Ino
" Surpl1us from mutual activity - A person cannot make taxable profit out of a transaction with
must, therefore, come from outside. A surplus arising to a mutual concern cannot be regarded as ineo
chargeable to tax. A body of individuals, raising contribution to a common fund for themembersmutual beneft
when it finds that it has overcharged and so
members, cannot be said to have earned an income
portion of contribution raised may safely be refunded.
Provisions illustrated
Each one of them contributes Rs 80
X Ltd. has 50 emnployees. Employees have formed a tea club in the office.
month to the club. Club provides tea in tea breaks. During the financial year 2021-22,surplusthe excess of receipt o
Rs. 470. It cannot be taken as taxable income of theclub as it is arising to a mubst
expenditure of the club is
activity for the mutual benefit of the members.

Temporary and pernnanent income - For the purpose of incomne-tax, there is no distinction between temporary
and permanent income. Even temnporary income is taxable.
" Lump sum receipt - Income, whether received in lump sum or in instalmnents, is liable to tax. For instance
arrears of bonus, received in lump sum, is income and is taxable as salary.
" Tax-free income -If a person receives tax-free income on which tax is paid by the person making payment on
behalf ofthe recipient,it has to be grossed up for inclusion in his total income.
For instance, Xpays Rs. 25,000 per month to Yas tax-free salary (tax of Rs. 3,000 per month is borne by Xand directly
paid to the Government). In this case, the amount taxable in the hands of Yis Rs. 28,000 per month.
" Receipt on account of dharmada, etc. -Receipt on account of dharmada, gaushala and pathshala is not income and,
therefore, not liable to tax.
" Devaluation of currency - If any assessee receives extra money on account of devaluation of currency, it is
taxable.
" Income includes loss - Income includes loss. While income, profits and gains represent"plus income", losses
represent "minus income".
" Same income cannot be taxed twice - It is a fundamental rule of the law of taxation that, unless otherwise
expressly provided, the same income cannot be taxed twice.
" Incone should be real and not fictional - Income means real income and not fictional income. A person cannot
make a profit by trading with himself or out of transfer of funds/assets from one pocket to another pocket.
Similarly, income does not arise in a transaction betwween head office and branch office even if goods are
invoiced at aprice higher than the cost price. Likewise, income does not accrue or arise at the time of
revaluation of assets.
" Source of income need not exist in the assessment year - It is not necessary that a source of income should exist in
the assessment year.
" Pin money - Pin money received by wife for her dress/personal expenses and small savings made oy
woman out of money received from her husband for meeting household expenses is not treated as her income.
Award received by asportsman -In the case of asportsman, who is a professional, the award received by him
is in the nature of a benefit in exercise of his profession and, therefore, it is chargeable to tax.
" Revenue receipt vs. Capital receipt - Arevenue receipt is taxable as incomne unless it is expressly exempt under
the Act. On the other hand, a capital receipt is generally exempt from tax unless it is expressly taxabie.
para 114].
para Payment -In some cases, a sum of money received without consideration is chargeable to tax |ee
burden of proof- In all cases in which a receipt is sought to be taxed as
epartnent income, the burden eoome,
the burden ofto prove that it is within the taxing provision. Where. however, a receipt is in the nature o n
the assessee. proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon
 EXTENDED MEANING OF "INCOME" U/S 2(24) = Para 6.2
6.2 Extended meaningof "income"under section224)- Under section 2(24), the term "income"
includes the following: specitically
6.2-1 PROFITSAND GAINS - Income includes profts and oains. For instance, profit generated by a businesSman
is taxable as "income".

6.2-2 DIVIDEND- Income

includes"dividend" [see para 109.1].
O.3 vOtuNTARY CONTRIBUTIONS RECEIVED BY ATRUST - In the hands of a trust, income includes voluntary
contributions received by it.
Provisions illustrated
XY rust is created for public charitable purposes,On June 10, 2021, it receives a sum of Rs. 1lakh as voluntary
contribution (not being with any specific direction) from a business house. Rs. 1 lakh would be included in the
income of the trust.

O.2-4 PERQUISITES IN THE HANDS OF EMPLOYEE - Any perquisite or profits in lieu of salary is treated as
"income" in the hands of an employee.
Provisions illustrated
Xis employed by ALtd. Apart from salary, he has been provided a rent-free house by the employer. The value of
perquisite in respect of rent-free house is taxable as "income" in the hands of x.

6.2-5 ANY SPECIAL ALLOWANCE OR BENEFIT - Any special allowance or benefit specifically granted to the
assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or
employment is treated as "income".
Provisions illustrated
X is employed by A Ltd. He gets Rs. 3,000 per month as conveyance allowance apart from salary. Rs. 3,000 per
month is treated as "income" any amount which spent for official purposes out of conveyance allowance is
exempt under section 10(14)].

6.2-6 CITY COMPENSATORY ALLOWANCE/DEARNESS ALLOWANCE - City compensatory allowance or dearness

allowance is treated as "income".
6.2-7 ANY BENEFIT OR PERQUISITE TOA DIRECTOR - A non-monetary benefit or perquisite is treated as"income"
in the hands of the following:
a. if it is given by a company to a director* (whole time or part time) or a relative of a director; or
b. if it is given by a company to a person who has a substantial interest in the company or a relative of such
person.
Relative, for this purpose, means the husband, wife, brother or sister or any lineal ascendant or descendant of
that individual. If a person is beneficial owner of 20 per cent (or more) of equity share capital in a company
then such person is known asa person whohas substantial interest in the company.
The aforesaid rule is also applicable if any sum is paid bya company in respect of any obligation which, but for
such payment, would have been payable by the director or any other aforesaid person.
Provisions illustrated
The following illustrations are given to have better understanding:
1.X is a director in a company. The company provides a domestic servant for private purposes. The perquisite value
of domesticservant is treated as "income" of X.
2. Xholds 20 per cent equity share capital in ALtd. ALtd. repays a loan of Rs.15,000 on behalf of X. Rs.15,000 is
treated as "income" of X.
3. Bis a director in CLtd. CLtd. pays a sum of Rs.47,000to ITC Hotels on behalf of Mrs. B(the payment is made only
because Bis director in C Ltd.). Rs.47,000 is treated as "income" of B.

6.2-8 ANY BENEFIT OR PERQUISITE TO AREPRESENTATIVE ASSESSEE -Any non-monetary benefit or perquisite to
arepresentative assessee (like a trustee appointed under a trust) is treated as "income".

*Director need not be a person having substantial interest.

 WHAT IS TOTAL INCOME Para 8

6.2-21 ASSISTANCE IN THE FORM OF ASUBSIDYGRANT - Subsidy/grant is taxable as income if the following
conditions are satisfied
1. Assistance is in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or
reimbursement (by whatever name called).
[Link] is received from the Central Government or State Government or any authority or body or agency.
3. It may be in cash or kind.
4. It is not asubsidy or grant or reimbursement which is taken into consideration for determination of "actual
cost" within the parameters of Explanation 10 to section 43(1).
[Link] is not a subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution
established by the Central Government or State Government.
If the above conditions are satisfied, subsidy, grant, etc., shall be considered as "income".
WHAT IS GROSS TOTALINCOME
7. As per section 14, income of a person is computed under the following five heads :
[Link].
2. Income from house property.
3. Profits and gains of business or profession.
[Link] gains.
5. Income from other sources.
The aggregate income under these heads is termed as "gross total income". In other words, gross total income
meanstotal income computed in accordance with the provisions of the Act before making any deduction
under sections 80C to 80U.

7.1 Expenditure in respect of income not chargeable to tax - If income is not chargeable to tax, any
expenditure for earning such income is not deductible.
WHATIS TOTAL INCOME AND HOW IS IT COMPUTED
8. Total income of an assessee is gross total income as reduced by the amount permissible
as deduction under sections 80C to 80U. The schenme of computation of total income and tax liability thereon
can be easily understood with the help of the following chart:
COMPUTATION OF INCOME FOR AN ASSESSMENT YEAR
R. Rs.
1. Inconne from salaries
Income from salary
Income by way of allowances
Taxable value of perquisites
Gross salary
Less : Deduction under section 16
Standard deduction
Entertainment allowance
Professional tax
Income from salaries
2. Income from house property
Adjusted net annual value
Less: Deduction under section 24
Income from house property
3. Profits and gains of business or profession
Net profit as per profit and loss account
Add: Amounts which are debited to P& La/c but are not allowable as deduction under
the Act

under
Less: Expenditure which are not debited to P &La/c but are allowable as deduction
the Act

10 or are taxable
Less : Income which are credited to P & L a/c but are exempt under section
under other heads of income
Para 8.1 BASIC CONCEPTS THAT ONE MUST KNOW

Rs. Re
under the head
&&La/c but are taxable
Add: Those income which are not credited to P
"Profits and gains of business or profession"
P'rofits and gains of business or profession
4. Capilal gains 54GBand 54H
Amount of capital gains 54F, 54G, 54GA,
54B, 54D, 54BC,
Less : Amount exempt under sections 54,
Income from capital gains
5. Income from otlher sources
Gross income
Less : Deductions under section 57
Income from other sources
Total [i.c., (1) + (2) + (3) + (4) + (5))
set-offandcarry forward
of losses
on account of
LC'ss :Adjustment
Gross total income
sections 80C to 80U
Less : Deductions under see para 8.2]
income* [rounded off-
Total income or net
LIABILITYf
COMPUTATION OF TAX income not
Appendix 1] individual having net
Tax on net income (see 87A [in the case of a resident
section
Less: Rebate under
exceedingRs. 5 lakh]
under section 87A
Income-tax after rebate
Add : Surcharge
Tax and surcharge and surcharge]
cess [4 per cent of tax
Add: Health and education 89, 90, 90A and 91
sections86,
Less: Rebate under
Tax
Less : Pre-paid taxes
self-assessment
" Tax-paid on at source
collected
" Tax deducted or
" Tax paid in advance
8.3]
Tax liability [rounded off - see para no deduction shall be
ofincome not chargeable to tax- Section 14A provides that
8.1 Expenditurein respect form part of the total
expenditure incurred by an assessee in relation to income which does not
made in respect of
other words, ifincome is notchargeable to tax, any expenditure for earningsuch income
income under the Act. In
points may be noted -
is not deductible. The following income) are not
expenditure is incurred - Expenses (for earning exempt
" When no exempt income is generated but year, the assessee has notreceived (or generated) any exemptincome
deductible. Ifduring the relevant previous expenses are not deductible.
but he has incurred expenditure duringFinance the year in relation to such income, such 2022) to clarify the same
Section 14A has been amended by the Act, 2022 (with effect from April 1,
proposition. to
" Mode of disallowance as per rule 8D - The Assessing Officer is required to determine expenditure pertaining given
rule 8D. However, the prescribed mode
exemptincome, in accordance with the method prescribed undersatisfied with the correctness of the claim of
Officer is not
by rule 8D is applicable only if the Assessing
expenditure (pertaining to exempt income) made by the assessee.
the nearest multiple of ten rupees
8.2 Rounding-off of income-The taxable income shall be rounded off to thereafter if such amount is not
and tor this purpose any part of a rupee consisting of paise shall be ignored and
the amount shall be increased to the next
a multiple of ten, then, if the last figure in that amount is five or more,

assessee it cannot
tln the case ofta company, taxliability cannot be less than minimum alternate tax. In the case of non-corporate
be less than alternate minimum tax (see para 194.2]. income"isused
This income is chargeable to tax. In the Income-tax Act it is termed las "total income". In this book, however, "net
for this purpose.
13 COMPUTATION OF TAX FOR ASSESSMENT YEAR 2022-23 Para 14.1

