Study of income tax reference n definition of house property n other sources of income

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T.Z.A.S.P Mandal’s
PRAGATI COLLEGE
OF ARTS AND COMMERCE
A PROJECT REPORT ON
“STUDY OF INCOME TAX WITH REFERENCE TO
DEFINITION HOUSE PROPERTY & OTHER SOURCES OF
INCOME”
SUBMITTED TO
UNIVERSITY OF MUMBAI
FOR SEMISTER III OF
MASTER OF COMMERCE (ADVANCED AUDITING)
BY
RAJPAL RAJU SAIPOGU– ROLL NO –42
UNDER THE GUIDANCE OF
PROF. MAONJ MAKWANA
YEAR 2015-16

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T.Z.A.S.P.MANDAL’S
PRAGATI COLLEGE OF ARTS AND COMMERCE
DOMBIVLI (EAST)
DECLARATION BY THE STUDENTS
I, Mr. RAJPAL RAJU SAIPOGU of M.Com Part – II, Roll No –42
hereby declare that the project for the paper Direct and Indirect Tax
submitted by me for Semester - III during the academic year 2015-16,
based on actual work carried out by me under the guidance and
supervision of Prof. Manoj Makwana.
I further state that this work is original and not submitted anywhere else
for any examination.
Signature of Student
(RAJPAL RAJU SAIPOGU)

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T.Z.A.S.P.MANDAL’S
PRAGATI COLLEGE OF ARTS AND COMMERCE
DOMBIVLI (EAST)
EVALUATION CERTIFICATE
This is to certify that the undersigned have accessed and evaluate the
project on “STUDY OF INCOME TAX WITH REFERENCE TO
DEFINITION HOUSE PROPERTY & OTHER SOURCES OF
INCOME submitted by MR. RAJPAL RAJU SAIPOGU students of
M.Com Part – II. This project is original to the best of our knowledge
and has been accepted for Internal Assessement.
Internal Examiner Principal
Prof. Manoj Makwana Dr. A.P.Mahajan
External Examiner

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ACKNOWLEDGEMENT
At the outset, I would like to thank Almighty God for his shower of
blessing. The desire of completing this dissertation was given by my
guide Prof. Manoj Makwana. I am very much thankful to him for the
guidance, support and for sparing her precious time from a busy and
hectic schedule.
At am thankful to DR. A.P.MAHAJAN Principal of PRAGATI
COLLEGE. My since thanks to our co-ordinator Prof. Manoj Makwana
who always motivated and provided a helping hand for conceiving
higher education.
I would fail in my duty if I don’t thank my parents and brother who
pillar of my life and my friends who have always supported and
motivated me. Finally, I would express my gratitude to all those person
who directly and indirectly helped me in completing my dissertation.
MR .RAJPAL RAJU SAIPOGU

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PRAGATI COLLEGE OF ARTS &COMMMERCE,DOMBILI (EAST)
INTERNAL ASSESSMENT:PROJECT 40 MARKS
NAME OF THE STUDENT CLASS DIVISION ROLL
NUMBER
FIRST NAME :RAJPAL
MIDDLE NAME:RAJU
SURNAME :SAIPOGU
M.COM
(PART 2)
SEM -3
A 42
SUBJECT :ADVANCED AUDITING
TOPIC FOR PROJECT
“STUDY OF INCOME TAX WITH REFERENCE
TO DEFINITION HOUSE PROPERTY& OTHER SOURCES OF
INCOME”
MARKS
REWARDED
SIGNATURE
DOCUMENTATION
INTERNAL EXAMINER
(OUT OF 10 MARKS)
EXTERNAL EXAMINER
(OUT OF 10 MARKS)
PRESENTATION
(OUT OF 10 MARKS)
VIVA AND
INTERACTION
(OUT OF 10 MARKS)
TOTAL MARKS(OUT OF
40)

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Sr.no TPOIC PAGE.NO
CHAPTER 1 INTRODUCTION 7
CHAPTER 2 INCOME U/S 10 11
CHAPTER 3 DEFINITION 16
CHAPTER 4 ELEMENTS OF
NAV
25
CHAPTER 5 DEDUCTION U/S 24 28
CHAPTER 6 RESIDENTAL
STATUS
34
CONCLUSION 39

