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INTRODUCTION
The scope of income i.e. what is to be included in income depends upon (a) who earns the income i.e. whether a resident in India or a non-resident (b) when the income arises, i.e. whether in previous year or not and (c) where the income arises whether in India or outside India. Thus, scope of income depends upon the residential status as well as the place and year of accrual. To understand the concept of the scope of income it is necessary to study following sections of Income Tax Act Act !"#
. $ec $ectio tion n % defin defines es the the scope scope of of income income.. &. $ec $ectio tion n "define "definesres sreside identia ntiall status status of a person. person. '. $ectio $ection n explain explainss when when income income is deemed deemed to be received received.. . $ectio $ection n *explains *explains when when dividen dividend d is to be included included in in income. income. %. $e $ecti ction on !e !exp xpla lain insw swhe hen n in incom come, e, ap appa paren rently tly arisin arising g ou outt of In Indi dia, a, is de deem emed ed to be arising in India.
The following points should be noted in regard to scope of income# 1. +hile section maes the total income of the previous year chargeable to tax, section
% defines the scope of total income chargeable to tax. It determines the extent and scope of income which is chargeable to tax. The term scope of income means which items of income are included and which items are excluded while computing tax liability. 2. The scope of income depends upon the residential status of the person. There are three broad categories of persons# a) /esident and ordinary resident b) /esident but not ordinarily resident c) 0on resident $ection % lays down what types of income would be taxable in case of assessees belonging to each of these categories.
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3. It should be noted that section % specifically states that the income is to be computed
sub1ect to provisions of this act. Thus, if any of the items of income is exempt under the provisions of the act, it is to be excluded from the scope of income.
Key terms used: •
Individua Indi vidual: l: It refers to a natural human being whether male or 2emale, 3inor or
3a1or. •
indu Undivided Undivided !amily "U!): "U!): It is a relationship created due to operation of
4indu 5aw. The 3anager of 462 is called 7arta ” and their members are called ‘Coparceners’ . •
C#m$any: It is an artificial person registered under Indian 8ompanies Act !%" or
any other 5aw. •
!irm: It is an entity which comes into existence as a result of partnership agreement.
The Income Income Tax accepts accepts onl only y the these se enti entities ties as Firms which are accessed as 2irms under $ection * of the Act. •
%ss# %s s#ci ciat ati# i#n n #& 'e 'ers rs#n #nss "% "%O' O')) #r (# (#dy dy #& In Indi divi vidu dual alss "( "(OI OI): ): 8o-operative
societies, 3A/729:, 0A29:, etc are the example of such persons. +hen persons combine together to carry on a 1oint enterprise and they do not constitute partnership under the ambit of law, they are assessable as an Association of ;ersons. An A.<.;. can have firms, companies, associations and individuals as its members. A =ody of Individual (=.<.I.) cannot have non-individuals as its members.
#call %ut*#rity: #ca %ut*#rity: 3unicipality, ;anchayat, 8antonment =oard, ;ort Trust etc. are
called 5ocal Authority. Authority.
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3. It should be noted that section % specifically states that the income is to be computed
sub1ect to provisions of this act. Thus, if any of the items of income is exempt under the provisions of the act, it is to be excluded from the scope of income.
Key terms used: •
Individua Indi vidual: l: It refers to a natural human being whether male or 2emale, 3inor or
3a1or. •
indu Undivided Undivided !amily "U!): "U!): It is a relationship created due to operation of
4indu 5aw. The 3anager of 462 is called 7arta ” and their members are called ‘Coparceners’ . •
C#m$any: It is an artificial person registered under Indian 8ompanies Act !%" or
any other 5aw. •
!irm: It is an entity which comes into existence as a result of partnership agreement.
The Income Income Tax accepts accepts onl only y the these se enti entities ties as Firms which are accessed as 2irms under $ection * of the Act. •
%ss# %s s#ci ciat ati# i#n n #& 'e 'ers rs#n #nss "% "%O' O')) #r (# (#dy dy #& In Indi divi vidu dual alss "( "(OI OI): ): 8o-operative
societies, 3A/729:, 0A29:, etc are the example of such persons. +hen persons combine together to carry on a 1oint enterprise and they do not constitute partnership under the ambit of law, they are assessable as an Association of ;ersons. An A.<.;. can have firms, companies, associations and individuals as its members. A =ody of Individual (=.<.I.) cannot have non-individuals as its members.
