residential status
DESCRIPTION
Income tax IndiaTRANSCRIPT
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RESIDENTIAL STATUS and tax
incidence
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Tax incidence on an assessee depends on his residential status.
For instance, whether an income, accrued to an individual outside india, is taxable in india depends upon the residential status of the individual in india.
Similarly, whether an income earned by a foreign national in india (or outside india) is taxable in india, depends on the residential status of the individual, rather than on his citizenship. Therefore, the determination of the residential status of a person is very significant in order to find out his tax liability.
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WHAT MUST ONE KNOW FOR DECIDING RESIDENTIAL STATUS
Different taxable entities• An individual;• A Hindu Undivided Family(HUF);• A firm or an Associations Of Persons
(AOP);• A Joint Stock Company;&• Every other person.
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Different residential status:
FOR INDIVIDUAL AND A HINDU UNDIVIDED FAMILY
ALL OTHER ASSESSEES (A FIRM,AN ASSOCIATION OF PERSONS,A JOINT STOCK COMPANY& EVERY OTHER PERSON)•Resident and
ordinarily Resident in India
• Resident but not ordinarily resident in India;or• Non-resident in India.
•Resident in India; or
•Non-resident in India.
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HOW TO DETERMINE THE RESIDENTIAL STATUS OF THE INDIVIDUAL
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STEP 1
First find out whether such individual is “Resident” in India
STEP 2
If such individual is “Resident” in India, then find out whether he is
“ordinarily resident” in India. However, if such individual is a “Non-resident” in India, then no
further investigation is necessary.
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BASIC CONDITIONS TO TEST AS TO WHEN AN INDIVIDUAL IS RESIDENT
BASIC CONDITION (A)
He is in India in the previous year for a period of 182 days or more
BASIC CONDITION (B)
He is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year
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EXCEPTIONS
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ASSESSMENT YEARS
WHO CAN TAKE THE BENEFIT OF EXTENDED PERIOD
EXTENDED PERIOD
1990-91 Onwards An Indian citizen who leaves India during the previous year for the purpose of employment outside India or an Indian citizen who leaves India during the previous year as a member of the crew of an Indian ship
182 days
1995-96 Onwards Indian citizen or a person of Indian origin who comes on a visit to India during the previous year
182 days
1990-91 to 1994-95 Indian citizen or a person of Indian origin who comes on a visit to India during the previous year
150 days
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CONDITIONS TO TEST AS TO WHEN A RESIDENT INDIVIDUAL IS ORDINARILY
RESIDENT IN INDIA
Additional Condition 1
He has been resident in India in atleast 2 out of 10 previous years immediately preceding the relevant previous year
Additional Condition 2
He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year
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CONDITIONS TO TEST AS TO WHEN A RESIDENT BUT NOT ORDINARILY
RESIDENT [SEC. 6(1), (6) (a)]
Case 1
If he satisfies at least one of the basic conditions, but none of the additional conditions
Case 2
If he satisfies at least one of the basic conditions “AND” one of the two additional conditions
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NON - RESIDENT
An individual is a Non-Resident in India if he satisfies none of the basic conditions. In the case of non-resident; additional conditions are not relevant.
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RESIDENTIAL STATUS OF A HUF
[SEC 6 (2)]
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Place of Control Residential Status Of Family
Ordinarily Resident Or Not
•Wholly in India
•Wholly Out of India
•Partly in India and partly outside India
Resident
Non-Resident
Resident
If Kartha or Manager has been resident in India of 2 out of 10 previous yrs immediately preceding the previous year AND 730 days or more during 7 years preceding the relevant previous yrs.
---
If Kartha or Manager has been resident in India of 2 out of 10 previous yrs immediately preceding the previous year AND 730 days or more during 7 years preceding the relevant previous yrs.
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When a Resident HUF is When a Resident HUF is Ordinarily Resident in IndiaOrdinarily Resident in India
Additional Condition (i)
Kartha has been resident in India in at least 2 out of 10 previous yrs immediately preceding the relevant previous yrs
Additional Condition (ii)
Kartha has been present in India for a period of 730 days or more during 7 yrs immediately preceding the relevant previous yrs
IF KARTHA OR MANAGER OF RESIDENT HUF DOES NOT SATISFY “THE TWO” ADDITIONAL CONDITIONS, THE FAMILY IS TREATED AS RESIDENT BUT NOT ORDINARILY A RESIDENT IN INDIA
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RESIDENTIAL STATUS OF RESIDENTIAL STATUS OF FIRM AND ASSOCIATION FIRM AND ASSOCIATION OF PERSON [SEC 6 (2)]OF PERSON [SEC 6 (2)]
Place of Control Residential Status Of Family
•Wholly in India
•Wholly Out of India
•Partly in India and partly outside India
Resident
Non-Resident
Resident
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RESIDENTIAL STATUS OF A RESIDENTIAL STATUS OF A COMPANY [SEC 6 (3)]COMPANY [SEC 6 (3)]
NOTE: A Company can never be "ordinarily" or "not ordinarily resident" in India
Place of Control
An Indian Company
A company other than
Indian Company
•Wholly in India
•Wholly Out of India
•Partly in India and partly outside India
Resident
Resident
Resident
Resident
Non-Resident
Non-Resident
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RESIDENTIAL STATUS OF RESIDENTIAL STATUS OF EVERY OTHER PERSON EVERY OTHER PERSON
[SEC. 6(4)][SEC. 6(4)]
Every other person is resident in India if control and management of
his affairs is, wholly or partly, situated within India during the relevant previous. On the other hand, every other person is non-resident in India if control and
management of its affairs is wholly situated outside India.