TAX COMPUTATION
14. Provisions for computation of taxable income are given by the Income-tax Act. Tax rates are not given by
the Income-tax Actt, but by the Finance Act which is passed by Parliament along with budget for the Central
Government every year. Apart from making various amendments to the Income-tax Act (and other direct/
indirect tax laws) every Finance Act specifies (in the First Schedule) income-tax rates for the current assessment
year and advance tax rates for the next assessment year. For instance, the Finance Act, 2022, provides tax rates
in the First Schedule (Parts I, II and llI) as follows
" Part I of the First Schedule to the Finance Act, 2022 - It gives income-tax rates for different assessees for the
assessment year 2022-23.
" Part Ilof the First Schedule to the Finance Act, 2022 -It gives rates for deduction of tax at source applicable to the
financial year 2022-23. To put it differently, if a person is responsible for making a payment on which he is
supposed to deduct tax at source during the financial year 2022-23, then tax has to be deducted at source
during 2022-23 at the rates given in Part II of the First Schedule to the Finance Act, 2022. However, rate for tax
deduction from salary is given by Part III.
" Part IIlof the First Schedule to the Finance Act, 2022 - It gives tax rates for different assessees for payment of
advance tax during the financial year 2022-23 (ie., for the assessment year 2023-24). The same rates are
applicable, for the tax deduction from salary payment during the financial year 2022-23.
Generally, Part III of the First Schedule of a Finance Act becomes Part Iof the First Schedule of the subsequent
Finance Act. For instance, Part II of the First Schedule to the Finance Act, 2022 will become Part I of the First
Schedule to the Finance Act, 2023.
14.1 Computation of taxfor the assessmentyear 2022-23 (underregular taxregime)-Tax rates applicable
for the assessment year 2022-23 (under regular tax regime) are given in Appendix 1. Some of the important rates
for the assessment year 2022-23 are given below
14.1-1 INcOME-TAX -Income-tax rates (under regular tax regime) are as follows -
14.1-la INDIVIDUAL, HUF, AOP, BOI -The tax rates applicable to an individual, HUF, AOP, BOI, etc, are given
below -
1. Senior citizen -In the case of aresident individual who is at least 60 years of age at any time during the previous
year 2021-22 but less than 80 years on March 31, 2022 (i.e.,born during April 2, 1942 and April 1,1962), first Rs.
3,00,000 of net income is exempt from tax. Netincome in the range of Rs. 3,00,000 to Rs. 5,00,000 is taxable at the
rate of 5 per cent. Between Rs. 5,00,000 and Rs. 10,00,000, the slab rate is 20 per cent and the income in excess of
Rs. 10,00,000 is taxable at therate of 30per cent. These rates are applicable only in the case ofa resident (ordinarily
or otherwise) senior citizen. In the case ofa non-resident senior citizen, the exemption limit is Rs. 2,50,000 as given
below.
2. Super senior citizen - In the case ofa resident individual who is at least 80 years of age at any time during the
tax. Net
previous year 2021-22 (i.e., born before April 2, 1942), first Rs. 5,00,000 of net income is exempt fromexcess of
income in the range of Rs. 5,00,000toRs. 10,00,000 is taxable at the rate of 20 per cent. Net income in
Rs. 10,00,000 is taxable at the rate of 30 per cent. These rates are applicable only in the case of aresident (ordinarily
or otherwise) super senior citizen. In the case ofa non-resident, the exemptionlimitis Rs. 2,50,000 as given below.
other resident
3. Any other resident individual, any non-resident individual, any HUF, AOP, BOI - In the case of any the first
individual (born on or after April 2, 1962), any non-resident individual, any HUF/ AOP/BOI,
income in the range of Rs. 2,50,000 to Rs. 5,00,000 is taxable
Rs. 2,50,000of net income is exempt from tax. Net income in excess
at the rate of 5 per cent. Between Rs. 5,00,000 and Rs. 10,00,000, the slab rate is 20 per cent and the
of Rs. 10,00,000 is taxable at the rate of 30 per cent.
claim
Rebate under section87A -A resident individual (whose taxable income does not exceed Rs. 5 lakh) can
total income or Rs. 12.500.
a rebate under section 87Afrom income-tax. The amount of rebate is incomne-tax on
whichever is less.
" Alternative tax regime - An individual/HUF canopt for the alternative tax regime under section 115BAC. Under
alternative tax regime, tax rates are lower than the regular rates given above. However, a few tax incentives are
provisions are
blocked. Taxable income is calculated without availing of these blocked incentives. These
discussed in para 14.2 and 194.3.
regime, tax rates are given
fHowever, a few exceptions are applicable. For instance, if an individual/HUF opts for the alternative tax
by section 115BAC of the Income-tax Act [see para 194.3-1]. a non-corporate assessee, tax liability
of
fIn the case of a company, tax liability cannot be less than minimum alternate tax. In the case
cannot be less than alternate minimum tax (see para 194.2].
Para 14.1 BASIC CONCEPTS THAT ONE MUST KNOW
rate of 30
limited liability partnership firm) is taxable at the
14.1-1b FIRM -Apartnership firm (including a
cent (no exemption limit). the rate of 30per centf and a
non-domestic compar..
taxable at
14.1-1cCOMPANY -A domestic company is
taxable at the rate of 40 per cent.
surcharoe
(as computed above) shall be increased by a
14.1-2 sURCHARGE ON INCOME-TAX - Income-tax
follows -
Net income range Surcharge (as %of income-tar)
0- Rs. 50 lakh Nil
Individuals/HUF/AOP/BOI/artificial juridical Rs. 50 lakh - Rs. 1 crore 10%
15%
person Rs. 1crore - Rs. 2 crore
Rs. 2 crore - Rs.5 crore 25% (see Note 1]
Above Rs. 5 crore 37% [see Note 1]
0- Rs. 1 crore Nil
Firm/co-operative society/local authority Above Rs. 1 crore 12%
0- Rs. 1 crore Nil [see Note 2]
Domestic company Rs. 1 crore - Rs. 10 crore 7% [see Note 2]
Above Rs. 10 crore 12% [see Note 2]
0- Rs. 1crore Nil
Foreign company Rs. 1 crore- Rs. 10 crore 2%
Above Rs. 10crore 5%

Notes -
which is chargeable under section
[Link] is 15% of income-tax pertaining to dividend income and income
111A or 112A.
section 115BAA or 115BAB.
2. Surcharge is 10% if income is chargeable to tax under
increased by health and
14.1-3 HEALTH AND EDUCATION CESS - Amount of income-tax and surcharge shall be
education cess which is 4 per cent of (income-tax + surcharge).
14.2 Comnputation of taxfor the assessment year2022-23 (under alternative tax regime) (Sec. 115BACI.
alternative tax regime. Ünder alternative tax regime, an individual/HUF has an
Section 115BAC provides available
are not
option to pay tax at lower rates (as compared to regular tax regime). However, a few incentives
(or blocked).
14.2-1 BLOCKED INCENTIVES The following exemptions/deductions/incentives are not available while
calculating taxable income under the alternative tax regime -
Leave travel concession [sec. 1O(5)] Professional tax deduction (sec. 16(ii)]
House rent allowance [sec. 10(13A)]
Interest on housing loan in the case of one or two self
occupied properties [sec. 24(0)]
Special allowance(s) [other than exemption pertain
ing to (a) travelling allowance, transfer allowance Additional depreciation [sec. 32(1)(ia))
and conveyance allowance for official purposes, Tea/coffee/rubber development account [sec. 33AB]
and (b) transport allowance of Rs. 3,200 per month to
an employee who is blind or deaf and dumb or Site restoration fund [sec. 33ABA]
orthopaedically handicapped] [sec. 10(14)]
Allowance to MPs/MLAs (sec. 10(17)] - Deduction for scientific research [sec. 35(1)(ii)/ (iia)/
(i), 35(2AA)]
Exemption up to Rs. 1,500 available in the case of Capitalexpenditure pertaining to specified business
clubbed income of aminor child [sec. 10(32)] [sec. 35AD]
Agriculture extension project [sec. 35CCC]
Special economic zone [sec. 10AA]
Exemption of perquisite in respect of free food and Standard deduction in the case offamily pension |sec.
non-alcoholic beverage (i.e., Rs. 50 per meal) pro 57(üa)]
vided through paid voucher (sec. 17(2) read with
rule 3(7)(i)
section 115BA,
tIf a few conditions are satisfied a domestic company has an option to pay tax at the rate of (a) 25 per cent underturnover/gross
(6) 22 percent under section115BAA or() 15 per cent under section 115BAB. Besides, a domesticccompany (whosee assessment year
receipt during the previous year 2019-20 does not exceed Rs. 400 crore) istaxable atthe rate of 25 per cent for the.
2022-23.
15 COMPUTATION OF TAX FOR ASSESSMENT YEAR 2022-23 Para 14.2

