Tax Management – MMBA4F1 MBA 2025-26

Module – 1
Basic concepts:
Income tax concepts and definitions as per Income Tax Act, Basis of charge and scope of
total income, Residential Status (Individuals only). Tax Evasion, Tax avoidance, Tax
Planning. Heads of Income (Theory only).
Income from Salary – Computation of income from salary under new regime.
Basic Concepts
Introduction:
The government of India has to spend a lot of money on different public outlays like health,
education, establishment of industries, maintaining law & order & military force etc. in order
to meet all these expenses the government requires funds. This course of funding is called
taxation. A compulsory payment towards the government without direct return in benefit to
the payer is known as ‘TAX’. It is an important source of income of the government. It can
be collected by three authorities namely- Central Government; State Government; Local
Authority.

In a Welfare State, the Government takes primary responsibility for the welfare of its citizens,
as in matters of health care, education, employment, infrastructure, social security and other
development needs. To facilitate these, Government needs revenue. Taxation is the primary
source of revenue to the Government for incurring such public welfare expenditure. In other
words, Government is taking taxes from the public through its one hand and through another
hand; it incurs welfare expenditure for public at large. However, no one enjoys handing over
his hard-earned money to the government to pay taxes. Thus, taxes are compulsory or
enforced contribution to the Government revenue by public. The government may levy taxes
on income, business profits or wealth or add it to the cost of some goods, services, and
transactions.
Objectives:
• It reduces the gap between rich & poor.
• It enables the government to maintain law & order & safeguard security of the
country from foreign power.
• It helps to provide infrastructure facilities for welfare of people like roads, irrigation
facilities etc.
• It provides employment opportunities.
• It helps to achieve balanced socio-economic growth.

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Types of Taxes:

Types of Taxes

Direct Taxes Indirect Taxes

Income Tax Customs Duty

GST
1. Direct Tax:
The tax imposed by the government on a person who can’t shift the responsibility to some
other person is called Direct Tax.
Or
Tax is levied directly on the income or wealth of a person, and then it is a Direct Tax.
Ex: Income Tax, Wealth Tax
2. Indirect Tax:
The tax imposed by the government on one person knowing that the responsibility will be
shifted on to the some other person is called Indirect Tax.
Or
Tax is levied on the price of a goods or services, and then it is called an Indirect Tax.
Ex: GST it is imposed on the manufacturer but ultimately paid by the consumers.

Tax, of which incidence and impact fall on the same person, is known as Direct Tax, such as
Income Tax. On the other hand, tax, of which incidence and impact fall on two different
persons, is known as Indirect Tax, such as GST, etc. It means, in the case of Direct Tax, tax is
recovered directly from the assessee, who ultimately bears such taxes, whereas in the case of
Indirect Tax, tax is recovered from the assessee, who passes such burden to another person &
is ultimately borne by consumers of such goods or services.

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Direct Tax Indirect Tax

● Incidence and impact fall on the ● Incidence and impact fall on two different persons
same person ● Tax is recovered from the assessee, who passes
● Assessee, himself bears such such burden to another person. Thus, it does not
taxes. Thus, it pinches the pinch the taxpayer.
taxpayer. ● Levied on goods and services. Thus, this type of
tax leads to inflation and have wider base.
● Levied on income
● E.g. GST, Customs Duty, etc.
● E.g. Income Tax ● Regressive in nature i.e., all persons will bear
● Progressive in nature i.e., higher equal wrath of tax on goods or service consumed
tax are levied on person earning by them irrespective of their ability.
higher income and vice versa. ● Useful tool to promote social welfare by checking
the consumption of harmful goods or sin goods
through higher rate of tax.

Administration of Tax Laws:

The administrative hierarchy of tax law is as follows-

● Both of the Boards have been constituted under the Central Board of Revenue Act,
1963.
● CBDT deals with levy and collection of all direct tax whereas matters relating to levy
and collection of Central indirect tax are dealt by CBIC.

Income Tax:
It is an imposition from the central government which constitutionally valid. Every person
earning income in India is required to pay tax to the government called Income Tax. Income
tax forms the biggest revenue to the central government to meet its expenditure on health &
infrastructure. It is a branch of direct taxes. All the provisions of this act are contained in an
act known as “Income Tax Act 1961”.