#call %ut*#rity: #ca %ut*#rity: 3unicipality, ;anchayat, 8antonment =oard, ;ort Trust etc. are
called 5ocal Authority. Authority.
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•
%rti&icial +udicial 'ers#n: $tatutory 8orporations lie 5ife Insurance 8orporation,
6niversity etc. are called Artificial >udicial ;ersons. •
%ssesses ,-ecti#n 2")/: 0 Assesses? means a ;erson by whom any Tax or any other
sum of money is payable pa yable under this Act. And And this is divided into ' categories. %ssesses: ses: It includes any person against whom some proceedings a) Ordinary %sses
under this Act are going on. It is immaterial whether any Tax or other amount is payable by him or not @Any person who has sustained loss and has filed return of 5oss us '!(').Any person by whom some amount of Interest, Tax or ;enalty is payab payable le under this Act@ Act@ or Any person who entitled to refun refund d of Tax under this Act. b) Re$resentative %ssesses #r Deemed %ssesses : A person may not be liable only for his own income or loss but also on the income or loss of other persons e.g. Buardian of 3inor or 5unatic, Agent of a 0on-/esident etc. in such case the persons responsible for the assessment of Income of such persons are called /epresentative Assesses. $uch person is deemed to be an Assesses. c) %ssessesinde&ault: A person is deemed to be an assesses-in-default as sesses-in-default if he fails to fulfill his statutory obligations. In case of an employer paying $alary or a person who is paying interest it is their duty to deduct tax at source and deposit the amount of tax so collected in Bovernment treasury. If he fails to deduct tax at source or deducts tax but does not deposit it in the treasury, he is nown as Assesses-in-default. •
%ssessment e ear ,-ecti#n 2")/: Assessment Cear means the period of & months
commencing on the st day of April every year. In India, the Bovt. maintains its accounts for a period of & months i.e. st April to 'st 3arch every year. As such it is
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nown as 2inancial Cear . The Income Tax department has also selected same year for its Assessment procedure. The Assessment Cear is the 2inancial Cear of the Bovt. of India during which income a person relating to the relevant previous year is assessed to tax. 9very person who is liable to pay tax under this Act, files /eturn of Income by prescribed dates. These /eturns are processed by the Income Tax :epartment
'revi#us ear ,-ecti#n 3/: As the word D;revious? means Dcoming before? , hence it
can be simply said that the ;revious Cear is the 2inancial Cear preceding the Assessment Cear e.g. for Assessment Cear &E'-&E the ;revious Cear should be the 2inancial Cear ending 'st 3arch &E'.
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R4-ID4NTI% -T%TU- %ND -CO'4 O! TOT% INCO54 The incidence of tax on any assesses depends upon his residential status under the Act. Therefore, after determining whether a particular amount is capital or revenue in nature, if the receipt is of a revenue nature and chargeable to tax, it has to be seen whether the assesses is liable to tax in respect of that income. The taxability of a particular receipt would thus depend upon not only the nature of the income and the place of its accrual or receipt but also upon the assessee?s residential status. 2or all purposes of income-tax, taxpayers are classified into three broad categories on the basis of their residential status viF. . /esident and ordinarily resident &. /esident but not ordinarily resident '. 0on-resident The residential status of an assesses must be ascertained with reference to each previous year. A person who is resident and ordinarily resident in one year may become nonresident or resident but not ordinarily resident in another year or vice versa. The provisions for determining the residential status of assesses are# () /esidential status of Individuals 6nder section "(), an individual is said to be resident in India in any previous year, if he satisfies any one of the following conditions# i) 4e has been in India during the previous year for a total period of *& days or more, or •
4e has been in India during the years immediately proceeding the previous year for a total period of '"% days or more and has been in India for at least "E days in the previous year. If the individual satisfies any one of the conditions mentioned above, he is a resident. If both the above conditions are not satisfied, the individual is a non-resident.