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INTRODUCTION OF INCOME TAX
INTRODUCTION
Tax is today an important source of revenue for governments in all the
countries. It has become inevitable imposition because it has great
potentials for raising funds for meeting the development and defense
needs of a nation. In other word taxes on income, sale, purchase and
properties were collected to run Government machineries
• Income tax was first introduced in India in 1860 by the British ruler
James Wilson (who become 1st India’s Finance Member), in order to
meet heavy expenses and losses suffered by the rulers due to India’s first
freedom movement of 1857. It was introduced as a temporary revenue
measure only for five years. • The history of Income tax in India can be
divided into three periods:
1860-1885
1886-1914
1914 to date
At present, the Income Tax Act 1961 is force in India. The present
Income tax act was enacted in 1961, which came into force on 1st April
1962. In 1956, the government referred the Income Tax Act to the Law
commission which submitted its report in 1958.

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Direct Taxes Administration Enquiry Commission was appointed in
19958 under the Chairmanship of Shri Mahavir Tyagi. On the basis of
recommendations of both these bodies the present IT Act was enacted.
This Act of 1961 has since been amended number of times

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Scheme of Income Tax
CBDT
INCOME
TAX ACT
1961
ANNUAL
FINANCE
ACT
INCOME
TAX
RULES,16
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SCHEME OF
INCOME TAX
JUDICAL
DECISION

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• Determination of Residential Status of an asseesse
• Total Income calculation Income from salary
 Income from house property
 Profit or gain under business and profession
 Income from Capital gain
 Income from other sources
METHOD OF ASSESSING TAX
(1) Step system (Not into force)
(2) Slab system (Presently used)

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Income under section 10
EXEMPTIONS & EXCLUSIONS U/S. 10:
1.Agricultural Income u/s. 10(1)
2. Receipts by a member, from a HUF u/s. 10(2)
3. Share of Profit from partnership firm u./s.10(2A)
4. Leave Travel Concession in India u/s. 10(5)
5. Gratuity u/s. 10(10)
6.Compensation received at the time ofVoluntary Retirement u/s10(10C)
7. Amount received under Life Insurance Policyu/s 10(10D)
8. Payment received from Provident Fund u/s.10 (11), (12)
9. Payment received from an ApprovedSuperannuation Fund u/s. 10(13)
10.House Rent Allowance u/s. 10 (13A).
11.Special Allowance u/s. 10 (14): TransportAllowance, Conveyance
Allowance, DailyAllowance, Uniform Allowance, Helper Allowance,
Research Allowance, Children Education Allowance, Childre’s Hostel
Expenditure Allowance.
12.Interest on Securities u/s. 10(15)
13.Educational Scholarships u/s. 10(16)

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14.Income of a minor child u/s 10 (32) [including basic provisions of sec
64(1A)]
15.Dividends and Interest on Units u/s. 10(34) (35).Income not included
in total income(U/s 10)
• The income tax Act 1961 enumerates in section 10, the items of
income which are totally exempt from tax .
• While computing the total income of a previous year of any person,
any income which falls within any of the following clause shall not be
included in the total income.
Agricultural Income u/s. 10(1)
Agriculture income is exempted from tax if it comes from within the
definition of agricultural income Receipts by a member, from a HUF
u/s. 10(2)
• Sum received by an individual, as a member of HUF, either out of the
family or out of income of estate belonging to the family, is exempted
from tax.
Share of Profit from partnership firm
u/s 10(2A)
• Share of profit received by partners from a firm is not taxable in the
hands of partners Leave Travel Concession in India u/s. 10(5)
• The value of leave travel concession received or due to an individual is
exempted to the extent it is actually spent.
Gratuity u/s. 10(10)

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• Gratuity is paid for long and meritorious services rendered by an
employee.
• With the enactment of the payment of Gratuity Act, 1972, gratuity
payment has become legally compulsory.
• Where the payment of Gratuity Act, 1972 is inapplicable, an employee
can claim gratuity under the terms of contract of employment .
House Rent Allowance u/s. 10 (13A).
• Exemption in respect of house rent allowance is least of the following
three
• Amount equal to 50 percent of salary, where house is situated in
metros and 40 percent o salary where residential house is situated at any
other place.
• Actual house rent allowance received
• Excess of rent paid over 10 percent of salary Special Allowance u/s. 10
(14):
• Conveyance Allowance, Daily Allowance,Uniform Allowance, Helper
Allowance,Research Allowance
• Allowances are exempt to the extent the amount is utilised for the
specific purpose for which allowance is received.
• Transport Allowance, Children Education Allowance, Children’s
Hostel Expenditure Allowance. (fixed amount per month)Transport
Allowance
• Transport allowance is granted to meet hisexpenditure for the purpose
of commuting between the place of his residence and place of duty .