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Income-tax Act, 1961:

The levy of income-tax in India is governed by the Income-tax Act, 1961. This Act
came into force on 1st April, 1962. The Act contains 298 sections and XIV schedules.
These undergo change every year with additions and deletions brought about by the
annual Finance Act passed by Parliament. In pursuance of the power given by the
Income-tax Act, 1961 rules have been framed to facilitate proper administration of the
Income-tax Act, 1961.

The Finance Act: Every year, the Finance Minister of the Government of India
presents the Budget to the Parliament. Part A of the budget speech contains the
proposed policies of the Government in fiscal areas. Part B of the budget speech
contains the detailed tax proposals. In order to implement the above proposals, the
Finance Bill is introduced in the Parliament. Once the Finance Bill is approved by the
Parliament and gets the assent of the President, it becomes the Finance Act.

Basic concepts:
1. Assessment year / Income tax year [SEC. 2(9)]:
A person having income which is earned during the previous year is required to pay tax in the
next year called “assessment year”
It is also known as “income tax year” because we levied the taxes in the assessment year for
the pervious income.
Assessment year means the period starting from April 1 & ending on March 31 of the next
year. For instance, the assessment year 2026-27 which commences on April 1, 2026, will end
on March 31, 2027. It starts from immediately after the previous year ends.

2. Previous year [SEC 3]:

Income earned in a year is taxable in the next year. The year in which income is earned is
known as previous year & the next year in which income is taxable is known as assessment
year. Previous year means the financial year immediately preceding the assessment year.
The financial year will be uniform for all assesses & all sources of income.
In case of newly started business or profession the previous year will begin from the date of
starting the business or profession & will end with said financial year (i.e. 31st March).

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Assessee commenced the business on the following data:

• On 22nd April 2024

• On 1st July 2024

• On 20th October 2025

• On 15th March 2026

In each case what will be his assessment year & what period will be treated as previous year?

3. Person [SEC. 2(31)]:

The term “person” includes-
a. an individual
b. a Hindu undivided family
c. a company
d. a firm
e. an association of persons or a body of individuals, whether incorporated or not
f. a local authority
g. every artificial juridical person
These are seven categories of persons chargeable to tax under the act.
Problem 1:
Determine the status of the following:
1. Delhi University: Artificial Juridical Person
2. Life Insurance Corporation of India: a company
3. Delhi Municipal Corporation: a Local authority
4. Taxman Publications (P.) Ltd: a Company
5. Laxmi Commercial Bank Ltd: a Company
6. ABC Group Housing Co-operative Society: an association of persons
7. XY & Co., firm X & Y: a firm
8. A joint family of X, Mrs. X & their sons A & B: a HUF
9. Mr. ‘A’ director in the ABC (P.) Ltd: an Individual
10. X & Y who are legal heirs of Z (Z died in 2021 and X & Y carry on his business
without entering into partnership): an association of persons
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4. Assessee [SEC. 2(7)]:

“Assessee” means a person by whom income tax or any other sum of money is payable under
the Act. It includes-
a. Who is required to pay tax to the government.
b. Who is required to pay interest or penalty under the act.
c. Against whom income tax proceedings are going on to determine tax payable.
d. It is not necessary that the assessee pay tax on his own income. Sometimes he is liable
to pay tax on the income of other persons is known as “deemed to be an assessee”.
Example:
• After death of a person his legal representative will be treated as an assessee
for the income tax purpose.
• A person representing lunatic is treated as an assessee for the tax purpose.
e. A person who fails to pay tax or any other sum of money under the act is called
“assessee in default”.
f. Against whom income tax proceedings are going on to determine the refund of tax.

5. Income [SEC. 2(24)]:

The definition of the term “income” in section 2(24) is inclusive and not exhaustive.
Therefore, the term “income” not only includes those things that are included in section 2(24)
but also includes those things that the term signifies according to its general and natural
meaning. Under section 2(24) the term ‘income” specifically includes the following:
• Profits & gains
• Dividend
• Voluntary contributions received by a trust
• Perquisites in the hands of employee
• Any special allowance or benefit
• City compensatory allowance/Dearness allowance
• Any benefit or perquisite to a Director
• Capital gains
• Insurance profit
• Income of a banking of a Co-Operative Society
• Winnings from lottery

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6. Heads of Income [SEC. 14]:

According to Sec.14 of the Act, all income of a person shall be classified under the following
five heads:
1. Salaries
2. Income from house property
3. Profits and gains of business or profession
4. Capital gains
5. Income from other sources.
For computation of income, all taxable income should fall under any of the five heads of
income as mentioned above. If any type of income does not become part of any one of the
above mentioned first four heads, it should be part of the fifth head, i.e. Income from other
sources, which may be termed as the residual head.