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N#te #
a) The term stay in India includes stay in the territorial waters of India (i.e. & nautical miles into the sea from the Indian coastline). 9ven the stay in a ship or boat moored in the territorial waters of India would be sufficient to mae the individual resident in India.
b)
It is not necessary that the period of stay must be continuous or active nor is it essential that the stay should be at the usual place of residence, business or employment of the individual.
c)
2or the purpose of counting the number of days stayed in India, both the date of departure as well as the date of arrival are considered to be in India.
d) The residence of an individual for income-tax purpose has nothing to do with citiFenship, place of birth or domicile. An individual can, therefore, be resident in more countries than one even though he can have only one domicile.
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46ce$ti#ns # The following categories of individuals will be treated as residents only if the period of their stay during the relevant previous year amounts to *& days. In other words even if such persons were in India for '"% days during the preceding years and "E days in the relevant previous year, they will not be treated as resident.
. Indian citiFens, who leave India in any previous year as a member of the crew of an Indian ship or for purposes of employment outside India, or
&. Indian citiFen or person of Indian originG engaged outside India in an employment or a business or profession or in any other vocation, who comes on a visit to India in any previous year
7 A person is said to be of Indian origin if he or either of his parents or either of his
grandparents were born in undivided India.
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N#t#rdinarily resident
i) If such individual has been non-resident in India in any ! out of the E previous years preceding the relevant previous year, or
ii) If such individual has during the previous years proceeding the relevant previous year been in India for a period of &! days or less.
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R4-ID4NC4 %ND -CO'4 O! TOT% INCO54 "1) Residential status #& an individual
In simpler terms, an individual is said to be a resident and ordinarily resident if he satisfies both the following conditions# H
4e is a resident in any & out of the last E years preceding the relevant previous year,
H
4is total stay in India in the last years proceeding the relevant previous year is 'E days or more. If the individual satisfies both the conditions mentioned above, he is a resident and
ordinarily resident but if only one or none of the conditions are satisfied, the individual is a resident but not ordinarily resident.
(2) Residential status #& U! A 462 would be resident in India if the control and management of its affairs is situated wholly or partly in India. If the control and management of the affairs is situated wholly outside India it would become a non-resident. The expression Dcontrol and management? referred to under section " refers to the central control and management and not to the carrying on of day-to-day business by servants, employees or agents. The business may be done from outside India and yet its control and management may be wholly within India. Therefore, control and management of a business is said to be situated at a place where the head and brain of the adventure is situated. The place of control may be different from the usual place of running the business and sometimes even the registered office of the assesses. This is because the control and management of a business need not necessarily be done from the place of business or from the registered office of the assesses. =ut control and management do imply the functioning of the controlling and directing power at a particular
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place with some degree of permanence. If the 462 is resident, then the status of the 7arta determines whether it is resident and ordinarily resident or resident but not ordinarily resident. If the 7arta is resident and ordinarily resident, then the 462 is resident and ordinarily resident and if the 7arta is resident but not ordinarily resident, then 462 is resident but not ordinarily resident.
"3) Residential status #& &irms and ass#ciati#n #& $ers#ns A firm and an A<; would be resident in India if the control and management of its affairs is situated wholly or partly in India. +here the control and management of the affairs is situated wholly outside India, the firm would become a non-resident.
"8) Residential status #& c#m$anies A company is said to be resident in India if (i)
it is an Indian company as defined under section &(&"), or
(ii)
Its control and management is situated wholly in India during the accounting year.
Thus, every Indian company is resident in India irrespective of the fact whether the control and management of its affairs is exercised from India or outside. =ut a company, other than an Indian company, would become resident in India only if the entire control and management of its affairs is in India.
"9) Residential status #& l#cal aut*#rities and arti&icial uridical $ers#ns 5ocal authorities and artificial 1uridical persons would be resident in India if the control and management of its affairs is situated wholly or partly in India. +here the control and management of the affairs is situated wholly outside India, they would become nonresidents.
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-CO'4 O! TOT% INCO54 $ection % provides the scope of total income in terms of the residential status of the assesses because the incidence of tax on any person depends upon his residential status. The scope of total income of an assesses depends upon the following three important considerations #
(i)
The residential status of the assesses (as discussed earlier)@
(ii)
The place of accrual or receipt of income, whether actual or deemed@ and
(iii)
The point of time at which the income had accrued to or was received by or on behalf of the assesses.