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• Exemption
• Up to Rupees 800 per month
• Rupees 1600 per month in the case of blind orortho pedically
handicapped employee Conveyance Allowance
• Conveyance allowance is granted to meet expenditure on conveyance
in performance of duties of an office.
• Exemption –
1. Amount of the allowance or
2. The amount utilised for the specific purpose whichever is lower
Daily Allowance
• Exemption –
• Amount of the allowance or
• The amount utilised for the specific purpose –whichever is lower
Uniform Allowance
• Exemption –
Research Allowance
• Exemption –

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Children Education Allowance
• The allowance is given for children's education
• Rupees 100 per month per child up to a maximum of 2 children
Helper Allowance
• Exemption –
Hostel Expenditure Allowance
• The allowance is granted to an employee tomeet the hostel expenditure
on his child
• Rupees 300 per month per child up to a maximum of two children.
Interest on Securities u/s. 10(15)
• Income by way of interest, premium, etc from certain
securities,certificates, bonds, deposits etc. as specified / notified in the
official gazette are exempted from tax. 20-Educational Scholarships u/s.
10(16)
• Scholarship granted to meet the cost of education is totally exempt
from tax and will not be included in the computation of total
income of assessee.
20-

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“DEFINITIONS”
INCOME-TAX Tax collected by the central Government for each
financial year on the total taxable income of an assessee earned
during the previous year is called Income-tax.
ASSESSEE
According to Income-tax act 1961 sec.2 (7) assessee means
• A person liable to pay any tax or any other sum of money under this
act.
• Every person in respect of whom any proceeding under this act has
been taken for the assessment of (1)his income or (2) the loss sustained
by him or (3) the amount of refund due to him.
• Every person in respect of whom any proceeding has been taken under
this act for the assessment of (1) the income of any other person in
respect of which he is assessable or (2) the loss sustained by such other
person or (3) the refund due to such other person
• A person who is deemed to be an assessee under any provisions of this
act.

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• A person who is deemed to be an assessee in default under any
provisions of this act.
ASSESSMENT
It is a process of determining the correctness of income of an
assessee and of assessing the amount of tax payable by him and
procedure for imposing tax liability
ASSESSMENT YEAR: An assessment year is a period of 12
months commencing on 1st April and ending 31st March. It is a
year in which the income of the previous year is to be assessed.
The current assessment year is 2012-2013. PREVIOUS YEAR:
Previous Year means the financial year immediately proceeding
the assessment year. Previous year is also known as the accounting
year or income year. The current assessment year is 2012-2013
which commenced on 1-4-2012 and will be end on 31- 3-2013 the
previous year for this assessment year wound be 2011- 2012
Assessment year 2012-2013 Previous year 2011-12 1-4-11 31-3-
12 1-4-12 31-3-13
ASSESSMENT YEAR:
An assessment year is a period of 12 months commencing on 1st
April and ending 31st March. It is a year in which the income of

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the previous year is to be assessed. The current assessment year is
2016-2017.
PREVIOUS YEAR:
Previous Year means the financial year immediately proceeding
the assessment year. Previous year is also known as the accounting
year or income year. The current assessment year is 2016-2017
which commenced on 1-4-2016 and will be end on 31- 3-2017 the
previous year for this assessment year wound be 2015- 2016
PERSON
Sections 2 (31) of the Act has given an inclusive definition of a
person as follows; “Person” includes
• An individual
• A Hindu undivided family n
• A company
• A firm
• An association of person or body of individual
• A local authority
• Every artificial and juridical person, not included in the above
INCOME
The definition of income given in sec. 2(24) is inclusive and not
exhaustive. It says that certain items are included in the term

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‘income’ summary of important rule which give the meaning of
income is as below.
• An illegal income is taxable as legal income.
• Income received at irregular intervals is taxable.
• Taxable income should have been received from an outside
source
• Any benefit convertible into money is also considered as
income.
• Mere relief or reimbursement of expenses is not treated as
income.
• Gift (i.e. any sum of money) exceeding Rs.50,000 received
without consideration by an individual or H.U.F from any person
(other than a ‘relative’) on or after 1-9-04 is considered income.
• Any prize which is unexpected is not treated as income.
• Income arising from wasting assets by way of royalty is treated
as income.
• Casual incomes are taxable.