Important rules:
• Income earned legally or illegally is taxed under this act.
• It is not necessary that income must be received regularly; even lump sum received can
also be taxed.
• Income received either in the form of cash or in the form of kind can also be taxed.
• Income tax is levied both on due basis or receipt basis whichever is earlier.

7. Charge on income tax [SEC. 4]:

The following basic principles are followed while charging tax:
a. Annual tax - Income-tax is an annual tax on income.
b. Tax rate of assessment year - Income of previous year is chargeable to tax in the next
following assessment year at the tax rates applicable for the assessment year. This rule
is, however, subject to some exceptions.
c. Rates fixed by Finance Act - Tax rates are fixed by the annual Finance Act and not by
the Income-tax Act. For instance, the Finance Act, 2025, fixes tax rates for the
assessment year 2026-27.
d. Tax on person - Tax is charged on every person.
e. Tax on total income - Tax is levied on the “total income” of every assessee computed
in accordance with the provisions of the Act.

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8. Gross total income [SEC. 2(14)]:

Gross total income means “a total income is calculated in accordance with the provisions of
income tax act before making deductions under sec 80C to 80U”. In other words, the
aggregate of all five heads of income. Following are the five heads of income -
a. Income from salary
b. Income from house property
c. Income from business or profession
d. Income from Capital gain
e. Income from other sources

9. Total income [SEC. 2(45)]:

When the gross total income is reduced by giving the deductions under Sec 80C to 80U, the
balance income left over is called Total Income. A person is required to pay tax on his total
income.
Table showing Gross Total Income & Total Income:
Particulars Amount (Rs)
Income from salary xxx
Income from house property xxx
Income from profession or business xxx
Capital gains xxx
Income from other sources xxx
Gross total income xxxx
Less: Deduction under sec 80C to 80U xx
Total income/Net Income/ Taxable Income xxxx

Capital receipt & Revenue receipt:

Receipts are two types- capital receipts & revenue receipts. The distinction between the two
is vital because capital receipts are exempt from tax unless they are expressly taxable. For
instance, capital gains are taxable under section 45 even if they are capital receipts. On the
other hand, revenue receipts are taxable, unless they are expressly exempt from tax. For
instance, income exempt under section 10.

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1. Fixed capital is capital receipt whereas circulating capital is revenue receipt.

2. Substitution of source is capital receipt whereas substitution of income is revenue
receipt.
3. Compensation for the surrender of rights is a capital receipt whereas compensation for
an agreement is revenue receipt.
4. Insurance received on capital asset is a capital receipt whereas insurance received on
trading asset is a revenue receipts.
5. Income from sale of any asset used in the business is capital receipt whereas sale of any
asset, which is purchased for resale, is revenue receipt.

Difference between exemption & deduction:

If an income is exempt from tax, it is not included in the computation of income. Exemption
can never exceed the amount of income. Deduction is generally given from income
chargeable to tax. Deduction can be less than or equal to or more than the amount of income.
If the amount deductible is more than the amount of income, the resulting amount will be
taken as a loss.

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Residential Status:
According to sec 4 of the act states that income tax to be charged on total income of a person.
Sec 5 states that total income is to be determined on the basis of residential status in India
during the previous year.
An assessee is either:
a. Resident in India
or
b. Non –resident in India
However, a resident individual or a Hindu undivided family has to be resident & ordinarily
resident, or resident but not ordinarily resident. Therefore, an individual & a HUF can either
be:
• Resident & ordinarily resident
• Resident but not ordinarily resident
• Non resident
Determination of residential status of an individual:
The residential status of an individual is determined on the basis of rules stated further.
• Basic conditions [SEC. 6(1)]
• Additional conditions [SEC. 6(6)]

Basic condition [SEC. 6(1)]:

An individual is said to be resident in India in any previous year, if he satisfies at least one
of the following basic conditions-
a. He is in India in the previous year for a period of 182 days or more.
OR
b. He is in India for a period of 60 days or more during the previous year & 365 days or
more during 4 years immediately preceding the previous year.