The ambit of total income of the three classes of assesses would be as follows#
() Resident and #rdinarily resident The total income of a resident assesses would, under section %(), consist of # (i)
Income received or deemed to be received in India during the previous year@
(ii)
Income which accrues or arises or is deemed to accrue or arise in India during the previous year@ and
(iii)
Income which accrues or arises outside India even if it is not received or brought into India during the previous year. In simpler terms, a resident and ordinarily resident has to pay tax on the total income accrued or deemed to accrue, received or deemed to be received in or outside India.
(&) Resident but n#t #rdinarily resident ; 6nder section %(), the computation of total income of resident but not ordinarily resident is the same as in the case of resident and ordinarily resident stated above except for the fact that the income accruing or arising
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to him outside India is not to be included in his total income. 4owever, where such income is derived from a business controlled from or profession set up in India, then it must be included in his total income even though it accrues or arises outside India. (') N#nresident A non-resident?s total income under section %(&) includes # (i)
income received or deemed to be received in India in the previous year@ and
(ii)
Income which accrues or arises or is deemed to accrue or arise in India during the previous year.
R4-ID4NT %ND
R4-ID4NT (UT NOT
ORDIN%RI
ORDIN%RI
R4-ID4NT
R4-ID4NT
NONR4-ID4NT
Income received deemed
Income which is received
Income
received
To be received accrued or
deemed to be received
deemed to be received
arisen deemed to accrue or
accrued or arisendeemed to
accrued or arisendeemed
arise in or outside India.
accrue or arise in India.
to accrue or arise in India
And Income which accrues or arises outside India being derived from a business controlled from or profession set up in India.
N#te: All assesses, whether resident or not, are chargeable to tax in respect of their income accrued, arisen, received or deemed to accrue, arise or to be received in India whereas residents alone are chargeable to tax in respect of income which accrues or arises outside India.
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D4454D R4C4I'T %ND %CCRU% O! INCO54 IN INDI% The taxability of a certain item as income would depend upon the method of accounting followed by the assesses. This is because under the cash system of accounting an income would be taxable only when it is received by the assesses himself or on his behalf. =ut under the mercantile system it would be taxable once the assesses gets the legal right to claim the amount. 4owever, it has been specifically provided that in the case of income from salaries, the liability to tax arises immediately when the income is due to the assesses irrespective of the method of accounting followed. 5iewise, in the case of dividends, the income would be included in total income of the shareholder under section * in the year in which the final dividend is declared and, in the case of interim dividend, in the year in which they are made unconditionally available to the shareholders.
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54%NIN< O! =INCO54 R4C4I>4D OR D4454D TO (4 R4C4I>4D? All assesses are liable to tax in respect of the income received or deemed to be received by them in India during the previous year irrespective of (i)
Their residential status, and
(ii)
The place of its accrual. Income is to be included in the total income of the assesses immediately on its actual
or deemed receipt. The receipt of income refers to only the first occasion when the recipient gets. The money under his control. Therefore, when once an amount is received as income, remittance or transmission of that amount from one place or person to another does not constitute receipt of income in the hands of the subseJuent recipient or at the place of subseJuent receipt. Income deemed to be received 6nder section , the following shall be deemed to be received by the assesses during the previous year irrespective of whether he had actually received the same or not (i)
The annual accretion in the previous year to the balance to the credit of an employee participating in a recogniFed provident fund (/;2). Thus, the contribution of the employer in excess of &K of salary or interest credited in excess of !.%K p.a. (up to '.*.&EE)and *.%K p.a. (from .!.&EE) is deemed to be received by the assesses.
(ii)
The taxable transferred balance from unrecogniFed to recogniFed provident fund (being the employer?s contribution and interest thereon).
(iii)
The contribution made by the 8entral Bovernment or any other employer in the previous year to the account of an employee under a pension scheme referred to under section *E88:.
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54%NIN< O! INCO54 0%CCRUIN<@ %ND 0%RI-IN<@ Accrue refers to the right to receive income, whereas due refers to the right to enforce payment of the same. 2or e.g. salary for wor done in :ecember will accrue throughout the month, day to day, but will become due on the salary bill being passed on ' $T :ecember or st >anuary. $imilarly, on Bovernment securities, interest payable on specified dates arise during the period of holding, day to day, but will become due for payment on the specified dates. 9xample# Interest on Bovernment securities is usually payable on specified dates, say on st >anuary and st >uly. In all such cases, the interest would be said to accrue from st >uly to 'st :ecember and on st >anuary, it will fall due for payment. It must be noted that income which has been taxed on accrual basis cannot be assessed again on receipt basis, as it will amount to double taxation.