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RELATIONSHIP BETWEEN RELATIONSHIP BETWEEN RESIDENTIAL STATUS AND RESIDENTIAL STATUS AND INCIDENCE OF TAX [Sec. 5]INCIDENCE OF TAX [Sec. 5]
In order to understand the relationship between residential status and tax liability, one understand the difference between “Indian Income” and “Foreign Income”
1.INDIAN INCOME2.FOREIGN INCOME
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PROVISIONS IN BRIEFPROVISIONS IN BRIEF
Whether income is received (or deemed to be
received) in India during the
relevant year
Whether income accrues (or arises or is deemed to
accrue or arise) in India during the
relevant year
Status of Income
Yes Yes Indian Income
Yes No Indian Income
No Yes Indian Income
No No Foreign Income
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INCIDENCE OF TAX FOR INCIDENCE OF TAX FOR DIFFERENT TAX DIFFERENT TAX
PAYERSPAYERS
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For INDIVIDUAL and HUF
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ParticularsResident and Ordinarily a resident in India
Resident but not and Ordinarily a resident in India
Non-Resident in India
• Indian Indian IncomeIncome
•
Taxable in India
Taxable in India
Taxable in India
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ParticularsResident and Ordinarily a resident in India
Resident but not and Ordinarily a resident in India
Non-Resident in India
•Foreign Income -If it is business income and business is controlled wholly or partly from India - If it is income from profession which is set up in India - If it is business income and business is controlled outside India
- If it is income from profession which is set up outside India
- Any other Foreign Income (like salary, rent, interest, etc.)
Taxable in India
Taxable in India
Taxable in India
Taxable in India
Taxable in India
Taxable in India
Taxable in India
Not Taxable in India
Not Taxable in India
Not Taxable in India
Not Taxable in India
Not Taxable in India
Not Taxable in India
Not Taxable in India
Not Taxable in India
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FOR OTHER TAX PAYERS
RESIDENT IN INDIA
NON-RESIDENT IN INDIA
INDIAN INCOME Taxable in India Taxable in India
FOREIGN INCOME
Taxable in India Not taxable in India
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CONNOTATION OF RECEIPT OF INCOME
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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…
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• RECEIPTS vs. REMITTANCE
• CASH vs. KIND
• RECEIPTS vs. ACCRUAL
• ACTUAL RECEIPT VS. DEEMED RECEIPTS
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CONNOTATION OF INCOME DEEMED TO ACCRUE OR
ARISE IN INDIA
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INCOME FROM BUSINESS CONNECTION
[SEC.9(1)(I)]
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THE FOLLOWING CONDITIONS SHOULD BE SATISFIED
• CONDITION ONE – The Tax Payer Has a “Business Connection” in India
• CONDITION TWO – By Virtue of “Business Connection” in India, Income Actually Arises Outside India.
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WHAT IS BUSINESS CONNECTION???
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ACTIVITY ONE
He Exercises In India An Authority To Conclude Contracts On Behalf Of The
Non Resident.
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ACTIVITY TWO
He Has No Such Authority but Habitually Maintains in India a Stock of Goods or Merchandise From Which He Regularly
Delivers Goods or Merchandise on Behalf of the Resident
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ACTIVITY THREE
He Habitually Secures Orders in India for the Non-resident\non- Residents
Under the Same Management
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Independent Brokers /Agents are EXCLUDEDEXCLUDED
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Operations not taken as BUSINESS
CONNECTION???
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• Where all operations are not carried out in
India.• Purchase of goods for export(in case of non-
resident)• Collection of news & views in India for
transmission out of India.• Shooting of cinematograph films in India.
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OTHER IMPORTANT POINTS TO BE NOTED
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• Income Through Or From Any Property,asset Or Source Of Income In India.[Sec.9 (1)(i)]
• Income Through the Transfer of Capital Asset Situated in India [Sec.9 (1)(i)]
• Income Under the Head “Salaries”[sec.9(1)(ii)]
• Salary Payable Abroad by the Government to a Citizen of India [Sec.9 (1)(iii)]
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• Dividend Paid by an Indian Company [SEC.9 (1)(iv)
• Income by Way of Interest [Sec.9 (1)(v)]
• Income by the Way of Royalty [Sec.9 (1)(vi)]
• Income by Way of Fees for Technical Services[sec.9 (1)(vii)]
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CONCLUSION…….
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•Indian Income Indian Income is always taxable in India is always taxable in India
irrespective of the residential of the irrespective of the residential of the TaxpayerTaxpayer
•Foreign Income Foreign Income is taxable in the hands ofis taxable in the hands of
resident (in case of a firm, AOP, Joint resident (in case of a firm, AOP, Joint Stock Stock
Company and every other person) or Company and every other person) or resident resident
and ordinarily and resident (in caser of anand ordinarily and resident (in caser of an
individual and a HUF in Indiaindividual and a HUF in India
•Foreign Income Foreign Income is not taxable in the hands is not taxable in the hands ofof
Non- residentNon- resident
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TAX AUTHORITIES BEHIND TAX EVADING ASSESSEES