Exceptions for 60 days:

• An Indian citizen who leaves India during the previous year for the purpose of
employment outside India, he has been in India for 182 days instead of 60 days.
• Indian citizen or a person of Indian origin who comes on a visit to India during the
previous year, he has been in India for a period of 182 days instead of 60 days.

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Additional conditions [SEC. 6(6)]:

1. He has been resident in India at least 2 out of 10 previous years immediately preceding
the relevant previous year.
2. He has been in India for a period of 730 days or more during 7 years immediately
preceding the relevant previous year.

Exceptions:
Even if an individual satisfies none of the two basic conditions, he is deemed to be resident
but not ordinarily resident in the cases given below-
First exception: This exception is given under section 6(1A) with Section 6(6) and applicable
from the assessment year 2021-22. Under this exception an individual shall be deemed to be
resident but not ordinarily resident in India, if he satisfies the following 3 conditions –
a. He is an Indian citizen;
b. His total income (other than the income from foreign sources) exceeds ₹15,00,000
during the relevant previous year, and
c. He is not liable to tax in any other country or territory by reason of his domicile or
residence or any other criteria of similar nature.
The rule given by above exception is not applicable in the case of an individual who becomes
resident in India by satisfying any of the basic conditions given by section 6(1). Moreover,
the above exception is not applicable in the case of a foreign citizen (even if he is a person of
Indian origin).

Second exception: this exception is given by section 6(6) with explanation to section 6(1) and
applicable from the assessment year 2021-22. Under this exception, an individual shall be
deemed to be resident but not ordinarily resident in India if he satisfies the following 4
conditions –
a. He is an Indian citizen or a person of Indian origin;
b. His total income (other than the income from foreign sources) exceeds ₹15,00,000
during the relevant previous year;
c. He comes to India on a visit during the relevant previous year, and
d. He is in India for 120 days (or more but less than 182 days) during the relevant
previous year and 365 days (or more) during 4 years immediately preceding the
relevant previous year.

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Note:
For computing ₹15,00,000 only taxable income shall be considered. If income is exempt, it
shall not be taken into consideration even if it is derived/received in India.

Determination of Residential Status:

Resident and ordinarily resident in India He must satisfy at least one of the basic
conditions. At the same time, he should also
satisfy the two additional conditions.
Resident but not ordinarily resident in He must satisfy at least one of the basic
India conditions. He may satisfy one or none of the
additional conditions.
Non-resident resident in India He satisfies none of the basic conditions.
Additional conditions are not relevant in the
case of a non-resident

Resident & ordinarily resident:

An individual will be ordinarily resident in India if he fulfils one of the basic conditions &
both the additional conditions.

Basic Condition Additional Condition

1 YES NO 1 YES
OR AND
2 NA YES 2 YES

Resident but not ordinarily resident:

An individual must fulfil one or both the basic conditions but fails to fulfil one or both the
additional conditions.

Basic Condition Additional Condition

1 YES NO 1 YES NO NO
OR AND
2 NA YES 2 NO YES NO

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Non-resident:
An individual who fulfils none of the basic conditions will be treated as non-resident.

Basic Condition Additional Condition

1 NO 1 NA
OR AND
2 NO 2 NA

Incidence of Tax:
Tax liability of an individual not only depends on the residential status, but also on total
income, Sec 5 deals with the incidence of income tax. This section gives a discussion on
different types of income taxable in the hands of ordinary resident, not ordinary resident &
non-resident.

1. Income received:
An assessee is required to pay on income received in India. Any income is said to have been
received in India, when it is received for the first time. Hence subsequent remittance will not
be regarded as income received.
For ex: If a person receives interest from bank in London on his bank account, the first
receipt taken place in London. If it is subsequently remitted to his bank account in India &
collected on his subsequent visit to India, this cannot be treated as received in India.

