This document provides an overview of income tax law in India. It discusses the key constituents of income tax law including the Income Tax Act of 1961, Income Tax Rules of 1962, circulars, notifications, judicial decisions and more. It also covers topics like residential status, previous year, assessment year, and types of income that are taxable according to residential status.

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3. INCOME TAX MODULE 2011 CHAPTER 1 – PRELIMINARY- DAY 01

4. The Income Tax Act,1961 Income Tax Rules, 1962 Circulars , Notifications, Ordinances etc issued from time to time (4) Judicial Decisions Objective - To Learn about Income Tax… INCOME TAX LAW AND ITS CONSTITUTIENTS

5. “ ACT” means LAW, LAW means Rules and Regulations. All Rules and Regulations are arranged in paragraphs and these paragraphs are numbered in SECTIONS / SUB SECTIONS / CLAUSES / SUB CLAUSES/ PROVIDED CLAUSE [EXCEPTIONS] / EXPLANATION CLAUSE [CLARIFICATION] (1) The Income Tax Act, 1961 (“THE ACT”) The provisions of Income Tax are contained in the INCOME TAX ACT, 1961 (“THE ACT”) and it extends to whole of India w.e.f from 01-04-1962.

6. The Act, provides for: Determination of Taxable Income. Determination of Tax Liability. Procedure of Tax Assessment, Appeals , Penalties and Prosecutions. Lays down the power and duties of various Income Tax Authorities.

7. Section 295 of the INCOME TAX ACT, 1961, gives power to the Central BOARD of DIRECT TAXES (CBDT) to make various rules and amendments in the said ACT along with its implementation thereof. (2) INCOME TAX RULES, 1962 Every act normally gives powers to various statutory authorities which are responsible for: a) implementation of the Acts ; b) devising rules for carrying out the purpose of the Acts.

8. (3) Circulars , Notifications, Ordinances etc issued from time to time Budget: Every year the Finance Minister presents the budget in the Parliament Finance Bills. is one of the most important components of the most important components of the Budget. Finance Bill when enacted becomes the Finance Act which brings amendments in Direct Tax and Indirect Tax for the next financial year. The annual Finance Act comes into effect once it is passed by both the Lok Sabha and the Rajya Sabha and the President accords his assent. Ordinance: It is an amendment made between two budgets. An amendment is directly signed by President. This amendment is to be passed by Parliament within 6 months of signing. Notifications: Central Government through official gazette brings out certain changes in LAW as it has been conferred power under the relevant sections of the Income Tax Act. Issuance of Circulars: The CBDT under Section 119 of the Income Tax Act issues from time to time circulars clarifications, instructions etc for the proper administration of this Act. These circulars are binding on Income Tax Authorities and not on the Assessee can claim benefits under such circulars.

9. Income tax is the tax payable on the Income earned by any Assessee during a year. The law relating to income tax is contained in the Income-tax Act, 1962, while the procedures and forms are prescribed in the Income-tax Rules, 1962. (4) Judicial Decisions Judicial Decisions: 1. Commissioner of Income Tax (Appeals ) 2. Income Tax Appellate Tribunal 3. High Court 4. Supreme Court: The Law declared by Supreme Court shall be binding on all courts within the territory of India. Note: The Supreme Court judgment can be nullified by amending the law through Finance Act. Note: Assessee can also go for revision of order by assessing officer to CIT.

10. Ministry of Finance Ministry of Revenue Central Board of Direct Taxes (CBDT) Central Board of Excise and Customs Hierarchy Chairman Chief Commissioner of Income Tax Commissioner of Income Tax Additional Commissioner of Income Tax. Joint Commissioner of Income Tax Deputy Commissioner of Income of Tax Asst. Commissioner of Income Tax Income Tax Officer Inspector of Income Tax Administrative Set Up

11. What is INCOME TAX Income tax is the tax payable on the Income earned by any “Assessee” during a year. Who is an ASSESSEE Assessee is the “Person” who pays tax. Person is the one who earns any Income “during” the year . Person can be categorized as: Individual Hindu Undivided Family (HUF) Partnership Firm Company Association of Person (AOP) or Body of Individuals (BOI) Artificial Juridical Person (such as deities or temples) Local Authority

12. Previous Year (PY) Assessment Year (AY) “ Previous year is the Financial Year in which income is earned and which ends” on 31 st march every year. Incomes earned during each previous year is taxed and assessed separately. “ Assessment year” is the Financial Year in which tax is paid “ it is the financial year commencing on the 1 st day of April next following the previous year. Note: previous year precedes the Assessment year. “ during” the year means:

13. Financial Year (FY) Calender Year Financial year is the year which starts from 1 st day of April and ends on 31 st March. Calendar year is the year which start from 1 st day of the January and ends on 31 st December

14. For previous year ending on 31.3.2009, the Corresponding Assessment Year is 2008-2009. Correct / Incorrect? Incorrect: The Corresponding AY is 2009-10 (i.e. from 1.4.2009 to 31.3.2010) as ‘Assessment Year’ is the financial year commencing on the 1st day of April next following the previous year.