Standard deduction (sec. 16(in)] Deduction under sections 80C to 80U [except
employer's contribution towards NPS under section
Entertainment allowance deduction [sec. 16(i)] 80CCD(2), deduction under section 80JAA and de
duction under section 80LA(1A)J.
4.22 1AX RATES UNDER THE ALTERNATIVE TAX REGIME -Under the alternative tax regime, tax rates are lower
than the regular rates given in para 14.1-1a. These rates are given below -
Total income (computed after ignoring blocked incentives) Rate of tax
Up to Rs. 2,50,000 Nil
From Rs. 2,50,001 to Rs. 5,00,000 5 per cent
From Rs. 5,00,001 to Rs. 7,50,000 10per cent
From Rs. 7,50,001 to Rs. 10,00,000 15 per cent
From Rs. 10,00,001 to Rs. 12,50,000 20 per cent
From Rs. 12,50,001 to Rs. 15,00,000 25 per cent
Above Rs. 15,00,000 30 per cent
" Exemption limit -Exemption limit is Rs. 2,50,000. It is applicable even in the case of senrior citizen and super
senior citizen.
" Rebate under section 87A - Rebate under section 87A is available (see para 14.1-1a].
" Surcharge and education cess -Surcharge and education cess applicable under the regular tax regime, are also
applicable in the case of alternative tax regime (se paras 14.1-2 and 14.1-3].
14.2-3 HOW TOFIND OUT WHETHER (OR NOT) ALTERNATIVE TAX REGIME IS BETTER- Alternative tax regime under
section 115BACis an optional scheme. One can find out net income and tax liability under the regular tax regime
and the alternative tax regime. By comparing the tax liability under the regular and alternative tax regime, one
can find out whether (or not) alternative tax regime is better. For detailed discussion, please refer to para 194.3.
"Broad conclusions -If the quantum of blocked incentives is Rs. 2,50,000 or more, regular tax regime is better.
Ifquantum of blocked incentive is less than Rs. 2,50,000, one must separately calculate tax liability under the
regular tax regime and the alternative tax regime, to find out which one is better.
Provisions illustrated
Consider the following cases -
" Case 1-X(35 years) is an individual. His net income (taxable income) under regular tax regime is Rs. 18,20,000. It
is calculated after claiming afew deductions/incentives (i.e., standard deduction:Rs. 50,000, deduction under section
80C: Rs. 1,50,000 and deduction under section 80G : Rs. 70,000).
The quantum of blocked incentives is Rs. 2,70,000(i.e., Rs. 50,000 +Rs. 1,50,000 +Rs. 70,000).Whenever the quantum
of blocked incentiyes is Rs. 2,50,000 (or more), the regular tax regime is better than the altermative tax regime. IE,
however, the quantum of blocked incentives lower than Rs. 2,50,000, tax liability must be calculated separately
under the regular/ alternative tax regime, to take a correct decision.
Since in this case, blocked incentives is Rs. 2,70,000, regular tax regime is better than the alternative tax regime. To
verify it, one can examine the following calculations
Regular taY Alternutive
regime tax regimne
Rs. Rs.
Net income under regular tax regime 18,20,000 18,20,000
Add: Blocked incentives (Rs. 50,000 + Rs. 1,50,000 + Rs. 70,000) 2,70,000
Net income under regular tax regime/alternative tax regime 18,20,000 20,90,000
Income-tax under the regular tax regime (first Rs. 2,50,000: nil, next Rs. 2,50,000:
5%, next Rs. 5,00,000 : 20%, income exceeding Rs. 10,00,000 :30%) 3,58,500
Income-tax under alternative tax regime (first Rs. 2,50,000: nl, next Rs. 2,50,000:5%,
next Rs. 2,50,000 : 10%, next Rs. 250,000: 15%, next Rs. 2,50,000 : 20%, next Rs.
2,50,000: 25%, income exceeding Rs. 15,00,000 : 30%) 3,64,500
 BASIc cONCEPTS THAT ONE MUST KNOW 16
Para 14.2
Reguartas
regime Alternatine
tax regme
Rs.
Rs.
14,340
14.580
Add: Health and education cess 3,72,840 3,79,080
Tax liability regirne
regime. Xshould not opt for the alternative tax
Tax liability is lower under the regular tax under regular tax regime is Rs. 22,50,000. I
His net income (taxable income) deduction : Rs. 50,000 and
" Case 2 - Y(23 years) is an individual.
deductions/incentives (i.e., standard deduction under
after claiming a few
is calculated
section 80C:Rs. 10,000). Rs. 50,000 + Rs..10,000). Since blocked incentives is
blocked incentives is Rs. 60,000 (i.e., the allternative/regular tax regime tofind
Inthis case, the
quantum of
liability should be calculated separately under
lowerthan Rs. 2,50,000, tax
out which one is better - Regular tax Alternative
regine tax regime
Rs. Rs.
22,50,000 22,50,000
income under regular tax regime
Net 60,000
50,000 + Rs. 10,000)
Add: Blocked incentives (Rs. 22,50,00O 23,10,000
regime/alternative tax regime
Net income under regular tax
Income-tax under the regular tax regime (first Rs. 2,50,000: nil, next Rs. 2,50,000:5%, 4,87,500
Rs. 10,00,000: 30%)
next Rs. 5,00,000 : 20%, income exceeding
2,50,000: nil, next Rs. 2,50,000:5%,
Income-tax underalternative tax regime (first Rs.
next Rs. 2,50,000 : 20%, next Rs.
next Rs. 2,50,000: 10%, next Rs. 2,50,000: 15%,:30%) 4,30,500
2,50,000: 25%, income exceeding Rs. 15,00,000
Add: Health and education cess 19,500 17,220
5,07,000 4,47,720
Tax liability
Tax liability is lower under the alternative tax regime. Yshould opt for the alternative tax regime.
" Case 3-Z(27 years) is an individual. His net income (taxable income) under regular tax regime is Rs. 12,00,000. It
is calculated after claiming a few deductions/incentives (i.e., standard deduction: Rs. 50,000 and deduction under
sections 80C and 80D: Rs. 1,95,000).
In this case, the quantum of blockedincentives is Rs. 245,000(ie., Rs. 50,000+ Rs. 1,95,000). Since blocked incentives
is lower than Rs. 2,50,000, tax liability should be calculated separately under the alternative/regular tax regime to find
out which one is better -

Regular tax Alternative

regime ax regime
Rs. Rs.
Net income under regular tax regime 12,00,000 12,00,000
Add: Blocked incentives (Rs. 50,000 + Rs. 1,95,000) 2,45,000
Net income under regular tax regime/alternative tax regime 14,45,000
12,00,000
Income-tax under the regular tax regime (first Rs. 2,50,000: nil, next Rs. 2,50,000:5%,
next Rs. 5,00,000 : 20%, income exceeding Rs.
10,00,000:30%)
Income-tax under alternativetax regime (first Rs. 2,50,000: nil, next Rs. 1,72,500
next Rs. 2,50,000: 10%, next Rs.
Rs. 1,95,000: 25%) 2,50,000:15%, next Rs. 2,50,000: 20%,2,50,000:5%,
balance of
Add: Health and 1,73,750
education cess 6,950
Tax liability 6,900
Zshould not opt for the 1,79,400 1,80,700
alternative tax regime. Tax iability is lower
under the regular tax regime.
 and its
2
CHAPTER
Residential
effect on
status
tax incidence
STATUS
RELEVANCE OF RESIDENTIAL generates some
WHAT IS
residential status. Suppose an individual India. one
Tax liability of an assessee depends upon hisfndout whether his foreign income is taxable in income
17. an
an Indian cítizen. To provisions of Income-tax Act. Likewise, whether statusof
income outside India. He is
"residential status" under the depends on the residential
has todetermine his India) is taxable in India, person
earned by a foreign national
in India (or outside
Therefore, the deternmination of the residential status of a
hiscitizenship.
the individual, rather than onfind out his tax liability.
order to of taxpayers -
is very significant in and tax liability in brief- There are two typesperson earning
residential status
17.1 Relationship between India. Indian income is taxable in India whether the only if such
non-resident in taxable in India
resident in India and a person is
Conversely, foreign income oftaxable
non-resident. in India.
income is resident or Foreign income of a non-resident is not
person is resident in India.

DECIDING RESIDENTIAL STATUS

WHAT ONE MUST KNOW FOR deciding residential status of an
assessee:
keep in mind while
18. The following norms one
has to for the purpose of
All taxable entities are divided in the following categories
" Different taxable entities -
determining residential status:
a. an individual :
b. a Hindu undivided family ;
c. a firm or an associationof persons;
d. a joint stock company ; and
e. every other person. non-resident in India. However,
residential status - An assessee is either: (a) resident in India, or (b) residernt, or (b) resident
" Different
individual or a Hindu undivided family has to be (a)resident and ordinarily either be:
a resident individual and a Hindu undivided family can
but not ordinarily resident. Therefore, an
a. resident and ordinarily resident in India ;or
b. resident but not ordinarily resident in India ; or
C. non-resident in India

20
21 RESIDENT AND ORDINARILY RESIDENT Para 19.1

All other assessees (viz., a firm, an association of nersons. a ioint stock company and every other person) can
either be:
a. resident in India ; or
b. non-resident in India.
The table given below highlights the
same
Category Individual/Hindu undivided family Firm, association of persons,
joint stock company and
every other person

Ordinarily resident
Category 1 Resident in Resident in India
India
Not-ordinarily resident

Category 2 Non-resident in India Non-resident in India

+kesidential status for each previous year -Residential status of an assessee is to be determined in respect of each
previous year as it may vary from previous year toprevious year.
" Diferent residential status for diferent previous years in same assessment year not possible -If aperson is resident
na prevIOus year relevant to an assessment year in respect of any source of income, he shall be deemed to be
resident in India in the previous year(s) relevant to the same assessment year in respect of each of his other
sources of income [sec. 6(5)]
" Different residential status for different assessment years -An assessee may ernjoy different residential status for
difterent assessment years. For instance, an individual who has been regularly assessed as resident and
ordinarily resident has to be treated as non-resident in a particular assessment year if he satisfies none of the
conditions of section 6(1) in that year.
" Resident in India and abroad - It is not necessary that a person who is "resident" in India, cannot become
"resident in any other country for the same assessment year. A person may be resident in two (or more)
countries at the same time. It is, therefore, not necessary that a person who is resident in India will be non
resident in all other countries for the same assessment year.