2. Incomes deemed to be received:

Sometimes the act assumes that certain incomes as received though they are not actually
received. Such presumed receipts are known as incomes deemed to be received i.e. incomes
are not actually received during the previous year but only expected to be received.
For example:
• Annual accretion to provident fund account of an employee
• Any dividend declared or distributed or paid by a company [it is exempted u\s 10(34)]
• Tax deducted at source
If an assessee has kept a bank deposit of Rs100000 at 10% pa, while paying interest the
manager deducts tax at sources Rs10000 & depositor has to declare interest income as
Rs10000 (9000+1000) & not Rs9000, where in Rs9000 is received income & Rs1000
income deemed to be received.
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3. Income accrued or arise:

When an assessee gets a right to receive some income, that income is said to have been
accrued in India. Such incomes which accrue or arise in the hands of an assessee in India
during the previous year will be taxed in the hands of an assessee whether received or not.
For ex: when a person keeps a bank deposit of Rs10000 on 1.4.2020 at 5%p.a. for a period of
one year, he gets the right to receive interest of Rs500 on 31.3.2021. Hence interest accrued
in the previous year 2020-21.

4. Income deemed to accrue or arise:

The incomes which are not accrued in India during the previous year, but presumed by the act
accrued in the hands of the assessee are called income deemed to accrue in India. For ex:
• Salary paid by the Indian government to its employees rendering service abroad.
• Income from transfer of capital asset.
• Income from property in India.
• Income from any business connection in India.

Calculation of tax liability of an individual with their residential status:

Table showing the tax liability on total income of individuals with their residential status:
Whether assessee required to pay tax or not
Sl. no Types of Incomes Ordinary Not ordinary
Non-resident
resident resident
Incomes received or deemed to be
1. received in India, whether accrued in Yes Yes Yes
India or not.

Incomes accrued or arise or deemed to

2. accrue or arise in India whether received Yes Yes Yes
or not.
Incomes accrued or arise outside India
3. from business controlled from India or Yes Yes No
profession set up in India.
Incomes accrued & received anywhere
4. Yes No No
outside India.
Past foreign income whether taxed or not
5. brought into India during the previous No No No
year.

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Connotation of receipt of income:

Income received in India is taxable in all cases irrespective of residential status of an
assessee. The following points are worth mentioning in this respect:
Receipts vs. Remittance:
The receipt of income refers to the first occasion when the recipient gets the money under his
control. Once an amount is received as income, any remittance or transmission of the amount
to another place does not result in receipt at the other place.
Cash vs. Kind:
It is not necessary that income should be received in cash. Income may be received in cash or
in kind. For instance, value of a free residential house provided to an employee is taxable as
salary in the hands of the employee though the income is not received in cash.
Receipt vs. Accrual:
Receipt is not the sole test of chargeability to tax. If an income is not taxable on receipt basis,
it may be taxable on accrual basis.
Actual receipt vs. Deemed receipt:
It is not necessary that an income should be actually received in India in order to attract tax
liability. An income deemed to be received in India in the previous year is also included in
the taxable income of the assessee.

Connotation of accrual of income:

Income accrued in India is chargeable to tax in all cases irrespective of residential status of an
assessee. The words “accrue” & “arise” are used in contradistinction to the word “receive”.
Income is said to be received when it reaches the assessee; when the right to receive the
income becomes vested in the assessee, it is said to accrue or arise.

Tax Planning:
Tax planning is a way to reduce tax liability by taking full advantages provided by the Act
through various exemptions, deductions, rebates & relief. In other words, it is a way to reduce
tax liability by applying script & moral of law. It is the scientific planning so as to attract
minimum tax liability or postponement of tax liability for the subsequent period by availing
various incentives, concessions, allowance, rebates and relief provided in the Act.

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Tax planning can be defined as an arrangement of one’s financial & economic affairs by
taking complete legitimate benefit of all deductions, exemptions, allowances & rebates so
that tax liability reduces to minimum.
Features of Tax Planning:
• It comprises arrangements by which tax laws are fully complied.
• All legal obligations & transactions are met.
• There is no intention to deceit the legal spirit behind the tax law.

Tax Avoidance:
Tax avoidance is an exercise by which the assessee legally takes advantages of loopholes in
the Act. Tax avoidance is a practice of bending the law without breaking it. It is a way to
reduce tax liability by applying script of law only. Most of the amendments are aimed to curb
such loopholes. Tax avoidance is the legal utilization of the tax regime to one's own
advantage, to reduce the amount of tax that is payable by means that are within the law. Tax
avoidance is reducing or negating tax liability in legally permissible ways & has legal
sanction.
Features of Tax Avoidance:
• Legitimate arrangement of affairs in such a way so as to minimize tax liability.
• Avoidance of tax is not tax evasion & carries no public disgrace with it.
• An act valid in law cannot be treated as fictitious merely on the basis of some
underlying motive supposedly resulting in lower payment of tax to authorities.
• There is no element of mala fide motive involved in tax avoidance.