!#r e6am$leA when a loan to a director has already been treated as dividend under section &(&&)(e) and later dividend is declared, distributed and ad1usted against the loan, the same cannot be treated as dividend income again. +ith a view to removing difficulties and clarifying doubts in the taxation of income, 9xplanation to $ection % specifically provides that an item of income accruing or arising outside India shall not be deemed to be received in India merely because it is taen into account in a balance sheet prepared in India. 2urther, 9xplanation & to $ection % maes it clear that once an item of income is included in the assessee?s total income and sub1ected to tax on the ground of its accrualdeemed accrual or receipt, it cannot again be included in the person?s total income and sub1ected to tax either in the same or in a subseJuent year on the ground of its receipt - whether actual or deemed.
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INCO54 D4454D TO %CCRU4 OR %RI-4 IN INDI% ,-4CTION / 8ertain types of income are deemed to accrue or arise in India even though they may actually accrue or arise outside India. The categories of income which are deemed to accrue or arise in India are# (i)
Any income accruing or arising to an assesses in any place outside India whether directly or indirectly (a) through or from any business connection in India, (b) through or from any property in India, (c) through or from any asset or source of income in India or (d) through the transfer of a capital asset situated in India.
(ii)
Income, which falls under the head $alaries, if it is earned in India. Any income under the head $alaries payable for rest period or leave period which is preceded and succeeded by services rendered in India, and forms part of the service contract of employment, shall be regarded as income earned in India.
(iii)
Income from D$alaries? which is payable by the Bovernment to a citiFen of India for services rendered outside India (4owever, allowances and perJuisites paid outside India by the Bovernment is exempt).
(iv)
:ividend paid by an Indian company outside India.
(v)
Interest
(vi)
/oyalty
(vii)
2ees for technical services
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Nature #& Inc#me
C#nditi#n
Illustrati#n A non resident having a branch office in India for
+hen there is business
doing business in India.
connection in India
Income of the branch office
=usiness Income
shall be income accruing or arising in India. /ental income earned by a ;roperty or asset source is in ;roperty income
non resident from a property India.
Income from transfer of a
+hen the capital asset is in
situated in India A non resident selling a plot
capital asset
India. +here services are rendered
of land situated in India. A non resident woring in
in India. Indian citiFen, woring for
India for an Indian 8ompany
the Bovernment of India and
Indian citiFen woring for the
rendering services outside
Indian 9mbassy in 6$A.
Income from $alaries
India. A non resident receiving :ividend payablepaid by an :ividend Income
dividends in 6$ for shares Indian 8ompany. held in an Indian 8ompany
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A foreign company receiving If the income is received royalty from a non resident from# L Bovernment of India for the Indian =usiness of L A resident assessed except such non resident. where such payment is for Interest, /oyalty and 2ees for
A foreign company receiving business or profession
Technical $ervices
interest from a resident outside India L A non individual, for loan taen for resident assesses where the his business in $ingapore, payment pertains to business will not be income arising in or profession in India India.
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Inc#me &r#m business c#nnecti#n (i)
D=usiness connection? shall include any business activity carried out through a person acting on behalf of the non-resident.
(ii)
4e must have an authority which is habitually exercised to conclude contracts on behalf of the non-resident. 4owever, if his activities are limited to the purchase of goods or merchandise for the non-resident, this provision will not apply.
(iii)
+here he has no such authority, but habitually maintains in India a stoc of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident, a business connection is established.
(iv)
=usiness connection is also established where he habitually secures orders in India, mainly or wholly for the non-resident. 2urther, there may be s ituations when other non- residents control the above-mentioned non-resident. $econdly, this nonresident may also control other non-residents. Thirdly, all other non-residents may be sub1ect to the same common control, as that of the non-resident. In all the three situations, business connection is established, where a person habitually secures orders in India, mainly or wholly for such non-residents.