HOW TODETERMINE RESIDENTIAL STATUS OF ANINDIVIDUAL [SEC. 6]

19. An individual may be (a) resident and ordinarily resident in India, (b) resident but not ordinarily resident
in India, or (c) non-resident in India.
19.1 Resident and ordinarily resident [Sec. 6(1), 6(6)(a)] -To find out whether an individual is "resident
and ordinarily resident" in India, one has to proceed as follows -
Step 1 First find out whether such individual is "resident" in India. See para 19.1-1
Step 2 If such individual is "resident" in India, then find out whether he is "ordina
rily resident" in India. However, if such individual is a"non-resident" in
India, then no further investigation is necessary. See para 19.1-2

19.1-1 BASIC CONDITIONS TO TEST AS TO WHEN AN INDIVIDUAL IS RESIDENT IN INDIA - Under section 6(1) an
individual is said to be resident in India in any previous year, if he satisfies at least one of the following basic
conditions
Basie condition (a) Heis in India in the previous year for a period of 182 days or moret
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 4years immediately preceding the previous year

tIn the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period
or periods of stay in India shall, in respect of such voyage not include the period given in rule 126. Under rule 126, the period
beginning on the dateentered into the Continuous Discharge Certificate in respect of joiningthe ship by the said individual for the
eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual
from the ship in respect of such voyage, shall not be included in the period of stay in India.
Para 19.1 RESIDENTIAL STATUS & ITS EFFECT ON TAX INCIDENCE
22
19.1-1a EXCEPTIONs -The aforesaid rule of residence is subject to the following exceptions-.
"basExoeption one (Special Case 1) -InSpecial Case 1, the period of "60 days" referred to in Basic cotditiorks
been extendedto 182 days by virtue of Explanation 1(a) to section 6(1). However, Special Case 1 is availai
only inthe case of an Indian citizen who leaves India during the previous year for the purpose of emplovno
outside India or an Indian citizen who leaves India during the previous year as a member of thecrew
Indian ship. For this purpose, the requirement is not leaving India for taking employment outside India but
leaving India for the purposes of enmployment (the employment may be in India or may be outside India), To
put itdifferently, the individual need not be an unemployed person. He may be
India during the previous year on a foreign assignment of his employer [Link] in India and leave
Alternatively, he may be an
unemployed person who goes outside India to take an employment outside India.
In Special Case 1, an individual will be resident in India only if he is in India during the
for at least 182 dayst. relevarnt previous vear
" Exception two (Special Case 2) -In Special Case 2, the period of "60 days" referred to in Basic condition () above.
has been extended to 182 days by virtue of Explanation 1(6) to section 6(1). However, Special Case 2covers onl
an Indian citizen or a person of Indian origin who comes on a visit to India during the previous year. A person
is deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in
undivided India. It may be noted that grand-parents include both maternal and paternal grand-parents.
In Special Case 2, an individual willbe resident in India only if he is in India during the relevant previous year
for at least 182 days$.
" Exception three - Exception three is given by section 6(1A). For this exception, see para 19.3-1.
19.1-2 ADDITIONAL CONDITIONS TO TEST AS TO WHEN ARESIDENT INDIVIDUAL IS ORDINARILY RESIDENT IN
INDIA - Under section 6(6), a resident individual is treated as "resident and ordinarily resident" in India if he
satisfies the following two additional conditions
Additiona condiin 1) He has been resident in India in at least 2 out of 10 previous years immediately
preceding the relevant previous year.
Additioal condition (i) He has been in India for a period of 730 days or nore during 7 years immediately
preceding the relevant previous year.
In briefit can be said that an individual becomes resident and ordinarily resident in India if he satisfies at least
one of the basic conditions [i.e., (2) or (b)] and the two additional conditions [i.e., (1) and (i)].
" Exceptions - Fora few exceptions, see para 19.3-1.
19.1-3 oTHER POINTS - It is worthwhile to note the following propositions -
+ It is not essential that the stay should be at the same place. It is equally not necessary that the stay should be
continuous. Similarly,the place of stay or the purpose of stay is not material.
" Where a person is in India only for apart of a day, the calculation of physical presence in India in respect of
such broken period should be made on an hourly basis. A total of 24 hours of stay spread over a number of
days is to be counted as being equivalent to the stay of one day. IE, however, data is not available to calculate
the period of stay of an individual in India in terms of hours, then the day on which he enters ndia as well as
the day on which he leaves India shall be taken into account as stay of the individual in India.
19.2 Resident but not ordinarily resident (Se. 6(4), (6)(a)]-An individual who satisfies at least one of the
basic conditions [i.e., condition (a) or (b) mentioned in para 19.1-1] but does not satisfy the two additional
conditions [i.e., conditions (i) and (ii) mentioned in para 19.1-2], is treated as a resident but not ordinarily
resident in India. In other words, an individual becomes resident but not ordinarily resident in India in any of
the following circumstances :
Case 1
If he satisfies at least one of the basic conditions [i.e., condition (a) or (b) of para 19.1-1] but none of the
additional conditions [i.e., () and (1) of para 19.1-2]
Case 2
If he satisfies at least one of the basic conditions [i.e., condition (a) or (b) of para 19.1-1] and one of the two
additional conditions i.e., () and (i) of para 19.1-2]
" Exceptions - For a few exceptions, see para 19.3-1.
19.3 on-resident-An individual is a non-resident in India if he satisfies none of the basic conditions [1.e.,
condition (a) or (b)]. In the case of non-resident, additional conditions are not relevant.

fAccording to the basic conditions.

{This provision is subject to one exception. For this exception, see para 19.3-1.
23
RULE OF RESIDENCE FOR AN INDIVIDUAL IN BRIEF Para 19.4

19.3-1 EXCEPTIONS - Even if an individual satisfies none of

resident but not ordinarily resident in the cases given below - the two basic conditions, he is deemed to be
" First exception - This exception is given under section 6(1A) read with
section 6(6)(d) and applicable from the
assessment year 2021-22. Under this exception an individual shall be deemed
resident in India, if he satisfies the following 3 to be resident but not ordinarily
a. he is an Indian citizen; conditions -
b. his total incomne (other than the income from foreign sources)
exceeds Rs. 15,00,000" during the relevant
previous year, and
C. he is not liable to tax in any other countrv or territorv by reason of his
criteria of similar nature. domicile or residence or any other
The rule given by above exception is not applicable in the case of an individualwho becomes resident in India
by satistying any of the basic conditions given by section 6(1) (see
not applicable in the case of a foreign citizen (even if he is a personpara 19.1]. Moreover, the above exception is
of Indian origin).
" Second exception - This exception is given by section 6(6)(c) read with Explanation 1(b) to section 6(1) and
applicable from the assessment year 2021-22, Under this exception, an individual shall be deemed to be
resident but not ordinarily resident in India if he satisfies the following 4conditions -
a. he is an Indian citizen or a person of
Indian origin;
b. his total income (other than the income from foreign sources) exceeds Rs. 15,00,000* during the relevant
previous year;
c. he comes to India on a visit during the relevant
previous year, and
d. he is in India for 120 days (or more but less than 182 days) during the relevant previous year and 363
(or more) during 4 years immediately preceding the relevant previous year. days
19.3-la OTHER POINTS - For the aforesaid two exceptions, the following should be kept in view -
" How to find out total income of Rs. 15,00,000 -Total income for the ceiling of Rs. 15,00,000 is calculated after
ignoring income from foreign sources. "Income from foreign sources" means income which accrues or arises
outside India (exceptincome derived from abusiness controiled in oraprofesion setup in India). Income which
is deemed to accrue or arise in India shall be included in computation of the ceiling of Rs. 15,00,000.
" Liable to tax -"Liable to tax" (in relation to aperson and with reference to acountry) means that there is an
income-tax liability on such person under the law of that country for the time being in force and shall include
aperson who has subsequently being exempted from such liability under the law of that country.
" Person of lndianorigin -A person is deemed to be of Indian origin if he, or either of his parents or any of his
grandparents, was born in undivided India.
19.4 Rule of residence for an individual in brief- The table given below summarises the rule of residence -
Who is resident and ordinarily He must satisfy at least one of the basic conditions [i.e., (a) and/or (b)]. At the
resident in India same time, he should also satisfy the two additional conditions.
Who is resident but not ordi He must satisfy at least one of the basic conditions [i.e., (a) and/or (b)]. He
narily resident in India may satisfy one or none of the additional conditions.
Who is non-resident resident in He satisfies none of the basic conditions [i.e., he does not satisfy basic condi
India tion (a) and basic condition (b)]. Additional conditions are not relevant in the
case of a non-resident.

Note -Besides the provisions summarised in the above table, an individual becomes resident but not ordinarily
resident in India if he comes within the two exceptions mentioned in para 19.3-1.

Problems

19-P1 Xleft India for the first time on April11, 2020. During the financial year 2021-22, he came to India once on October 2
for a period of 45 days. Determine his residential status for the assessment year 2022-23.
Solution :Since Xcomes to India only for 45 days in the previous year 2021-22, he does not satisfy any of the basic
conditions laid down in section 6(1). He is, therefore, non-resident in India for the assessment year 2022-23.
19-P2 Xwas born in Chennai in 1993. Later on he migrated to Canada in June 2010 and took the citizenship of that country
with effect from December 26, 2020. His parents were bornin Bengal in 1960 but his grandparents were born in India in 1946.
He comes to India during 2021-22 for a visit of 110 days. During earlier 4years (i.e., April 1, 2017 to March 31, 2021) he was
in India for 400 days. Find out the residential status of Xfor the assessment year 2022-23.
# For computing Rs. 15,00,000, only taxable income shall be considered. If income is exempt, it shall not be taken into consideration
even if it is derived/received in India.
-a 19.4 RESIDENTIAL STATUS & ITS EFFECT ON TAX INCIDENCE
24
Solution : Xis presently aforeign citizen. His grand parents were born in undivided India, He is aperson of Indi.
origin. During the previous year 2021-22, he was in India for a visit of 110 days. He is covered by Special C a n
cannot satisfy basic conition (). Basic condition (b) is not relevant in his case. Consequently, he is non-residhe
India for the assessment year 2022-23.

19-P3 Xcame to lndia for the first time on April 25, 2019 for 240days. During the previous year 2020-21, he was in India onl.
for 130 days. During the previous year 2021-22, le was in lndia for 60 days (20 days in Chennai and 40 days in Nasiki
Determine Iis residential status for the assessment year 2022-23. Xisa foreign citizen, he was born in Pakistan in 1989, His
parents were born in Kaachi in 1968 and grand parents were born in Canada in 1946.
Solution: Xis a foreign citizen. He is not a person of Indian origin. He is not covered by Special Case 1 or Special
Case 2. During the previous year 2021-22, he was in India for 60 days and during 4 earlier years he was in India for
370 days. He satisfies condition (b) mentioned in para 19.1-1. Consequently, he would be resident in India, A
resident individual is either ordinarily resident or not ordinarily resident. To determine whether X is ordinarily
resident or not, one has to test the two additional conditions.
Additional condition () of para 19.1-2 -This condition requires that Xshould be resident in India in at least 2years out
of 10 years preceding the relevant previous year. Out of preceding 10 years, Xis resident inIndia only for the
previous year 2019-20. He cannot satisfy this condition.
Condition (i) of para 19.1-2 - This condition requires that Xshould be in India for at least 730 days during 7 years
immediately preceding the previous year. During last 7years, Xis in India only for 370 days. He cannot satisfy this
condition.
X satisfies one of the basicconditions and none of the two additional conditions. X is, therefore, resident but not
ordinarily resident in India for the assessment year 2022-23.