Tax Evasion:
All methods by which tax liability is illegally avoided are termed as tax evasion. An assessee
guilty of tax evasion may be punished under the relevant laws. Tax evasion may involve
stating an untrue statement knowingly, submitting misleading documents, suppression of
facts, not maintaining proper accounts of income earned (if required under law), omission of
material facts on assessment. Tax evasion is the illegal way to reduce tax liability by
deliberately suppressing income or sale or by increasing expenses, etc., which results in
reduction of total income of the assessee. Tax evasion is illegal, both in script & moral. It is
the cancer of modern society and work as a clog in the development of the nation.

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Distinguish between Tax Planning, Tax Evasion, Tax Avoidance and Tax Management:
Points of
Tax Planning Tax Avoidance Tax Evasion Tax Management
distinction
Definition It is a way to reduce tax It is an exercise by
It is the illegal way to It is a procedure to
liability by taking full which the assesseereduce tax liability comply with the
advantages provided by legally takes
by deliberately provisions of the
the Act through various advantage of the suppressing income or law.
exemptions, deductions, loopholes in the sale or by increasing
rebates & relief. Act. expenses, etc., which
results in reduction of
total income of the
assessee.
Feature Tax planning is a Tax avoidance is a Tax evasion is illegal, It is implementation
practice to follow the practice of both in script & moral. or execution
provisions of law within bending the law part of taxation
the moral framework. without breaking it. department of an
organisation.
Object To reduce tax liability To reduce the tax To reduce tax liability To comply with the
by applying script & liability to the by applying unfair provisions of laws.
moral of law. minimum by means.
applying script of
law only
Approach It is futuristic and It is futuristic but It is concerned with It is a continuous
positive in nature. short term in nature, past and applied after approach, which is
The planning is made as loophole of the the liability of tax has concerned with past
today to avail benefits law will be arisen. It is done with (rectification,
in future. corrected in future negative approach to revisions etc.),
by amendments of avail benefits by present (filing of
the law. killing the moral of return, etc.) & future
law. (corrective action).
Benefit Generally, arises in long Generally, arises Generally, benefits Penalty, interest &
run. in short run. do not arise but it prosecution can be
causes penalty and avoided.
prosecution.
Treatment It uses benefits of the It uses loopholes in It overrules the law. It implements the
of Law law. the law. law.

Practice It is tax saving. It is tax hedging. It is tax concealment. It is tax

administration.
Need It is desirable It is avoidable It is objectionable It is essential.
Morality It is moral in nature. It is immoral in It is illegal. It is duty.
nature

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Incomes which do not form part of Total Income (Sec.10):

1 Agricultural Income [Sec. 10(1)]
2 Member’s Share in Income of HUF [Sec. 10(2)]
3 Share of Profit from a Firm [Sec. 10(2A)]
4 Leave Travel Concession [Sec. 10(5)]
5 Tax paid by Government on Royalty or Fees for Technical Service [Sec. 10(6A)]
6 Tax paid by Government on Income of a Non-resident or a Foreign Company [Sec. 10(6B)]
7 Tax paid on Income from Leasing of Aircraft [Sec. 10(6BB)]
8 Fees for Technical Services in Project connected with Security of India [Sec. 10(6C)]
9 Income from service provided to National Technical Research Organisation [Sec. 10(6D)]
10 Allowance or Perquisite paid Outside India [Sec. 10(7)]
11 Death-cum-retirement-gratuity [Sec. 10(10)]
12 Commutation of Pension [Sec. 10(10A)]
13 Leave Encashment [Sec. 10(10AA)]
14 Workmen’s Retrenchment Compensation [Sec. 10(10B)]
15 Compensation under Bhopal Gas Leak Disaster Act, 1985 [Sec. 10(10BB)]
16 Compensation for any Disaster [Sec. 10(10BC)]
17 Payment under Voluntary Retirement Scheme [Sec. 10(10C)]
18 Sum received under a Life Insurance Policy [Sec. 10(10D)]
19 Payment from Statutory or Public Provident Fund [Sec. 10(11)]
20 Payment from Sukanya Samriddhi Account [Sec. 10(11A)]
21 Payment from Recognised Provident Fund [Sec. 10(12)]
22 Payment from National Pension Trust [Sec. 10(12A) & 10(12B)]
23 Payment from Approved Superannuation Fund [Sec. 10(13)]
24 House Rent Allowance [Sec. 10(13A)]
25 Notified Special Allowances [Sec. 10(14)]
26 Interest on Securities [Sec. 10(15)]
27 Daily Allowance, etc. to MP and MLA [Sec. 10(17)]
28 Family Pension to Widow or Children of Armed Force [Sec. 10(19)]
29 Income of Scientific Research Association [Sec. 10(21)]
30 Income of Professional Institutions [Sec. 10(23A)]

