Income tax, Assessee, types, Residential Status

1. Income Tax
Law and Practice

2. Income Tax
MEANING
Income Tax is a tax on income, gains or profits
earned by a person. It is charged by Central
Government.
The primary purpose of taxation is to raise
revenue to meet huge public expenditure.
Tax is imposed on persons according to their
income level. High earners are imposed on high
tax through progressive tax system. This prevents
wealth being concentrated in a few hands of the
rich.

3. • ASSESSMENT YEAR
The Assessment year is the financial year of the
Government of India during which income of a
person relating to the relevant previous year is
assessed to tax.
• PREVIOUS YEAR
The previous year is the financial year preceding
the assessment year e.g. for assessment year
2018-19, the previous year should be the financial
year ending on 31st March 2018. If a new
business/profession is set up on 15th September
2017, then the first previous year shall be from
15-09-2017 to 31-03-2018.

4. PERSON
Person includes:
An individual
A Hindu Undivided Family
A Company
A Firm
An association of persons or a body of individuals,
whether incorporate or not
A local authority
Every artificial juridical person not falling within
any of the preceding sub-clauses

5. Head of Income
The five heads of income are as follows:
Income from ‘Salaries’ (Sections 15-17)
Income from ‘House Property’ (Sections 22-27)
 ‘Profits and Gains of Business or Profession’
(Sections 28-44)
‘Capital Gains’ (Sections 45-55)
Income from ‘Other Sources’ (Sections 56 -59)

6. Gross Total Income
• After aggregating income under various heads
(duly applying clubbing provisions), losses are
adjusted and the resultant figure is called “Gross
Total Income” (GTI). ‘Gross Total Income’ may
also be understood as the total income of an
assessee before making any deduction i.e., under
section 80C to 80U of the Act.
• GTI = Salary income + House property income +
Business or Professional income + Capital gains+
Other sources income + Clubbing of income – Set
off of losses

7. TOTAL INCOME
• Total income means income remaining
after allowing deductions (i.e., U/S 80C to
80U) from Gross Total Income. Total income
or total taxable income of the assessee shall be
rounded off to the nearest multiple of 10.
• Total income = Gross Total Income –
Deductions under Chapter VIA (i.e., Section
80C to 80U)

8. ASSESSEE
Assessee means a person by whom any tax or
any other sum of money is payable under
Income Tax Act and includes every person
who is deemed to be an assessee and every
person who is deemed to be an assess-in-
default.
Types of Assessee
There are three types of assessee.
1. Ordinary assessee
2. Deemed assessee
3. Assessee in default

9. 1. Ordinary Assessee
An ordinary assessee is one who has to pay any tax, penalty and interest to
the Income Tax authority or who is eligible for any refund of tax from the
tax authorities.
2. Deemed Assessee
Deemed assessee is also known as representative assessee. This type of
assessee is not only responsible for his income but also responsible for the
income of the other person to whom he acts as a representative.
Other person Deemed Assessee
For a minor Guardian
For a non-resident Agent
For deceased person (with will) Executor
For a deceased person (without will) Legal heir or the eldest in the
family
3. Assessee in Default
If any person fails to fulfill his duty or obligation, then he is termed as
assesse in default. For example, if a person who should submit a return of
income fails to do so, then he is assessee in default.

10. Residential Status
Tax is levied on total income of assessee. Under
the provisions of Income Tax Act 1961, the
total income of each person is based upon his
residential status. Section 6 of the Act divides
the assessable persons into three categories:
(i) Resident and Ordinarily Resident
(ii) Resident but not ordinarily resident
(iii) Non Resident

11. Resident
To determine the residential status of an
individual, Sec 6 (1) prescribes two tests/two
basic conditions. These tests are:
– If he is in India during the relevant previous year for a
period amounting in all to 182 days or more
– If he was in India for a period or periods amounting in
all to 365 days or more during the four years preceding
the relevant previous year and he was in India for a
period or periods amounting in all to 60 days or more
in that relevant previous year

12. Resident Ordinary Resident
• After satisfying any one of the basic
conditions, if he satisfies both of the two
additional conditions, he is resident ordinary
resident
• The two additional conditions are
– For at least 2 years out of 10 previous years
preceding the relevant Previous year &
– For at least 730 days during 7 years immediately
preceding the relevant Previous year

13. Resident Not Ordinary Resident
• After satisfying any one of the basic
conditions, if he satisfies any one or none of
the two additional conditions, he is resident not
ordinary resident
• The two additional conditions are
– For at least 2 years out of 10 previous years
preceding the relevant Previous year &
– For at least 730 days during 7 years immediately
preceding the relevant Previous year

14. Non Resident
If a person satisfies none of the basic
conditions, he is non resident.

15. Incidence of Tax
Different kinds of incomes
Different types of status
Resident and Ordinarily
Resident
Not Ordinarily Resident Non Resident
Income received or deemed to be received
in India. It is immaterial whether it is
earned in India or in a foreign country
Taxable Taxable Taxable
Income earned in India whether received,
paid in India or outside India
Taxable Taxable Taxable
Income earned and received outside India
from a business controlled or profession
set up in India. Income may or may not be
remitted to India
Taxable Taxable Not
Income earned or received outside India
from a business controlled or profession
set-up in India
Taxable Not Not
Income earned and received outside India
from any other source (Except income
under point 3)
Taxable Not Not
Income earned and received outside India
in the years preceding the previous year in
question and if the same is remitted to
India during the current previous year
Not Not Not