15. RESIDENTIAL STATUS The extent of income chargeable to tax in case of an assessee is decided by his Residential Status. In case of Individuals and HUF, it has to be determined on the basis of an assessee’s physical presence in INDIA. The residential status of a person is determined separately for each year. Thus, a person may be resident in one year and non-resident in another.

16. RESIDENTIAL STATUS - INDIVIDUAL RESIDENT (R) NON –RESIDENT (NR) Resident & Ordinarily Resident In India {R -OR } Resident & Not Ordinarily Resident in India {R –NOR} (a) Or (b) any one of the two basic conditions i.e (a) or (b) is not satisfied - Status of Assessee is NON Resident in India. BASIC CONDITIONS Individual is present in India for a period or periods of at least 182 days during the relevant previous year. OR For at least 60 days during the relevant previous year and for at least 365 days during the 4 previous years immediately preceding the relevant previous year. ADDITIONAL CONDITION a) He has been resident in India for at least 2 out of 10 previous years immediately preceding the relevant previous year. AND b) He has been in India for at least 730 days during 7 years immediately preceding the relevant previous year. If both of the additional conditions (a) & (b) are satisfied, then Residential status is R-OR. Otherwise Residential Status is R- NOR.

17. Exception to the Basic Condition of Residential Status - INDIVIDUAL If any of the following conditions is satisfied, an individual shall fall in an exception to the basic condition. In all of the following exceptions only 1 st condition is to be checked and 2 nd condition is not functional . If an Indian citizen who leaves India for the purpose of employment (employment does not means going outside India for education, Export Promotion, Tour Training or tourist. If an Indian citizen who leaves India as crew member of an Indian ship /or Member of foreign Ship. If an Indian citizen who comes on a visit to India from outside India (Visit means such person shall return back.) If a person of Indian origin being outside India comes on a visit to India during the previous year.

18. BASIC CONDITION Control and management of the affairs of the Business of HUF is situated: Wholly in India - Resident in India {R -OR } Partially in India- Resident in India {R -OR } Wholly outsides in India – Non Resident In India {NR} ADDITIONAL CONDITION If the KARTA satisfies both the Additional conditions (as given for an Individual i.e 2 out of 10 and 730 days in last 7 years ) then, the Residential status of HUF is { R-OR} otherwise { R-NOR} Residential Status of HINDU UNDIVIDED FAMILY (HUF)

19. A Company is resident, if — It is an Indian company , or a foreign company only if, during the relevant previous year its control and management is situated wholly in India. Note: If Control and Management of a foreign Company is in India then the Company is Resident in India otherwise Company is NON RESIDENT in India Indian Company is always treated as Resident in India, even if the whole of the Control and Management of the affairs of the business is situated outside India. Residential Status of COMPANY

20. Mr. X, an American citizen comes on a visit to India and travels to Mumbai , TATA and Bokaro Steel City. Determine his Residential Status for the AY 2011-12? PY Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 2010-11 192 180 59 182 120 140 2009-10 - 360 190 - 20 100 2008-09 - 360 185 - 120 100 2007-08 20 5 182 - 130 100 2006-07 345 5 170 - 40 70 2005-06 100 - 200 - 140 170 ANS: R-NOR R-OR NR R-NOR NR R-NOR

22. ANALYSIS – RESIDENTIAL STATUS Case Basic Condition Additional Condition Residential Status Case 1 Satisfied Not Satisfied R-NOR Case 2 Satisfied Satisfied R-OR Case 3 Not Satisfied Not Required NR Case 4 Satisfied Not Satisfied R-NOR Case 5 Not Satisfied Not Required NR Case 6 Satisfied Not Satisfied R-NOR

23. Income liable to Tax according to Residential Status Income liable to tax depends upon the residential status of the Assessee, as under: Taxability Income Resident Not Ordinarily Resident Non-Resident Received in India in the previous year Yes Yes Yes Deemed to be received in India in the previous year Yes Yes Yes Accrues or arises in India in the previous year Yes Yes Yes Deemed to accrue or arise in India in the previous year Yes Yes Yes Accrues or arises outside India in the previous year from a business controlled within India or a profession set up in India Yes Yes No Accrue or Arises outside India from other business or profession Yes No No

24. Practice Questions

25. 1. Residential Status is to be determined for: a) Previous Year b) Assessment Year c) Accounting Year d) Financial Year 2. Income deemed to accrue or arise in India is taxable in case of: a) Resident only b) Both Ordinary Resident & Not Ordinary Resident c) Non – Resident d) All the Assesses 3. B was born on 5 th April, 1990 in India & he later took the citizenship of U.S.A. Neither his parents nor his grand parents were born in divided/undivided India. B in this case shall be: a) Citizen of India b) Person of Indian origin c) A Foreign National d) Ordinary Resident

26. 4. A Ltd. Is registered in U.K. The control and management of its affairs is wholly situated in India. A Ltd., shall be: a) Resident in India b) Non-resident in India c) Not ordinary resident in India d) None of these 5. Dividend paid by an Indian Company outside India is: a) Taxable in India in the hands of the recipient b) Exempt in the hands of recipient c) Taxable in the hands of the company and exempt in the hands of the recipient d) None of these