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Basis
Of Taxation
General
The liability to Income Tax in India is attracted on
the basis of residential status of a taxpayer in the
financial year, in which the income accrues or arises
to him or is received by him.
Conditions
for the determination of residential status are prescribed
in Section 6 of the Income Tax Act, 1961. In terms of
provisions of the said section, a taxpayer, on the basis
of residential status, can fall in any of the following
three categories:
- Resident
- Not ordinarily resident and
- Non-Resident
Conditions
for the determination of residential status.
An individual is said to be 'Resident' in India, in
any previous year, if either of the following conditions
is satisfied:
| a |
Period or periods of his stay in India, in any previous
year (a period of 12 months beginning from 1st April
to 31st March) aggregate to 182 days or more; or
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| b |
In
a period of four years immediately preceding the
year in which he arrived in India, he has been in
India for a total period of 365 days or more and,
in the relevant year, for a period of 60 days or
more. |
Thus, the
residential status of an individual generally depends
on his physical presence or stay in India and not on
his nationality or domicile.
An individual
would fall in the category referred to as 'Not ordinarily
Resident' if
| a |
he is not resident in India, as per conditions specified
above, for a period of 9 years out of the 10 years
immediately preceding the relevant year, or |
| b |
he
has not during the seven previous years preceding
the relevant year been in India for period of, or
periods amounting in all to 730 days or more. |
As such,
an individual who is not a resident in India for 2 years
continuously falls in the category of a 'Not Ordinarily
Resident' for a period of the next 9 years from the
year of his arrival in India.
Generally,
foreign nationals coming to India for the first time,
for taking up employment in India, fall in this category,
as such individuals are not resident in India, in the
2 years preceding their arrival in India.
An individual
falls in the category of 'Non-Resident' if he does not
fall in the category of 'Resident, and 'Not Ordinarily
Resident'.
Income
Definition
'Income'
has been defined under Section 2(24) of the Income Tax
Act, 1961 to include profits and gains, dividends, value
of any perquisites or profit in lieu of salary, capital
gains etc. It also includes any special allowance or
benefit, other than perquisites, specifically granted
to an employee to meet expenses on performance of his
duties, as well as any allowance granted to meet his
personal expenses or to compensate him for the increased
cost of living.
Scope
of Taxable Income in India
Provisions
of Section 5 of the Income Tax Act, 1961 govern the
scope of total income, taxable in the hands of the taxpayers
based on their residential status.
In terms
of the said Section - 5, a 'Resident' is liable to Income
Tax, in India, on his worldwide / global income, wherever
accruing or arising or received by him.
A tax payer
falling in the category of a 'Non-Resident' is liable
to Income-Tax on such income which accrues or arises,
or is received by him in India or which, by provisions
contained in the tax laws, is deemed to accrue or arise
or deemed to be received in India.
Liability
to Income Tax in the case of a taxpayer falling in the
category of 'Resident but Not Ordinarily resident' is
attracted on a similar basis as in the case of a Resident.
Accordingly, such person is liable to income tax on
such income as accrues or arises to him in India, or
is deemed to accrue or arise in India, or is received
in India, and not on his income, which accrues or arises
to him outside India, unless it is derived from a business
controlled in or a profession set up in India.
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