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EXEMPTIONS & EXCLUSIONS U/S. 10:
1.Agricultural Income u/s. 10(1)
2. Receipts by a member, from a HUF u/s. 10(2)
3. Share of Profit from partnership firm u./s.10(2A)
4. Leave Travel Concession in India u/s. 10(5)
5. Gratuity u/s. 10(10)
6.Compensation received at the time ofVoluntary Retirement u/s10(10C)
7. Amount received under Life Insurance Policyu/s 10(10D)
8. Payment received from Provident Fund u/s.10 (11), (12)
9. Payment received from an ApprovedSuperannuation Fund u/s. 10(13)
10.House Rent Allowance u/s. 10 (13A).
11.Special Allowance u/s. 10 (14): TransportAllowance, Conveyance
Allowance, DailyAllowance, Uniform Allowance, Helper Allowance,
Research Allowance, Children Education Allowance, Childre’s Hostel
Expenditure Allowance.
12.Interest on Securities u/s. 10(15)
13.Educational Scholarships u/s. 10(16)
14.Income of a minor child u/s 10 (32) [including basic provisions of sec
64(1A)]

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15.Dividends and Interest on Units u/s. 10(34) (35).Income not included
in total income(U/s 10)
• The income tax Act 1961 enumerates insection 10, the items of income
which aretotally exempt from tax .
• While computing the total income of aprevious year of any person, any
incomewhich falls within any of the following clauseshall not be
included in the total income.
Agricultural Income u/s. 10(1)
Agriculture income is exempted from tax if itcomes from within the
definition ofagricultural income Receipts by a member, from a HUF
u/s. 10(2)
• Sum received by an ind ividual, as a member ofHUF, either out of the
family or out of income of estate belonging to the family, is exempted
from tax.
Share of Profit from partnership firm
u/s 10(2A)
• Share of profit receiv ed by partners from afirm is not taxable in the
hands of partners Leave Travel Concession in India u/s. 10(5)
• The value of leave travel concession received or due to an individual is
exempted to the extent it is actually spent.
Gratuity u/s. 10(10)
• Gratuity is paid for long and meritorious services rendered by an
employee.

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• With the enactment of the payment of Gratuity Act, 1972, gratuity
payment has become legally compulsory.
• Where the payment of Gratuity Act, 1972 is inapplicable, an employee
can claim gratuity under the terms of contract of employment .
House Rent Allowance u/s. 10 (13A).
• Exemption in respect of house rent allowanceis least of the following
three
• Amount equal to 50 percent of salary, where
house is situated in metros and 40 percent ofsalary where residential
house is situated atany other place.
• Actual house rent allowance received
• Excess of rent paid over 10 percent of salarySpecial Allowance u/s. 10
(14):
• Conveyance Allowance, Daily Allowance,Uniform Allowance, Helper
Allowance,Research Allowance
• Allowances are exempt to the extent theamount is utilised for the
specific purpose forwhich allowance is received.
• Transport Allowance, Children EducationAllowance, Childre�’s
Hostel Expenditure Allowance. (fixed amount per month)Transport
Allowance
• Transport allowance is granted to meet hisexpenditure for the purpose
of commutingbetween the place of his residence and placeof duty .
• Exemption
• Up to Rupees 800 per month

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• Rupees 1600 per month in the case of blind ororthopedically
handicapped employee Conveyance Allowance
• Conveyance allowance is granted to meetexpenditure on conveyance in
performance of duties of an office.
• Exemption –
1. Amount of the allowance or
2. The amount utilised for the specific purpose whichever is lower Daily
Allowance
• Exemption –
Uniform Allowance
• Exemption –
Research Allowance
• Exemption –
Children Education Allowance
• The allowance is given for children's education
• Rupees 100 per month per child up to a maximum of 2 children

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Helper Allowance
• Exemption –
Hostel Expenditure Allowance
• The allowance is granted to an employee tomeet the hostel expenditure
on his child
• Rupees 300 per month per child up to a maximum of two children.
Interest on Securities u/s. 10(15)
• Income by way of interest, premium, etc from certain securities
certificates, bonds, deposits etc. as specified / notified in the official
gazette are exempted from tax. 20-Educational Scholarships u/s. 10(16)
• Scholarship granted to meet the cost of education is totally exempt
from tax and will not be included in the computation of total income of
assessee.