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46ce$ti#n : M=usiness connectionM, however, shall not be held to be established in cases where the non-resident carries on business through a broer, general commission agent or any other agent of an independent status, if such a person is acting in the ordinary course of his business. A broer, general commission agent or any other agent shall be deemed to have an independent status where he does not wor mainly or wholly for the non-resident. 4e will however, not be considered to have an independent status in the three situations explained in (iv) above, where he is employed by such a non-resident. +here a business is carried on in India through a person referred to in (ii), (iii) or (iv) mentioned above, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India. () (b) N(c) Income from property, asset or source of income. Any income which arises from any property (movable, immovable, tangible and intangible property) would be deemed to accrue or arise in India eg. hire charges or rent paid outside India for the use of the machinery or buildings situated in India, deposits with an Indian company for which interest is received outside India etc. ()(d) Income from the transfer of a capital asset. 8apital gains arising from the transfer of a capital asset situated in India would be deemed to accrue or arise in India in all cases irrespective of the fact whether (i) the capital asset is movable or immovable, tangible or intangible@ (ii) the place of registration of the document of transfer etc., is in India or outside@ and (iii) the place of payment of the consideration for the transfer is within India or outside. (&) N (') Income from salaries. 6nder section !()(ii) income which falls under the head Dsalaries?, would be deemed to accrue or arise in India, if it is in respect of services rendered in India.
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46ce$ti#n under secti#n "2): ;ension payable outside India by the Bovernment to its officials and 1udges who permanently reside outside India shall not be deemed to accrue or arise in India. It may however, be noted here that the salary of an employee in the 6nited 0ations
Inc#me &r#m dividends All dividends paid by an Indian company must be deemed to accrue or arise in India. 6nder section E('), income from dividends referred to in section %-< are exempt from tax in the hands of the shareholder. It may be noted that dividend distribution tax under section %-< does not apply to deemed dividend under section &(&&)(e), which is chargeable in the previous year in which such dividend is distributed or paid.
Interest Under secti#n "1)"v) An interest is deemed to accrue or arise in India if it is payable by (i)
The 8entral Bovernment or any $tate Bovernment.
(ii)
a person resident in India (except where it is payable in respect of any money borrowed and used for the purposes of a business or profession carried on by him outside India or for the purposes of maing or earning any income from any source outside India)
(iii)
a non-resident when it is payable in respect of any debt incurred or moneys borrowed and used for the purpose of a business or profession carried on in India by him. Interest on money borrowed by the non-resident for any purpose other than a business or profession, will not be deemed to accrue or arise in India. Thus, if a non-resident DA? borrows money from a non-resident D=? and invests the same
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in shares of an Indian company, interest payable by DA? to D=? will not be deemed to accrue or arise in India.
R#yalty /oyalty will be will be deemed to accrue or arise in India when it is payable by (i)
The Bovernment@ or
(ii)
A person who is a resident in India except in cases where it is payable for the transfer of any right or the use of any property or information or for the utiliFation of services for the purposes of a business or profession carried on by such person outside India or for the purposes of maing or earning any income from any source outside India@ or
(iii)
A non-resident only when the royalty is payable in respect of any right, property or information used or services utiliFed for purposes of a business or profession carried on in India or for the purposes of maing or earning any income from any source in India. 5ump sum royalty payments made by a resident for the transfer of all or any rights (including the granting of a license) in respect of computer software supplied by a non-resident manufacturer along with computer hardware under any scheme approved by the Bovernment under the ;olicy on 8omputer $oftware 9xport, $oftware :evelopment and Training, !*" shall not be deemed to accrue or arise in India. 8omputer software means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customiFed electronic data.
The term Droyalty? means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head D8apital gains?) for#
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•
The transfer of all or any rights (including the granting of license) in respect of a patent, invention, model, design, secret formula or process or trade mar or similar property@
•
The imparting of any information concerning the woring of, or the use of, a patent, invention, model, design, secret formula or process or trade mar or similar property@
•
The use of any patent, invention, model, design, secret formula or process or trade mar or similar property@
•
The imparting of any information concerning technical, industrial, commercial or scientific nowledge, experience or sill@
•
The use or right to use any industrial, commercial or scientific eJuipment but not including the amounts referred to in section ==@
•
The transfer of all or any rights (including the granting of licence) in respect of any copyright, literary, artistic or scientific wor including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films@
•
The rendering of any service in connection with the activities listed above. The definition of Droyalty? for this purpose is wide enough to cover both industrial royalties as well as copyright royalties. The deduction specially excludes income which should be charge- able to tax under the head Dcapital gains?.