19-P4 X (50 years) is acitizen of Indiaand employed in India with an Indian company. He leaves India for the first time om
August 31, 2027 to complete a project in South Korea of his employer company. He will not come back before March 31, 2022.
Find out his residential status for the assessment year 2022-23.
Solution:Xis an Indian citizen. During the previous year he is employed by an Indian company in India. However,
to work on a foreign project of the employer-company he leaves India on August 31, 2021. This is his first foreign
trip. During the previous year 2021-22, he is in India for 153 days. As he an Indian citizen and leaves India for
employment purposes,he (being covered by Special Case 1) can become resident in India only if he is in India for at
least 182 days. Since he is in India only for 153 days, he will be non-residernt in India for the
(ie., assessment year 2022-23). previous year 2021-22

19-P5 X (50 years) is a citizen of India and employed in India with an

August 31, 2021 to meet his friends and relatives in Canada. He will Indian company. He leaves India for the first time on
not come back before March 31, 2022. Find out his
residential status for the assessiment year 2022-23.
Solution:X is an Indian citizen. During the
he leaves India on August 31, 2021 not forprevious year he is employed by an Indian
the purpose of employment but to meetcomnpany
in India. However,
Canada. He is not covered by Special Case 1. Even his friends and relatives in
in India, if he satisfies basic condition (a) and/or Special Case 2 is not applicable in his case. He can become resident
for 153 days and during earlier 4 years he is in basic condition (b). During the previous year
India for more than 365 days. He becomes2021-22,
he is in India
satisfying basic condition (b). A resident individual is treated as ordinarily resident in India by
conditions. Since he leaves India for the first timne on August 31, 2021, he can resident, if he satisfies 2 additional
resident in at least 2 years out of preceding 10years and present in Indiasatisfy for
the 2 additional conditions (i.e.,
Consequently, Xis resident and ordinarily resident for the assessment year 2022-23. 730 days during last 7 years).
19-P6 Xisa foreign citizen but he is not a person of Indian
March 12, 2021. On September 10, 2021, he leaves India for origin. He comes to India for the first time in the last 25 years on
Determine the residential status of X for the assessment year Nepal on a business trip. He comes back on March 3, 2022.
Solution : During the previous year 2021-22, Xstays in2022-23. India for a period of 192 days (ie., from April 1,
Beptember 10, 2021 and March 3, 2022 to March 31, 2022). He
82 days or more in India during the satisfies basic condition (a) (namely, presence of 2021 at
to
least
previous
comes to India for the first time in the last 25 year) but he is unable to satisfy the two
years on March 12, 2021. additional conditions. He
le is, therefore, resident but not
ordinarily resident in India for the assessment year
9-P7 (40 years) is a citizen of India, He leaves
X
2022-23.
verseas project of his Indian India for the first time on July 31, 2020 for the
purpose of working oT an
or the assessment year
employer-company.
2022-23.
Golution :X is an Indian citizen. At the
He finall1y comes back on November 28, 2021. Find
out his residential status
revious year 2021-22, he comes back to India beginning of the
after completingprevious year 2021-22, he is
e has comne to India
during the his emplover's overseas outside India. During the
. Even Special Case 1 is not previous year 2021-22, on a visit". project. It cannot be said that
applicable. He can become resident in India by
During the previous year 2021-22, Conseguently, he is not covered by
Special Case
he is in India for more satisfving
than 60 davs and during any of4the two basic conditions.
earlier years, he is in
 RULEOF RESIDENCE FOR AN INDIVIDUAL IN BRIEF Para 19.4
25

more than 365 days. He will, therefore, be resident in India Moreover,he can satisfy 2additional conditions, as prior
to July 3l, 2020 he wasnever outof India. He will be resident andordinarily resident in India for the previous year
2021-22 (ie., assessment year 2022-23).
19-P3 XiS aforeign citizen. He is not a person of Indian origin. He comes to India for the first time on April3, 201/. During
the financial years 2017-18, 2018-19, 2019-20. 2020-2l and 2021-22. Ihe is in Indía for 140 days, 85 days, 18 days, 217 aays
and 60 days respectively. Deternine the residential status of Xfor the assessment year 2022-23.
Solution: For the assessment year 2022-23, financial vear 2021-22 is the previous year. During the previoUs year
2021-22, Xis in India for aperiod of 60 days. Duringi years immediately preceding the previous year (2017-18to
2020-21) Xis in India for a period of 460davs (ie. 14A0 + 85 + 18 + 217 days). Thus, he satisfies basic condition (b)
(namely, presence of at least 60 days during the previous year and 365 days during 4years immediately preceding
the relevant previous year). He, therefore, becomes resident in India.
Aresident individual may either be an ordinarily resident or not ordinarily resident. To determine whether he is
ordinarily resident or not ordinarily resident, one has to test the two additional conditions. During 10 years
preceding the previous year 2021-22, x is resident in India only for the year 2020-21 and during 7years preceding
the previous year 2021-22, he is present in India for 460 days. Thus, he does not satisfy the two additional conditions.
He is, therefore, resident but not ordinarily resident in India for the assessment year 2022-23.
19-P9 X(40 years) is an Indian citizen. He is employed by Philijps (UK) in London. He comes to India during the previous year
2021-22for avisit of 200 days on June 1, 2021. He left India for the first time on October 25,2019 for employment outside India.
Before October 25, 2019, he was never out of Indiasince his birth. Find out the residential status of Xfor the assessment year
2022-23.
Solution : Xis an Indian citizen. He comes to India on avisit of 200 days during the previous year 2021-22. He is
covered by Special Case 2. He is a resident in India [he satisfies basiccondition (a), basic condition (b) is not relevant
in his case]. From the information given above, it is clear beyond any doubt that he was in India for more than 730
days during the preceding 7years and he was resident in India for more than 2years out of the preceding 10 years.
He is, therefore, resident and ordinarily resident in India for the previous year 2021-22 (i.e, the assessment year
2022-23).
19-P10 X(45 years) is aforeign citizen. One of his grandzarents wns born in avillage near Srinagar in 1945. He is employed
by Tata Chemicals in its Dubai offce. He came io India during the previous year 2021-22 for avisit of200 days on December 4,
2021. Find out the residential status of Xfor the assessment year 2022-23.
Solution:X is a foreign citizen. One of his grand parents was born in undivided India. He is a person of Indian
origin. During the previous year, he came to India on a visit. He is covered by Special Case 2. He came to India on
December 4, 2021for avisit of 200 days. His total stay in India during the previous year 2021-22 will be of 118 days
(ie, December 4, 2021 to March 31, 2022). Since he is covered by Special Case 2, he can become resident in India only
if he is in India for at least 182 days during the previous year. Consequently, X is non-resident in India for the
assessment year 2022-23.
19-P11 Xis a foreign citizen (not being a person of Indian origin). During the financial year 2021-22, he cae to India for 70
days. Determine nisresidentialstatus for ihe assessment year 2022-23 on the assumption that duringfnancal years 2007-08
to 2020-21, he was present in India as follows :
2020-21 100 days 2013-14 181 days
2019-20 80 days 2012-13 90 days
2018-19 60 days 2011-12 71 days
2017-18 126 days 2010-11 4 days
80 days 2009-10 8 days
2016-17
2015-16 70 days 2008-09 55 days
2014-15 23 days 2007-08 298 days
Solution:X is a foreign citizen (not being aperson of Indian origin). He is not covered by Special Case 1 or Special
Case 2. During the previous year 2021-22, Xis in India for a period of 70 days and during four years preceding the
previous year he is in India for 366 days. Thus, he satisfies basic condition (b) and, consequently, he becomes
resident in India.
determine whether X is
A resident individual may either be an ordinarily resident or not ordinarily resident. ToInformation
ordinarily resident or not ordinarily resident, one has to test two additional conditions. in the Table
conditions:
g1ven below may be used to test the additional
Year Presence in India Resident (R) or non-resident Which of the conditions (a/(b) is satisfied
(number of days) (NR) to become resident or non-resident
NR None
2020-21 100
NR None
2019-20 80
NR None
2018-19 60
NR None
2017-18 126
 26
Para 19.4 RESIDENTIAL STATUS & ITS EFFECT ON TAX INCIDENCE
Which of the conditioms (aybj is satisfied
Resident (R) or non-resident non-resident
Year Presence in India to become resident or
(number of days) (NR) None

2016-17 80 NR (b)
R None
2015-16 70
NR None
2014-15 23
NR None
2013-14 181
NR (b)
2012-13 90
R
2011-12 71
2010-11
2009-10 determine
Not necessary to
55
2008-09
India for at least 2
out of 10
2007-08 298 should be resident in years. He
10
condition requires that an individual residernt in India for 2 years out of
Aaaitional condition (i)-
This present case, is
previous year. X, in the least 730davs
years preceding the relevant
should be present in India for at 2020-21. He
satisfies this condition. individual during 2014-15 to
(i)- Thiscondition requires that an was in India for 539 days
Adaitional condition previous year. X not
years preceding the relevant therefore, resident but
during 7 condition. conditions. He is,
cannot satisfy this the additional
basic conditions and one of
X satisfies one
of the year 2022-23. different years,
resident in India for the assessment overseas companylocatedin Dubai. During
ordinarily an
inemploymentwith
Currently, heis
19-P12 Xis anIndiancitizen.
- Previous year
Presence in India
he is in India as follows year
Presencein India
70 days
Previous year PresenceinIndia Previous 170days
2015-16
2018-19 2014-15 71 days
2021-22 55 days 2017-18 200 days 2013-14 72 days
190 days 250 days
2020-21 2016-17
200 days domicile or residence.
2019-20
any other countryterritory by reason of his residentialstatus
Dubai or in out the
2021-22, Xis not taxable in 2021-22 is Rs. 16,00,000. Find
For the previous year income from foreign sOurces) for thepreviousyear
Income of X(otherthan any of the basic condition
ofXfor the assessmentyear
2022-23.
the previous year 2021-22. He is unable to satisfy
6(1A)
during
Solution:Xis in India for 55 days satisfies the following 3 conditions given by section
6(1). However, he
given by section
during the relevant previous
a. X is an Indian
citizen;
income from foreign sources) exceeds Rs. 15,00,000
the
b. his total income (other than residence or any other criteria
year, and
other country or territory by reason of his domicile or
any
c. he is not liable to tax in The
section 6(6()].
of similar nature.
but not ordinarily resident in India [as per section 6(1A)read with
He is deemed to be resident pertaining to earlier years, is not
relevant in this case.
information given in the above table During
Currently, he is in employment vith a multinational conpany and posted in Singapore. days. X
19-P13 Xis an Indian citizen. le is in lndia for more than 900
for a visit of 145 days. In earlier 4 years,
the previous year 2021-22, he comes to Indiaassessment year 2022-23. His annual incone for the previous year 2021-22 is as
wants to know his residential status for the
follows - Rs.
29,00,000
and received in Singapore
Income from salary, rent, consultancy and interest earned 21,00,000
from Singapore)
Income from business (accrued and received outside Indi, controlled from India)
8,00,000
controlled
Income from another business (accrued and received outside India, 11,00,000
Interest on bank fixed deposits in India Nil
Any other income in India or outside India 2,60,000
Life insurance premium paid in India
foreign
Solution :In the previous year 2021-22, Xis in India for 145 days. Total income of X (other than income from 4
sources) is Rs. 17,50,000(i.e., Rs. 8,00,000+ Rs. 11,00,000 - deduction under section 80C: Rs. 1,50,000). X satisfies
conditions of second exception [see para 19.3-1] as follows -
a. Xis an Indian citizen or a person of Indian origin;
27 WHEN ARESIDENT HUF IS ORDINARILY RESIDENTIN INDIA Para 20.2
b. total income of X(other than the income from foreion sources) exceeds Rs. 15,00,000 during the
relevant previous
year;
c. he comes to India on a visit during the
previous year 2021-22, and
d. he is in India for 145 days (i.e., his Indian visit is for 120 davs or more but less than 182 days) during the
relevant
previous year and 365 days (or more) during 4 years immediately preceding the relevant previous year.
Conseqenty,
in India. tor the previous year 2021-22 (ie, assessment year 2022.23), Xis resident but not ordinarily resident