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ELEMENTS OF NAV
NAV is the value of assets less the liabilities
Net Asset Value is a more viable way of reading into the value of an
investment
It calculates the value of a mutual fund, including its cash value, sans its
liabilities
Term
The term Net Asset Value is most often used in connection with closed-
ended mutual funds
The ‘per unit NAV’ of a fund indicates how much it will cost an investor
to buy or redeem a single unit of the mutual fund
Calculation of NAV
A mutual fund’s NAV is calculated using a set formula
Calculating the total value of the mutual fund’s assets
Deducting liabilities
Dividing the remaining figure by the number of shares outstanding

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The Formula
NAV = (Total market worth of all securities owned by the fund + liquid
cash and corresponding holdings - fund liabilities) ÷ total outstanding
shares of the fund.
NAV= FUNDS ASSETS-LIABILITIES
NUMBER OF SHARE OUTSTANDING
IMPORTANCE OF NAV
For Investors
Certain investors believe NAV to be an exercise in futility, while others
stress on its importance
Net Asset Value is simply the price of one of the mutual fund’s units and
is indicative of the fund’s intrinsic value
When one buys units in a mutual fund, one buys them at NAV
For Financial Planning
Mutual funds are often used for Financial Planning
There are qualified professionals aiding investors in their financial
planning

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The importance of sound financial planning is such that there is a
certificate for the position, known as Chartered Financial Planner or
CFA
Financial Planners
Financial planning is designed to cater to the customer’s requirements
Financial planners will work towards managing your investments to
achieve your goals like cash flow management, retirement planning, or
even planning for your children’s education and marriage
Maintaining an understanding relationship with the customer is arguably
the most important task of a financial planner, and is known as
“relationship management”.

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DEDUCTIION U/S 24
Income from House Property is possible in these cases –
 Rental Income on a let out property
 Annual Value of a property which is ‘deemed’ to be let out for income
tax purposes ( when you own more than one house property)
 Annual Value of the property which is self occupied, which is Nil
Under section 24 of the Income Tax Act you are allowed to make certain
deduction from the Net Annual Value of your House Property. Net
Annual Value is Gross Annual Value less Municipal Taxes Paid.
In case the property is let out, its rent received is your Gross Annual
Value, whereas in case of a deemed to be let out property, a reasonable
rent of a similar place is your Gross Annual Value. For a self occupied
house property the Gross Annual Value is Nil.
There are only 2 deductions available under section 24
 Standard Deduction – Standard Deduction is 30% of the Net Annual
Value calculated above. This 30% deduction is allowed even when your
actual expenditure on the property is higher or lower.
 Therefore this deduction is irrespective of the actual expenditure you
may have incurred on insurance, repairs, electricity, water supply etc.
For a self occupied house property, since the Annual Value is Nil, the
standard deduction is also 0 on such a property.
 Deduction of Interest on Home Loan for the property – In case you
take a home loan for purchase, construction, repair, renewal or
reconstruction of your house property – the interest is allowed as a
deduction from the Net Annual Value.

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 Deduction for interest on money borrowed is allowed on accrual basis
(allowed even though interest may not actually have been paid), so keep
claiming your interest deductions each year basis interest that is due
(instead of interest that is paid). Do remember that no deduction is
allowed for any brokerage or commission for arranging the loan. In case
of a self occupied house property, this deduction is allowed to be
claimed and therefore, you may in such a case have a loss under the head
House Property.
 The total amount allowed towards this deduction for a self occupied
house property is Rs 2,00,000 beginning assessment year 2015-16. In
case of a let out or a deemed to be let out property, the entire interest is
allowed as deduction under section 24. You can start claiming this
interest when the construction of your property is complete.
There are three property types:
1. Self-occupiedDeemed self-occupied House Property
In this case you can enter the following details:
 Deduction of interest under section 24, which is the interest that the
employee is paying in the current financial year in case he or she
has taken a loan to acquire the house. You must enter the interest
amount here if you have not maintained this loan in
the Loans infotype (0045).
 Loan type
 Loan sequence number
If the loan has been taken from your organisation, the system reads
the Loans infotype (0045), to calculate the interest paid for the
financial year.
 Period of the financial year from which the company housing loan
has to be considered for Section 24 interest deduction.