18 Dr. Vinay H V, Associate Professor, BMSIT&M, Bengaluru

 Tax Management – MMBA4F1 MBA 2025-26

Problems on Residential Status

1. X left India for the first time on May 20, 2023. During the financial year 2025-26, he came to
India once on May 27 for a period of 53 days. Determine his residential status for the
assessment year 2026-27.

2. X comes to India, for the first time, on April 16, 2023. During his stay in India up to October
5, 2025, he stays at Delhi up to April 10, 2025 and thereafter remains in Chennai till his
departure from India. Determine his residential status for the assessment year 2026-27.

3. X, a foreign national (not being a person of Indian origin), comes to India for the first time on
April 15, 2019. During the financial years 2021-22, 2022-23, 2023-24, 2024-25 & 2025-26
he is in India for 130 days, 80 days, 13 days, 210 days, & 75 days respectively. Determine the
residential status of X for the assessment year 2026-27.

4. X, a foreign citizen (not being a person of Indian origin), leaves India for the first time in the
last 20 years on November 20, 2023. During the calendar year 2024, he comes to India on
September 1 for a period of 30 days. During the calendar year 2025, he does not visit India at
all but comes to India on January 16, 2026. Determine the residential status of X for the
assessment year 2026-27.

5. X is a foreign citizen (not being a person of Indian origin). During the financial year 2025-26,
he came to India for 70 days. Determine his residential status for the assessment year 2026-27
on the assumption that during financial years 2011-12 to 2024-25, he was present in India as
follows:
2024-25 100 days 2017-18 181 days
2023-24 80 days 2016-17 90 days
2022-23 60 days 2015-16 71 days
2021-22 126 days 2014-15 4 days
2020-21 80 days 2013-14 8 days
2019-20 70 days 2012-13 55 days
2018-19 23 days 2011-12 298 days

6. X, an Indian citizen, who is appointed as senior taxation officer by the Government of Nigeria, leaves
India, for the first time, on September 26, 2025 for joining his duties in Nigeria. During the previous
year 2026-27, he comes to India for 116 days. Determine the residential status of X for the assessment
years 2026-27 & 2027-28.

7. X, an Indian citizen, leaves India for the first time on September 20, 2023 for the purpose of
employment. He comes to India for a visit of 146 days on April 10, 2024. He finally comes back on
May 16, 2025. Find out the residential status of X for the assessment year 2026-27.

8. X is a foreign citizen (not being a person of Indian origin). Since 1981, he visits India every
year in the month of April for 100 days. Find out the residential status of X for the
assessment year 2026-27.

19 Dr. Vinay H V, Associate Professor, BMSIT&M, Bengaluru

 Tax Management – MMBA4F1 MBA 2025-26

9. X is an Indian citizen. Currently, he is in employment with an overseas company located in

Dubai. During different years, he is in India as follows –

Previous Year Presence in India Previous Year Presence in India Previous Year Presence in India
2025-26 55 days 2022-23 170 days 2019-20 70 days
2024-25 190 days 2021-22 200 days 2018-19 71 days
2023-24 200 days 2020-21 250 days 2017-18 72 days
For the previous year 2025-26, X is not taxable in Dubai or in any other country/territory by
reason of his domicile or residence. Income of X (other than from foreign sources) for the
previous year 2025-26 is ₹16,00,000. Find out the residential status of X for the assessment
year 2026-27.