HOW TO FINDOUT RESIDENTIAL STATUS OF A HINDUUNDIVIDED FAMILY

20. A Hindu undivided family (like an individual) is either resident in India or non-resident in India. A
resident Hindu undivided family is either ordinarily resident or not ordinarily resident.
20.1 When aHindu undivided family is resident or non-resident- A Hindu undivided family is said to be
resident in India if control and management of its affairs is wholly or partly situated in India. A Hindu
undivided family is non-resident in India if control and management of its affairs is wholly situated outside
India.
The table given below highlights the same
proposition -
Place ofcontrol Residential status offamly Ordinarily resident or not
Control and management of the affairs of a
Hindu undivided family is
" Wholly in India Resident See para 20.2
" Wholly out of India Non-resident
" Partly in India and partly outside India Resident See para 20.2

In order to determine whether a Hindu undivided family is resident or non-resident, the residential status of
the karta of the family during the previous year is not relevant. Residential status of the arta during the
preceding years is cornsidered for determining whether a resident family is "ordinarily resident".
" What is "control and management" -Control and management is situated at a place where the head, the seat
and the directing power are situated. The mere fact that the family has ahouse in ndia, where some of its
members reside or the karta is in India in the previous year, does not constitute that place as the seat of control
and management of the affairs of the family unless the decisions concerning the affairs of the family are takern
at that place.
20.2 When a resident Hindu undivided family is ordinarily resident in lndia- A resident Hindu undivided
family is an ordinarily resident in India if karta or manager of the family (including successive kartas) satisfies
the following two additional conditions as laid down by section 6(6)(b):
Additional Karta has been resident in India in at least 2 out of 10 previous years [according to the basic
condition () condition mentioned in para 19.1-1]immediately preceding the relevant previous year
Additional Karta has been present in India for a period of 730 days or more during 7years immediately
condition (i) preceding the previous year
If karta or manager of a resident Hindu undivided family does not satisfy the two additional conditions, the
family is treated as resident but not ordinarily resident in India.
Problem
20-P1 X, an individul, is resident but not ordinarily resident in Indin for the assessment year 2022-23 (previous year
2021-22). During the previous year 2021-22, the affuirs of X(HUF), aHindu undividedfumily, whose karta is Xsince 1986, are
partly managed from Delhi and partBy from Nepal. Deternmine the residential status of X(HUF) for the assessment year
2022-23.
Solution: As during the previous year 2021-22, the affairs of X(HUF) are partly managed from India, the family will
be treated as resident in Indi. A resident family may be ordinarily resident if karta of the family satisfies the
following two additional conditions laid down in section 6(6)(b):
a. he has been resident in India in at least 2out of 10 years immediately preceding the relevant previous year ; and
b. he is in India for at least 730 days during7 years immediately preceding the relevant previous year.
If karta does not satisfy these lditional conditions, a resident Hindu undivided family is treated as resident but not
ordinarily resident in India. Similarly, if a resident individual does not satisfy the aforesaid additional conditions,
 INCIDENCE
Para 21 RESIDENTIAL STATUS & ITS EFFECT ON TAX
but not ordinarily resident in India. As X is 28
the individual is treated as a resident
2022-23 in his individual capacity, he is resident but not ordinarily
the assessment year unable
in India for
conditions as karta of X(HUF). X(HUF) is, to satisfy th aforesaid
therefore, resident but not ordinarily resident resident
year 2022-23.
in India for
the additional
assessment
uOW TODETERMINE RESIDENTIAL STATUS OF FIRM AND
ASSOCIATION OE Dr
SONS
21. Apartnership firm and an association of persons are said to be resident in India if control and
oftheir affairs are wholly or partly situated within India during the relevant
treated as non-resident in India if control and management of their affairs are previous year. They are, howew
situated wholly outside Ind:
management
The above rule may be summarised as follows
Place of control Residential status
Control and management of the affairs of a firm/association of persons is -
" Wholly in India Resident
" Wholly outside India Non-resident
" Partly in India and partly outside India Residernt
A firm /an association of persons cannot be"ordinarily" or "not ordinarily resident". The residential status nt
the partners/members ofthe firm/association is not relevant in determining the status of the firm/association
eWhat is "control and management" - While in the case of a firm, control and management is vested in partners
in case of an association of persons it is vested in principal officer. Control and management means de facto
control and management and not merely the right to control or management. Control and management is
usually situated at aplace where the head, the seat and the directing power are situated.
HOW TO FIND OUT RESIDENTIAL STATUSOF ACOMPANY
22. Residential status of a company is determined as follows -
Section Company Residentialstatus
Indian company Always resident in India [Note 1]
6(3)()
6(3)(1) A foreign company (whose turnover/gross It will be resident in India if its place of effective
receipt in the previous year is more than Rs. 50 management (POEM), during the relevant pre
vious year, is in India [Note 2]
crore)
6(3)(i) A foreign company (whose turnover/gross re Always non-resident in India (Note 3]
ceipt in the previous year is Rs. 50 crore or less)
Notes -
from a place located
1. An Indian company is always resident in India. Even if an Indian company is controlled
outside India (or even if shareholders of an Indian company controlling more than 51 per cent voting power are
non-resident and/or located outside India), the Indian company is resident in India. An Indian company can
never be non-resident.
(POEM), during the relevant
2. A foreign company is resident in India if its place of effective management
management means a place where key
previous year, is in India. For this purpose, the place of effective
management and commercial decisions that are necessary for the conduct of the business of an entity as a whole
followed in determination of POEM)
are, in substance made. For this purpose, a set of guiding principles (to be
have been issued by the Board in Circular No. 6/2017, dated January 24, 2017.
3. Provisions of section 6(3)(ii) shall not apply to a foreign company having turnover or gross receipts of Rs. 50
crore or less in a financial year-Circular No. 8/2017, dated February 23, 2017. In other words, a foreign company
resident in India from the assessment
(whose annual turnover/gross receipts is Rs. 50 crore or less) cannot be
year 2017-18 onwards.

Problems
in India. The business
22-P1 X Ltd. is an Indian company. It has 10 shareholders who are foreign citizens and non-resident assessment year 2022-2
the company is fully controlled from outside India, Find out tlhe residential status of XLtd. for the
Solution : X Ltd. is an Indian company. An Indian company is alwavs resident in India. This rule 1s equa
o
applicable even if shareholders are foreign citizens as wellas non-resident or even if business is controllea
outside India.
29 INCIDENCE OF TAX FOR DIFFERENT TAXPAYERS Para 24.2
22-P2 YLta. is acompany incorporated in Mauritius (thurnger more than Rs. 50 crore). It has 10 shareholders who are Indian
citizens and resident in India. The company has active business outside India and is controlled wholly from outside India by a
team of professionals. What is the residential status of YLtd. for the
assessment year 2022-23.
Solution:Y Ltd. is a foreign company. It is controlled wholly from outside India (POEM is outside India). It is,
therefore, non-resident in India for the assessment vear 2022-3. Residential status of shareholders is irrelevant.
Likewise, the nationality of shareholders is not taken into consideration.
22-P3 Z Ltd. is incorporated in Japan. It has 15 shareholders (10 are Indian citizens and resident in India). The company has no
acthe busimess mJapan. Gross annual turnover of the company for the previous year 2021-22 is Rs. 48 crore mainly from
operations conducted from Korea, SriLanka and India. The conpany is managed by a team of professionalsfrom India. Find out
the residential status of Z Ltd. for the assessment year 2022-23.
Solution :Z Ltd. is a foreign company. Gross turnover of the companyfor therelevant previous year isRs. 48 crore.
Atoreign company (whose turnover/gross receipts is not more than Xs. 50 crore) is treated as non-resident in India.
HOW TO DETERMINE RESIDENTIAL STATUS OF EVERY OTHER PERSON
23. Every other person is resident in India if control and management of its affairs is, wholly or partly, situated
within India during the relevant previous year. On the other hand, every other person is non-resident in India
if control and management of its affairs is wholly situated outside India.