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!ees &#r tec*nical services Any fees for technical services will be deemed to accrue or arise in India if they are payable by(i)
The Bovernment.
(ii)
A person who is resident in India, except in cases where the fees are payable in respect of technical services utiliFed in a business or profession carried on by such person outside India or for the purpose of maing or earning any income from any source outside India.
(iii)
A person who is a non-resident, only where the fees are payable in respect of services utiliFed in a business or profession carried on by the non-resident in India or where such services are utiliFed for the purpose of maing or earning any income from any source in India. A fee for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including providing the services of technical or other personnel). 4owever, it does not include consideration for any construction, assembly, mining or lie pro1ect undertaen by the recipient or consideration which would be income of the recipient chargeable under the head D$alaries?.
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R4-ID4NTI% -T%TUThe incidence of tax of an assesses depends upon his residential status. Therefore, residential status of an assesses plays an important role. /esidential $tatus is to be determined on a year to year basis, as it may change every year, a person may be /esident in one year and 0on-/esident in the other year. /esidential status is different from citiFenshipnationality.
,%/ Residential -tatus #& an Individual %ssesses: An assesses being an individual, could be /esident (/.) in India or 0on-/esident (0./.) in India. If he is /esident in India, then heshe could be D/esident and
RNI R N 4O 4 D - -N I I D1> D 4 N T %( NU DT N O T ORI DR4 4 UD- N %II T N D % 4 RN 2IT 2 R 4 - I D 4 N T R" N4 "-R R I) ) D 4 N T
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/esidential $tatus of an Individual is determined by $ection " of the act. An Individual is called D/esident?, if heshe satisfies at least one out of the following two D=asic? conditions #-
(%-IC CONDITION- : .) 4e$he stays in India for *& days or more during the relevant ;revious Cear. (+hether it?s a 5eap year or not, limit will be *& days only)
immediately preceding the relevant previous year.
4BC4'TION- TO T4 %(O>4 CONDITION- : In the following two cases, the second basic condition as given above is not applicable#.) An Indian 8itiFen, who leaves India during the previous year, for the purpose of employment (employment includes 1ob, business or profession also) outside India or leaves India for employment as a crew member of an Indian $hip. &.) An Indian 8itiFen or a person of Indian origin, who stays abroad, but comes to India for a visit during the relevant ;revious Cear. (A person is said to be of Indian
28
mentioned above, will be treated as a /esident for that ;revious Cear and person who does not satisfy both the basic conditions will be treated as 0on-/esident (0./.) for that ;revious Cear. =ut in case of two exceptions, the second basic condition is not applicable at all, hence, such persons will be /esident only if heshe satisfies the first basic condition of D*& days or more? during the relevant ;revious Cear, else, heshe will be a 0on-/esident for that ;revious Cear.
%DDITION% CONDITION-: 6nder $ection "("), a /esident, is called as D
%ND &.) 4e$he has been in India for a period of 'E days or more during the last ;revious Cears, immediately preceding the relevant ;revious Cear. Therefore, we can say that /.<./.# An Assesses, who satisfies at least one of the two basic conditions plus both the Additional conditions. /.0.<./.# An Assesses, who satisfies at least one of the two basic conditions and does not satisfy either both or anyone of the Additional conditions. 0./.# An Assesses, who does not satisfy any of the basic conditions.
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N#te: .) The :ate of entering India, as well as the date of leaving India, shall be counted as stay in India. +here, stay in India is not for the whole day, and then physical presence shall be counted on hourly basis. &.) $tay outside the soil (land) of India, but within the territorial waters of India, shall also be treated as stay in India. (Territorial +ater limits of India O water limit up to a distance of &E 0autical 3iles from the land of India). 2or e.g.# $tay in a =oat moored or anchored within territorial waters of India. '.) 2ebruary month has &! days in case of a leap year. .) There cannot be different residential status for different source of income falling within the same ;revious Cear i.e. if an assesses is 0on-/esident for one income, then he is 0on-/esident for all the incomes within the same year, as residential status is to be determined for a particular year and not for a particular income. %.) A person may be resident in more than one country in the same year. There are '"%'"" days in a year. A person may become resident in India by staying for *& days in India and for rest of the year he may stay in another country and may become resident of that country also. $o, it would be wrong to say that a person who is resident in India is non-resident in all other countries. ".) $tay in India need not be continuous. .) $tay need not be at the same place in India, it could be at any place or places of India.