20 Dr. Vinay H V, Associate Professor, BMSIT&M, Bengaluru

 Tax Management – MMBA4F1 MBA 2025-26

Problems on Incidence of Tax

1. For the assessment year 2026-27 (previous year 2025-26), X is employed in India and gets
₹6,00,000 (after standard deduction) as salary. His income from other sources includes:
Dividend received in London on June 3, 2025: ₹1,00,000 from a foreign company; share of
profit received in London on December 15, 2025 from a business situated in Sri Lanka but
controlled from India: ₹2,00,000; remittance from London on January 15, 2026 out of past
untaxed profit of 2024-25 earned & received there: ₹3,00,000 & interest earned & received in
India on May 11, 2026: ₹1,92,000.
Find out his gross total income, if he is (a) resident & ordinarily resident, (b) resident but not
ordinarily resident, & (c) non-resident for the assessment year 2024-25.

2. X is resident & ordinarily resident in India for the assessment year 2026-27. He gives the
following information in respect of his income for the previous year 2025-26:
➢ Capital gain on sale of a house situated in Pune (sale consideration is received in
Nepal): ₹10,00,000.
➢ Salary received in Sri Lanka for rendering service in Tamilnadu (Salary after standard
deduction being ₹1,60,000): ₹.1,60,000.
➢ Interest received from Government of India (it is paid to him in Sri Lanka, the money
is utilized by the Government outside India): ₹.2,56,000
➢ Royalty received from A Ltd. (a foreign company which is non-resident in India)
outside India (royalty is paid for a manufacturing business situated outside India):
₹92,00,000
Find out the taxable income of X for the assessment year 2026-27.

3. X furnishes the following particulars of his income earned during the previous year relevant
to the assessment year 2026-27: ₹.
Interest on German Development Bonds (two-fifths is received in India) 60,000
Income from agriculture in Bangladesh, received there but later on ₹50,000
is remitted to India (agricultural activity is controlled from Bangladesh) 1,81,000
Income from property in Canada received outside India (₹76000 is used in
Canada for meeting educational expenses of X’s daughter in USA &
₹10,000 is later on remitted to India) 86,000
Income earned from business in Kampala (Uganda) which is controlled
from Delhi (₹15,000 is received in India) 65,000
Dividend paid by a foreign company but received in India on April 10, 2025 46,500
Past untaxed profit of 2021-22 brought to India in 2025-26 10,43,000
Profits from a business in Chennai & managed from outside India 27,000
Profits on sale of a building in India but received in Sri Lanka 14,80,000
Pension from a former employer in India, received in Rangoon 36,000
Gift in foreign currency from a friend received in India on January 20, 2026 80,000
Find out the gross total income of X, if he is (a) resident & ordinarily resident, (b) resident
but not ordinarily resident, & (c) non-resident for the assessment year 2026-27.

21 Dr. Vinay H V, Associate Professor, BMSIT&M, Bengaluru

 Tax Management – MMBA4F1 MBA 2025-26

4. The following are the incomes of Shri Ram Prasad for the previous year 2025-26:
➢ Profit from business in Iran received in India ₹5,000
➢ Income from house property in Iran received in India ₹500
➢ Income from house property in Nepal deposited in a bank there ₹1,000
➢ Profits of business established in Japan deposited in a bank there ₹20,000 (out of
₹20,000 a sum of ₹10,000 is brought into India) this business is controlled from India.
➢ Accrued in India but received in England ₹2,000
➢ Profit earned from business in Kanpur ₹6,000
➢ Income from agriculture in England – it is all spent on the education of children in
London ₹5,000
➢ Past untaxed foreign income brought into India during the previous year ₹10,000.
From the above particulars ascertain the taxable income of Shri Ram Prasad for the previous
year 2025-26 if Shri Ram Prasad is (i) a resident, (ii) a not ordinarily resident, & (iii) a non-
resident.

5. The following are the incomes of Shri Kishan Lal for the previous year 2025-26:
➢ Income from agriculture in Europe ₹30,000
➢ Income from salary received in India but the services were rendered in Nepal
(computed) ₹12,000
➢ Income from a business carried on in India ₹12,000
➢ Dividend from a Domestic Company ₹2,000
➢ Income earned & received in Bangladesh from bank deposits there ₹6,000
➢ Income from business in Ceylon but controlled from India & remitted to India
₹14,000
Compute Shri Kishan Lal’s gross total income for the A.Y. 2026-27 if he is: (i) a resident, (ii)
a not ordinarily resident, & (iii) a non-resident.

******

22 Dr. Vinay H V, Associate Professor, BMSIT&M, Bengaluru