WHAT IS THE RELATIONSHIP BETWEEN RESIDENTIAL STATUS AND INCIDENCE OF

TAX [SEC. 5]
24. Under the Act, incidence of tax on a taxpayer depends on his residential status and also on the place and
time of accrual or receipt of income.
24.1 Indian income and foreign income -Inorder to understand the relationship between residential status
and tax liability, one must understand the meaning of "Indian income" and "foreign income".
24.1-1 "INDIAN INCOME" - Any of the following three is an ndian income
1. If income is received (or deemed to be received) in India during the previous year and at the same time it
accrues (or arises or is deemed to accrue or arise) in India during the previous year.
2. If income is received (or deemed to be received) in India during the previous year but it accrues (or arises)
outside India during the previous year.
3. If income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or
arise) in India during the previous year.
24.1-2 FOREIGN INCOME -If the following two conditions are satisfied, then such income is "foreign income" -
a. income is not received (or not deemed to be received) in India: and
b. income does not accrue or arise (or does not deemed to accrue or arise) in Indiac.
24.2 Incidence of tax for different taxpayers- Tax incidence of different taxpayers is as follows
Individual and Hindu undivided family
Resident and ordinarily Resident but not ordinarily resident Non-resident in India
resident in India in India
" Indiarn income Taxable in India Taxable in India Taxable in India

"Foreign income Taxable in India Only two types of foreign incomes Not taxable in India
(ie., Case 1l and Case 2 given below)
are taxable in India
Anyother foreign income is not
taxable in India

The following foreign incomes are taxable in the hands ofa resident but not ordinarily resident in India -
Case 1- If it is business income and business is controlled wholly or partly from India.
Case 2 - If it is income from a profession which is set up in India.

f Salary accrued to a non-resident seafarer for services rendered outside India on a foreign going ship (with Indian flag or foreign
flag) shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with
an Indian bank by the seafarer - Circular No. 13/2017, dated April 11, 2017.
Para 24.3 RESIDENTIAL STATUS & ITS EFFECT ON TAX INCIDENCE

No other foreign income (like salary, rent, interest, etc.) is taxable in Indiain the hands of a resident h..
ordinarily resident taxpayer.
Any other taxpayer (like company, firm, co-operative society
association of persons, body of individua, etc)
Resident in India Non-resident in Indía
Indian income Taxable in India Taxable in India
Foreign income Taxable in India Not taxable in India

24.3 Conclusions- The following broad conclusions can be drawn

1. Indian income -Indian income is always taxable in India irrespective of the residentialassociation
status of theoftaxpayer
person.
2. Foreign income - Foreign income is taxable in the hands of resident (in case of a firm, an
a joint stock company and every other person)incomeor resident and ordinarily resident (ín case of an individual an:
a Hindu undivided family) in India. Foreign is not taxable in the hands of non-resident in India.
In the hands of resident but not ordinarilyresident taxpayer, foreign income is taxable only if it is (a) businese
income and business is controlled wholly or partly from India, or (b) professional income from a profession
in the hands of resident but nos
which is set up in India. In any other case, foreign income is not taxable
ordinarily resident taxpayers.
given below
24.4 Provisions illustrated - Different situations are covered in the table
Reasons Conchusions Is it taxable in
Nature ofincome Indufor the assessment
year 2022-23
Resi Resi Non
dent* dent resi
or resi but dent
dent and not
ordinarily ordi
resident narily
resident
It is Indian income. Indian income is Yes Yes Yes
1. Rental income of Rs. 36,000 is received
in India on May 10, 2021 (it may accrue always taxable
outside India or in India)
It is Indian income. Indian income is Yes Yes Yes
2. Interest income of Rs. 46,000 accrues
in India on March 31, 2022 (it may be always taxable
received in India or outside India)
It is Indian income. Indian income is Yes Yes Yes
3. Income of Rs. 56,000 is deemed to be
received in India on April 20, 2021 (it always taxable
may accrue outside India or in India) Yes Yes Yes
It is Indian income. It is always tax
4. Income of Rs. 66,000 is deemed to
accrue or arise in India during the pre able
vious year 2021-22 (it may be received in
India or outside India) No No
5. Business income/professional income It is foreign income. It is taxable in Yes
of Rs. 76,000 is received and accrued the case of resident and ordinarily
outside India during the previous year resident taxpayer. It is not taxable in
the case of a non-resident. Since it
2021-22 (business is controlled from
is business/profession income and
outside India or profession is set up out business is controlled from outside
side India) India or profession is set up outside
India, it is not taxable in the case of
resident but not ordinarily resident
taxpayer Yes No
6. In situation 5, suppose business is con It is foreign income. Since it is busi Yes

trolled from India or profession is set up ness/ professional income and the
in India business is controlled from India or

*In case of a firm, an association of persons, a joint stock company and every other person.
**In case of an individual and a Hindu undivided family.
31 CASH v. KIND Para 25.2

Nature of income Conclusions Is if taxable in

Reasons
India for the assessment
year 2022-23
Resi Resi Non
dent* dent resi
or resi but dent
dent and not
ordinarily ordi
resident** narily
resident

profession is set up in India, it is

taxable in all cases except non-resi
dent
7. Rental income or salary income or It is foreign [Link] is taxable in Yes No No
interest income of Rs. 86,000 is received the case of resident and ordinarily
outside India in the previous year 2021-22 resident taxpayer. It is not taxable
and at the same time it accrues or arises in the case of non-resident. Since it
outside India is foreign income which is neither
business income nor professional in
come,it is not taxable in the case of
resident but not ordinarily resident
8. Giftt of Rs. 2 lakh received outside It is foreign income. It is taxable in Yes NG No
India by an individual on November 6, the case of resident and ordinarily
2021 from a friend. resident taxpayer. It is not taxable in
the case of non-resident. Since it is
foreign income which is neither busi
ness income nor professional income,
is not taxable in the case of resident
but not ordinarily resident
[Link] of Rs. 1 lakh received in Delhi by It is Indian income. It is taxable Yes Yes Yes
an individual on November 30, 2021
from a friend
10. Income of Rs. 96,000 earned and This income pertains to the previous No No No
received outside India in 2014-15 but year 2014-15. It cannot be taxed at
later on remitted to India in 2021-22 the time of remittance in 2021-22

WHAT IS RECEIPT OF INCOME

25. Income received in India is taxable in all cases irrespective of residential status of an assessee. The
following points are worth mentioning in this respect:
25.1 Receipts vs. Remittance- The"receipt" of incomerefers to the first occasion when the recipient gets the
money under his control. Once an amount is received as income, any remitance or transmission of the amount
to another place does not result in "receipt" at the other place.
Provisions illustrated
An assessee receives $10,000 in USA on May l6, 2021. Out of $10,000, he remits Rs. 50,000 to India on May 18, 2021.
In this case, income is "received" outside India on May 16, 2021.

25.2 Cashvs. Kind-It is not necessary that income should be received in cash. Income may be received in cash
or in kind. For instance, value of afree residential house provided to an employee is taxable as salary in the
hands of the employee though the income is not received in cash.

"Incase of a firm, an association of persons, a joint stock comparny and every other person.
**In case of an individual and a Hindu undivided family.
Tlf aggregate amount of gift (a sum of money or property) received by an individual/HUF during afinancial year exceeds Rs. 50.000.
it is taxable as "income". This rule is, however, not applicable if gift is received by an individual from a relative or at the time of
marriage or by will-see para 114 for detailed discussion.
 INCIDENCE
Para 25.3 RESIDENTIAL STATUS & ITS EFFECT ON TAX
3
25.3 Receipt vs. Acerual - Receipt is not the sole test of chargeability to tax. If an incom is not taxah,
receipt basis, it may be taxable on accrual basis.
25.4 Actual receijpt vs. Deemed receipt - It is not necessary that an income should be actually received.
Indiain order to attract tax liability. An income deemed to be received in India in the previous year is a
included in the taxable income of the assessee. The Act enumerates the following as income deemed to
received in India :

" Interest credited to recognised provident fund account of an employee in excess of 9.5 per cent.
" Excess contribution of employer in the case of recognised provident fund (i.e., the amount contributed in
excess of 12 per cent of salary).
" Transfer balance.
Contribution by the Central Government or any other employer to the account of an employee under a
notified pension scheme referred to in section 80CCD.
" Tax deducted at source.

WHAT ISACCRUAL OF INCOME

irrespective of residential status of an assessee The
26. Income accrued in India is chargeable to tax in allcases the word "receive". Income is said to be receive
words "accrue" and "arise" are used in contradistinction to becomes vested in the assessee, it is said to
income
when it reaches the assessee; when the right to receive the
accrue or arise.

WHAT ISINCOME DEEMED TO ACCRUE OR ARISE IN INDIA

27. In some cases, income is deemed to accrue or arise in India under section 9 even though it may actualy
irrespective of their residential status and place
accrue or arise outside India. Section 9 applies to all assessees
deemed to accrue or arise in ndia are as under:
of business. The categories of income which are
conditions should be satisfied
27.1 Income from business connection- The following
India.
Condition one - The taxpayer has a "business connection in
India, income actually arises outside India.
" Condition two - By virtue of "business connection" in
outside India because of "business connection" in
If the above conditions are satisfied, income which arises
India, is deemed to accrue or arise in India.
ilustrative instances of a non-resident having
27.1-1 AFEW INSTANCES OF BUSINESS CONNECTION- Some
business connection in India are
of goods or transacting other business;
a. maintaining a branch office in India for the purchase or sale
in ndia for the systematic and regular purchase of raw material or other commodities
b. appointing an agentnon-resident's goods or for other business purposes;
or for the sale of the
purchased locally is worked into a form suitable for
c. erecting a factory in India where the raw produce
export abroad;
non-resident parent company;
d. forming a local subsidiary company to sell the products of the
non-resident company,etc.
e. having financial association between a resident and a
27.1-2 OPERATIONS NOT TAKEN AS BUSINESS
CONNECTIONS - The following operations do not amount to
"business connection"
business operations are not carried out in India, the
" Where all operations are not carried out in India- If all shall be only such part of income as is reasonably
income of the business deemed to accrue or arise in India
attributable to the operations carried out in India.
non-resident, no income shall be deemed to accrue or arise in India
" Purchase of goods for export- In the case of goods in India for the purpose or
to him through or from operations which are confined to the purchase of
export.
" Collection of news and views - No income arises toa non-resident from the
activity of collection of news an
views in Indiafor transmission out of India.
activity of shootng o
" Shooting of cinematograph flms in India - No income arises to a non-resident from the
any cinematograph film in India, if a few conditions are satisfied.
tIt includes even profession connection.
33 INCOME BY WAY OF INTEREST, ROYALTY AND FEES Para 27.7

" Fund mangement activity -In the case of an "'eligible investment fund", the fund management activity carried
out through an "eligible fund manager" acting on behalf of such fund shall not constitute business connection
in India of the said fund [sec.9A].
" Di_play of tuncutand unassorted diamond in anotifed special zone -In the case of aforeign company engaged in
the business of mining of diamonds, no income shall be deemed to accrue or arise in India through or from the
activities which are confined to the displav of uncut and unassorted diamond (without any sorting or sale) n
any special zone notified by the Central Government.
27.2 Inconme through or from anyproperty, asset or source ofincome in India- Income from any property,
asset or source of income in India is deemed to accrue or arise in India. For instance, a property in Chernnai is
owned by X, a non-resident. It is given on rent. Rental income from the property is deemed to be earned in
India in the hands of X. This rule is applicable even if rent is received outside India.
27.3 Income through the transfer of capital assetsituated in India -Any capital gain earned by aperson by
transfer of any capital asset situated in India, is deemed to accrue or arise in India.
" An asset or acapital asset (being any share or interestin acompany or entity registered or incorporated outside
India) shall be deemed to be and shall alwavs be deemed to have been situated in India if the share or interest
derives, directly or indirectly, its value substantially from the assets located in India*.
27.4 Income under the head "Salaries"- If service is rendered in India, salary income is deemed to be earned
in Indiat.
27.5 Salary payable abroad by the Government to a citizen of india -Salary received by an Indian citizen
from the Government of India for rendering service outside India is deemed to accrue or arise in India. Such
salary is taxable in the hands of concerned employee even if he is non-resident. However, allowances and
perquisites received from the Government by an ndian citizen for rendering service outside India, are exempt
from tax.