30
31
-U55%R !OR -CO'4 O! TOT% INCO54 As we discussed at the beginning, that the tax incidence of an assesses, depends upon hisher residential status, let us now understand the tax implication of an income of an assesses under different residential status, namely, /esident and
'articulars
.) I0:IA0 I08<39
R.O.R.
Taxable
R.N.O.R.
N.R.
Taxable
Taxable
Taxable
Taxable
0ot Taxable
Taxable
0ot Taxable
0ot Taxable
&.)2
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Indian Inc#me means t*e &#ll#in: .) An Income received in India, but has accrued or is deemed to have accrued, or has arisen or is deemed to have arisen outside India, OR
&.) An Income received outside India, but has accrued or is deemed to have accrued or has arisen or is deemed to have arisen in India,
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!#rein Inc#me means t*e &#ll#in: An Income which is received outside India, as well as accrued or deemed to have accrued or has arisen or is deemed to have arisen outside India. If one observes the meaning of DIndian Income? as well as D2oreign Income?, then one will find that the line of distinction between the two depends upon two things, namely, i.) ;lace of /eceipt of income and ii.) ;lace of accrual of income. The meaning of both the terms can be better understood with the help of the following #-
'%C4 O! %CCRU%
'%C4 O! R4C4I'T
INDI%NE!OR4I
In India
Indian Income
In India
Indian Income
In India
In India
Indian Income
2oreign Income
Therefore, an income is a Dforeign income? only if the place of accrual, as well as the place of its receipt both are outside India, otherwise, it will be an Indian income, if either of them is in India.
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N#te # A.) /eceipt of Income# In order to decide whether an income is received in India or abroad, only the first place of receipt shall be considered. In other words, subseJuent remittance to India shall be ignored. 2or e.g.# If an income is received by 3r. P in 6.$.A. and later on remitted by him to his family members in India, then such income will be considered to have been received in 6.$.A. only and not in India. =.) Accrual of Income# ;lace of accrual of income depends upon the location of Dsource? of income. If source is located in India, then income has accrued in India, but if source is located in foreign country, then income is said to have accrued outside India. As per section ! of the Act, the Dsource? of an income depends upon the type of income, which is as follows#-
INCO54
OC%TION O! -OURC4 O! INCO54
. Income from $alaries
5ocation of ;lace of D9mployment (>ob)?
&. Income from 4ouse ;roperty '. Income from =usiness;rofession . 8apital Bains
5ocation of 4ouse ;roperty ;lace of set up of =usiness;rofession 5ocation of Asset in case of an Immoveable asset or ;lace of exchange of an asset in
%. Interest on :ebentures=onds ". Income from =an Interest . :ividend
case asset is a 3oveable asset 5ocation of company paying it 5ocation of =an Account 5ocation of company paying it
Income deemed to accrue or arise in India to a non-resident by way of interest, royalty and fee for technical services to be taxed irrespective of territorial nexus Income by way of interest, royalty or fee for technical services which is deemed to accrue or arise in India by virtue of clauses (v), (vi) and (vii) of section !(), shall be included in the total income of the non-resident, whether or not
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"i)
The non-resident has a residence or place of business or business connection in India@ #r
(ii)
The non-resident has rendered services in India. In effect, the income by way of fee for technical services, interest or royalty, from
services utiliFed in India would be deemed to accrue or arise in India in case of a non-resident and be included in his total income, whether or not such services were rendered in India.
36
(I(IO
;raashan.
2. http#biyanisan1ay.blogspot.in&EEscope-of-total-income-and-residential.html
3. http#taxguru.inincome-taxresidential-status-scope-total-income.html
8. http#www.du.ac.infileadmin:6AcademicscourseRmaterialT3RE&.pdf
9. http#www.incometaxmanagement.com;agesTaxation-$ystem=asic-8oncepts-
on-Tax-$ystems-in-India.html
F. http#www.indialiaison.comresidentialRstatus.htm