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 Period of the financial year until which the company housing loan
 Interest limit
If you have entered the loan type and loan sequence number
under Company Housing Loan Detailssection of this infotype, the
system will add the interest amount for this loan to the amount
entered as the deduction of interest under section 24. The total
amount cannot be greater than the interest limit.
The interest amount entered as the deduction of interest under
section 24 is added to Any Other Income wage type (/131)
in Exemptions u/s 10 rule (IN70).
2. Partly Let out House Property
In this case you can enter the following details:
 Final lettable value, which is the amount obtained after subtracting
Section 23 deductions from the annual lettable value.
 Deduction on account of house repairs under Section 24
 Deduction of interest under Section 24
 Deduction on account of other expenses under Section 24
 Loan type

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 Tax Deducted at Source (TDS) on income from lettable house
property.
under Company Housing Loan Detailssection of this infotype, the
system will add the interest amount for this loan to the amount
amount cannot be greater than 30% of the final lettable value.This
percentage is maintained in the Repairs under Section 24 constant
( REP 24 ) of table view Payroll Constants (V_T511K).
The sum of the deductions on account of house repairs under
Section 24, interest under Section 24 and other expenses under
Section 24 cannot be greater than the final lettable value. The
system adds the amounts entered as deductions on account of house
repairs under Section 24, interest under Section 24 and other
expenses under Section 24 to Any Other Income wage type (/131)
3. Wholly Let out House Property - In this case you can enter the
following details:
 Final lettable value
 Deduction on account of house repairs under Section 24
 Deduction of interest under Section 24
 Deduction on account of other expenses under Section 24
 Loan type


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 Tax Deducted at Source (TDS) on income from lettable house
property.
under Company Housing Loan Detailssection of this infotype,
the system will add the interest amount for this loan to the amount
amount cannot be greater than 30% of the final lettable value.
This percentage is maintained in the Repairs under Section
24 constant ( REP 24) of table view Payroll Constants (V_T511K).
The system adds the amounts entered as deductions on account of
house repairs under Section 24, interest under Section 24 and other
expenses under Section 24 to Any Other Income wage type (/131)
Subtype 0002 - Income From Other Sources
You can enter the income from the following sources:
Long term capital gains (Normal rate)
Long term capital gains (Special rate)
Business profits
Short term capital gains
Income from dividends
Income from interest

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Other income (unspecified)
Tax Deducted at Source (TDS) on income from other sources (other
than income from house property).

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RESIDENTAL STATUS
The determination of Residential Status of a person is very important
for the purpose of levy of income tax, as income tax is levied based on
the residential status of a taxpayer. The Residential Status of a taxpayer
can be divided in the following categories
Determination of Residential Status of a taxpayer is very important at
the time of filing of income tax returnas income tax is levied based on
the Residential status of the taxpayer.
The following types of incomes are taxable in the hands of the different
categories of taxpayers:-

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Particulars Resident and
Ordinary
Resident
Not ordinary
Resident
Non-
Resident
Income received or deemed to be
received in India whether earned in India
or elsewhere
Yes Yes Yes
Income which accrue or arise or is
deemed to accrue or arise in India during
the previous year, whether received in
India or elsewhere
Yes Yes Yes
Income which accrue or arise outside
India and received outside India from a
business controlled from India
Yes Yes No
Income which accrue or arise outside
India and received outside India in the
previous year from any other source
Yes No No
Income which accrues or arises outside
India and received outside India during
the year preceding the year and remitted
to India during the previous year
Yes No No
From the above table, it is clearly visible that the maximum income tax
is levied in case of an Ordinary Resident, lesser in case of Not-Ordinary
Resident and the least in the case of a Non Resident Indian (NRI).
 Recommended Read: How to save tax legally through tax planning in
8 different ways