27.6 Dividend paidbyan lndian company [Sec. 9(1)(v))-Dividend received by ashareholder from an Indian
company is always deemed to accrue or arise in India.
27.7 Income by way of interest, royalty and technical fees-These are deemed to accrue or arise in India in
the following cases -
1. Interest, royalty or technical fees received from the Central Government/any State Government, is deemed
to accrue or arise in India.
the
2. Interest, royalty or technical fees received from a resident person is deemed to accrue or arise in India in
hands of recipient. However, this rule is not applicable (a) if borrowed money is utilised by the payer for
carrying on a business/profession outside India or for earning any income outside India; or (b) payment of
royalty/technical fees pertains to a business/profession carried on by the payer outside India or earning any
income outside India.
arise in India in the
3. Interest,rovalty or technical fees received from a non-resident, is deemed to accrue or
carrying on a business/profession in
hands of recipient, if (a) borrowed money is utilised by the payer for profession
India; or (b) payment of royalty/technical fees pertains to a business/ carried on by the payer in
India or earning any income in India.
recipient, income shall be
" Interest received outside India by a foreign bank from its branch in lndia - In the hands of
deemed to accrue or arise in India.

*"Substantially" means not less than 50 per cent - DIT v. Copal

Research Ltd. (2014] 49 [Link] 125 (Delhi). The Finance Act.
amended version, the sharet or interest of a foreign
2015 has amended the law with effect from assessment year 2016-17. Under the intangible) located in India,
(whether tangible or
company or entity shall be deemed to derive its value substantially from the assets
if on the specified date, the value of Indian assets,
a. exceeds the amount of Rs. 10 crore; and
the assets owned by the company or entity.
b. represents at least 50 per cent of the value of all foreign company
India, it cannot be deemed to accrue or arise in India even if the
Ifa foreign company declares dividend outside indirectly) located in India. This rule is applicable even if the foreign
declaring dividend have substantial assets (held by it directly or 4/2015, dated March 26, 2015.
No.
company satisfies the conditions given above - Circularincome cannot be deemed to be earned in India. However, this rule has an
fConversely, if service is rendered outside India, salary
exception which is mentioned in para 27.5.
capital asset being investment held by a non-resident, directly
/However, this provision is not applicable in the case of any asset or (Foreign Portfolio Investors) Regulations, 2014
under the SEBI
or indirectly, in Category-I or Category IlForeign Portfolio Investor
n REDENIAL STAUs Is EPFECT ON tAX INCIDENCE 34

Ahvt*Hy Hlty trtan nly the em"oyalty" eans considlerationreceived or reveivable for transfer of al
righta, operty o information, It also includesconsiderationfor transfer of al
nht n
( d) thouglh ( i h t toe ) y t e r oftware (icuding, granting of a licence) irrespective of the
ht to wheh
Htinn htht is ranaferred. uther, it includes consideration in respect of any right.

n. the b i 0tonrol olsuchright, roperty or information is with the payer;

nhit. etyw intomatonis tused directly by the payer;
the ovaton ofsuh rinht, property or inlormation is in India. formula or process. The
mwner, it imlules Maideration or ue of any patent, invention, model, secret
amplification, conversion for
Neaai " P u " iludes trasnizion by satelite (including up-linking, whether or not such process
any other similar technology,
dvm inkinyy ofany aiyna),vable, optic fibre or by
non-resident/forelgn company[Sec. 9(1)(Miii))- Clause (vii) has
27.8 Deened accrualof giftofmoney to a following conditions
inserted in sewtion y)by the inanee (No. 2) Act, 2019, This clause is applicableif the
Iven
ate satistied
received from aperson resident in India).
1l'aver is resident inlndlia (or money is non-resident/foreign company
2. Recjient is non-resident/loreigncompany. Asum of money is received by
n ratter uly 5, 2019, company, shallbe deemed to
nditions are satisfied, money received by the non-resident/foreign
It these received outside India).
rue orarise in India (even if itis
Problems on incidence of tax
receives Rs. 6,00,000 as salary
assessment year 2022-23 (1revious year 2021-22), X is employed in India and
28-P1 ior te other sources includes :
(fer shtttedand deduction). His income from profit received in London on
fron a foreign company; share of remittance
in London on August 6, 2021: Rs. 1,00,000 fron London on
Diedend tvvind Sri Lanka butcontrolled fromn India : Rs. 2,00,000; interest earned and received
2021 rom a business situated in and
August 16 2020-21 earned and received there : Rs. 3, 00, 000
Manh 31, 2022out of pxast untaxed yrofit of out his gross total income, ifle is (a) resident andordinarily resident, (b) resident
in Itdivt on June 30, 2022:Rs. 1,92,000.
Find
resident, and (c) non-resident for the assessment year 2022-23. Rs. 6,00,000 +
Ivut not ondinmily resident, his gross total income will be Rs. 9,00,000 (i.e.,work
Solution : It X is resident and ordinarily out to be
2,00,000), IF X is resident but not ordinarily resident, his gross total income will6,00,000.
Rs. t.00,000 + Rs. income will be Rs.
Rs. 8,00, (000 (i.c. Rs. 6,00,000 + Rs.
2,00,000). If X is non-resident, his gross total
Notes: 2021-22 because it does not amount to
Remittance from London of Rs. 3,00,000is not taxable in the previous year
1. 2021-22.
" e t " of income in the previous year in the total income of the
interest of Rs, 1,92,000 earned and received in India is taxable, it is not included therefore, be included in
2. Although received in the previous year 2021-22. It will,
assessnment year 2022-23, as it is not earned or2023-24.
year
the total income of X for the assessmernt
following information in
resident and ordinarily resident in India for the assessment year 2022-23. He gives the
28-P2 X is :
respect o his incone for the previous year 2021-22 Rs.
8,00,000
Pune (sale consideration is received in Nepal)
1. Cpital gain on sale ofa house situated in Tamilnadu
60,000
received in Sri Lanka for rendering service in
2. Salary (after standard deduction) the
paid to hin in Sri Lanka, the money is utilized by
3. Iuterest reccivcd from GoIernment of India (it is
80,000
Goernnment outside India)
which is non-resident in India) outside India (royalty
4. Royaltyreceivcd from ALtd. (aforeign company
86,00,000
India)
is pid for a manufucturing business situated outside
Findout the taxable income of X for the assess1nent year 2022-23.
Solution:
transfer is deemed to accrue or arise in India. 8,00,000
1, As the house is situated in India, capital gain on its
It is Indian income. It is taxable in all cases
It is
2. As service is rendered in India, income deemed to be accrued in India. It is Indian income. 60,000
taxable in all cases
35 PROBLEMS ONINCIDENCE OF TAX 28-P4

Rs.
3. As interest is received from the Government o
Indian inc¡me. It is taxable in all cases India, it is deemed to be accrued in India. His
80,000
4. It is received outside India. It is accrued outside India It is
of resident and ordinarily resident foreien income. It is taxable in the case
86,00.000
Total 95,40,000
28-P3 For the asseSSIMent year 2022-23. X is non-resident in India Erom the information given below, find out
charçeable to tax for the asscssment year 2022-23: s mom
Rs.
1. Royalty receied by him outside India from the
Government India
of 17,000
2. Technical fees receicd from A Ltd. (an Indian company) in Germany for
ofa project situated in Iran advise gien by him tm respect
1,17,000
3. Income from a busincss situated in Sri Lanka (9oods are sold in Sri Lanka, sale consideration is recetved
in Sri Lanka but business is controlled partly in Sri Lanka and partly in India) 2,17,000
4. Income from a business connection in India (it is received outside India) 3,17,000
Solution :
1. As royalty is received from the Government of India, it is deemed to accrue or arise in India.
It is Indian income. It is always taxable 17,000
2. Technical fees is received in Germany. The project in respect of which it is paid is situated in Iran.
It is foreign income. It is not taxable in the case of a non-resident
3. Income is received in Sri Lanka. As goods are sold in Sri Lanka, it arises in Sri Lanka. It is foreign
income. It is not taxable in the case of a non-resident
4. As the business connection is situated in India, it is deemed accrue or arise in India. It is Indian
income. It is taxable 3,17,000
Total 3,34,000

28-P4 Xgives the following information regarding his income pertaining to the assessment year 2022-23 -
Rs.
Salary (after standard deduction) from an Indian company for rendering service in Mumbai 23,00,000
Technical fees from the Government of India (received in Moscow) 18,00,000
Royalty from aforeign company (received in Tokyo and royalty pertains to aproject of the foreign company
situated in Chennai) 6,25,000
Royaly from an Indian company (received in Tokyo and royalhy pertains to a project of the Indian company
situated in Dubai) 8,00,000
Dividend from Tata Chemicals Ltd., an Indian company (received in India) 3,00,000
Dividend from aforeigm company (received outside India) 60,000
From the information given above find out the taxable income of Xfor the assessment year 2022-23, if Xis resudent and
ordinarily resident in India or non-resident in India.
Solution: Computation of taxable income - It will be calculated as follows -
Resident and Non
ordinarily resident
resident
Rs. Rs

Salary for rendering service in India (Indian income and always chargeable to tax) 23,00,000 23,00,000
Royalty from Government of India (it is deemed to be earned in India, it is Indian
incorne and chargeable to tax) 18,00,000 18,00,000
Technical fees from a foreign company (it pertains to aproject in India, it is accrued 6,25,000
in India, it is an Indian income, Indian income is always taxable) 6,25,000
Technical fees from an Indian company (it pertains to a project outside India, it is
accrued outside India, it is received outside India, it is aforeign income, foreign
income is taxable in the case of resident and ordinarily resident but it is not taxable 8.00,000 Nil
in the case of non-resident) 3,00,000
Dividend from an Indian company 3,00,000
Dividend from a foreign company (it is accrued outside India, paid outside India, it is
foreign income which is taxable in the case of resident and ordinarily resident and not 60,000 Nil
taxable in the case of non-resident)
Net income 58,85,000 50,25,000