36
After determining the residential status, the all incomes of an individual
(except Capital Gains) would be taxable as per the Income Tax Slabs for
that financial year.
 Recommended Read: Income Tax Slab Rate
Determination of Residential Status of Individual
The Residential Status of an Individual is to be determined on the basis
of period of stay of the taxpayer in India and is computed separately for
each year. If an individual satisfies any one of the following conditions,
he is said to be Resident in India for that financial year. The conditions
are:-
 He is in India for a period of 182 days or more in that financial year
OR
 He is in India for 60 days or more during that financial year and has
been in India for 365 days or more during 4 previous years
immediately preceding the relevant financial year.
If any one of the above conditions is satisfied, the individual is said to be
resident in India. However, if none of the conditions is satisfied, he is
said to be a Non Resident Indian (NRI)
EXCEPTIONS TO RESIDENTIAL STATUS
There are 2 exceptions to the above rule of classification of Residential
Status:-
1. In case of an individual, who is a citizen of India and who leaves
India in any financial year for the purpose of employment outside

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India, the 2nd condition stated above shall not be applicable and only
the 1st condition of 182 days or more would be applicable
2. In case of an individual who is a citizen of India or is a person of
Indian origin and who being outside India comes on a visit to India in
any financial year, the 2nd conditions stated above shall not be
applicable and only the 1st condition of 182 days or more would be
applicable.
CLASSIFICATION OF ORDINARY RESIDENT & NON ORDINARY
RESIDENT
As per Section 6(6), a person shall be not ordinary resident in India if he
satisfies any one of the following conditions:-
 He has been a non-resident (in the manner computed above) in 9 out
of 10 years immediately preceding the Financial Year
OR
 He has been in India for a period of 729 days or less in 7 previous
years immediately preceding the financial year.
If any 1 of the above conditions is satisfied, the person is said to be
resident but not-ordinary resident in India. However, if none of the
above conditions is satisfied, the person is said to be Resident and
Ordinary Resident in India.
Relevant points regarding Residential Status
Receipt of Income
For the purpose of levy of income tax, what is important is the
1st receipt. If an amount is received outside India and then subsequently
remitted to India, it shall be a receipt outside India. Merely, because it

38
has been remitted to India would not make it an income received in
India. For eg: A non-resident receives income equivalent to Rs. 80,000
in USA but then remits it to India. This income would not be taxable in
his hands in India because it is neither earned in India nor received
(1st receipt) in India.
Citizenship of a Country and Residential Status
Citizenship of a country and residential status are separate concepts. A
person may be an Indian national/citizen but may not be a resident in
India. On the other hand, a person may be a foreign national/citizen but
may be a resident in India.
Computation of Period of Stay
In computing the period of stay for the purpose of residential status, it is
not necessary that the stay should be for a continuous period. What is to
be seen is the total number of days of stay in India during thatfinancial
year. It is also not necessary that the stay should be only at 1 place and
can be anywhere in India.
For the purpose of computing the period of 182 days for the
determination of residential status, the day he enters India and the day he
leaves India should both be treated as stay in India. However, in
borderline cases where stay in India is very close to 182 days, his stay in
India has to be calculated on hourly basis and a total of 24 hours will be
taken as 1 day.

39
CONCLUSION
Reforming taxation is an on going process, through which tax policy
makers and tax administrators are continuously adapting their tax system
to reflect changing economic, social and political circumstances. The
present study examines the Taxation of Income in India during post
liberalisation period and policy perspective in this regard.
It has analysed the growth of income tax revenue, performance of
Income Tax Department and perception of tax professionals regarding
Income Tax System in India.
With a view to have a proper understanding of the research topic
important studies relating to personal income tax, capital gains taxation,
agricultural taxation, efficiency of income tax administration etc.
conducted in India have been reviewed. For evaluating growth of
income tax revenue in India and performance of the income tax
administration secondary data has been collected mainly from Finance
Acts, Explanatory Memorandum on the Budget of the Central
Government, Reports of the various committees/commissions, Indian
Economic Survey, Income Tax Act 1961, Income Tax Rules 1962,
various announcements, circulars and notifications of Central Board of
Direct Taxes, Budget speeches of Finance Ministers, Reports of
Comptroller and Auditor General of India on Direct Taxes for the period
1997-98 to 2015-16. For studying the perception of tax professionals
regarding Income Tax System, data has been collected from tax
professionals

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