Module 1

Basic Concepts: Income - Agricultural income - Person - Assessee -

Assessment Year - Previous Year - Gross total income - Total
income - Maximum marginal rate of tax - Residential status -
Scope of total income on the basis of residential status –Exempted
incomes.
(10 hours)-
 Tax
• A tax is a compulsory financial charge imposed upon a taxpayer (an
individual or legal entity) by a governmental organization in order
to fund government spending and various public expenditures.
Taxes are classified into two:
1-Direct Tax
2-Indirect Tax
This classification is based on impact and incidence of tax.
• Impact refers to the initial burden of the tax
• Incidence refers to the ultimate burden of the tax.
Direct Tax
• In Direct Tax, impact and Incidence are on the same
person. That person cannot shift the tax burden to
any other person
• e.g. income tax, wealth tax, building tax, etc.
 Indirect Taxes
• In the case of Indirect tax, impact and Incidence are on
different persons. That is initial burden is on the
manufacturer/seller and final burden is on the end user
that is consumer. That is, the assessee can shift the
burden to consumers.
• Example: Goods and Services Tax , Excise Duty, etc.
Basic Concepts of Income Tax
• An income tax is an annual tax that governments impose
on income generated by businesses and individuals
within their jurisdiction.
 Basis of Charge of Income Tax (Section 4)
How to charge Tax on Income
The following basic principles emerge from the charging Section. To
know the procedure for charging tax on income, one should be
familiar with these.
1. Income Tax is an annul tax on income
2. Income of the previous year is taxable in the next following
assessment year at the rate applicable to that assessment year.
3. Tax rates are fixed by the Annual Finance Act.
Provisions for computation of taxable income are given by the
Income Tax Act, [Link] rates are given by the Annual Finance Act
which is passed by Parliament along with Union Budget every year.
4. Tax is charged on every person as defined in Section 2(31)
5. The tax is charged on the total income of every person
computed in accordance with the provisions of the Act
6. Income tax is to be deducted at the sources or paid in advance
as provided under provisions of the Act.
Heads of income
• The Total income is computed on the basis of the residential status
of the assessee and is classified into the following five heads:
1. Income from Salaries
2. Income from House property
3. Profits and gains of Business or Profession
4. Capital Gains
5. Income from other sources.
 Heads of income
Amount
1) Income from Salaries XXX
2) Income from House property XXX
3) Profits and gains of Business or Profession(PGBP) XXX
4) Capital Gains XXX
5) Income from other sources. XXX
Gross Total Income XXXX
Less: Deductions U/s 80 XXX
Total Income XXXX
 Important definitions
• Assessment Year [Section 2(9)]
Assessment year means the period of 12 months commencing on the
first day of April every year and ending on 31st March of the next
year. This is the financial year in which income earned during the
previous year is assessed and taxed.
An assessee is liable to file return on the income of the previous
year during the next following assessment year.
Eg: During the Assessment year 2025-26, tax shall be assessed on
the income of the previous year 2024-25.
Previous year [Section 3]
Previous year means the financial year immediately preceding the
assessment year. Financial year begins on 1st April and ends on 31st
March of the next year. In other words, the year in which income is
earned is known as previous year.
Previous Year 2024-25 (1-4-2024 to 31-3-2025)
 Taxation of Previous year’s income during the
same year is in the following cases.
• Income Tax is charged on the income of previous year
during the assessment year. This is the general rule.
• However, there are certain exceptions to this rule. In the
following cases, assessee is liable to be assessed to tax
in the same year in which he earns the income.
1. Income of non-resident from shipping
business (Section 172):
In the case of a non resident carrying shipping business,
any income derived from carrying passengers, livestock or
goods shipped at a port in India, it will be taxed in the year
of its earning.
2. Income of persons leaving India permanently
or for a long period (Section 174):
If a person is leaving India permanently or for long
period, the total income for period from the expiry of
the Previous Year up to the probable date of
departure from India shall be charged to tax in the
same assessment year.
3. Association of persons or a body of individuals or an
artificial juridical person formed for a particular event or
purpose and is likely to be dissolved in the assessment year
in which it is formed or immediately after such assessment
year. (Section 174A)
 4. Transfer of property to avoid tax (Section 175):

The total income for the period from the expiry of the
previous year for that AY up to the date of commencement of
income tax proceedings shall be chargeable to tax in that
Assessment Year.
5. On discontinuance of a business or profession
(Section 176):

The total income for the period from the expiry of the
previous year for that Assessment Year (in which it is
discontinued) up to the date of its discontinuance shall be
chargeable to tax in that Assessment Year.
The tax in the above 5 cases shall be charged at the rates
prescribed for payment of advance tax during the relevant
financial year.
 Person Section 2(31)
Person includes the following:
1. An individual
2. A Hindu Undivided Family (HUF)
3. A Company
4. A Firm
5. An Association of persons or a body of Individuals
6. A local authority
7. Every artificial juridical person, not falling within any of the
above
(Eg: Universities) .
 Person Section 2(31)
1. Individual. It refers to a natural human being whether male or
female, minor or major.
2. Hindu Undivided Family(HUF) : Under the Income Tax Act, a
Hindu Undivided Family is treated as a separate entity for the
purpose of assessment.
• A Hindu Undivided Family means a Hindu family which
consists of all persons lineally descended from a common
ancestor including their wives and daughters.
• The manager of HUF is called “Karta” and its members are called
„Coparceners‟.
• Jain and Sikh families are considered as Hindus Undivided
Families for the purpose of Income Tax Act.
3. Company. It is an artificial person registered under Indian
Companies Act 1956(or Companies Act 2013) or any other
law.
4. Firm. It is an entity which comes into existence as a result of
partnership agreement between persons to share profits of the
business carried on by all or any one of them.
5. Association of Persons or Body of Individuals.:
•Association of Persons : It is an integration of persons for a mutual
benefit or a common purpose with the object of producing income,
profits or gains.
When persons combine together to carry on a joint enterprise and they
do not constitute partnership under the ambit of law, they are assessable
as an association of persons.
An AOP can have firms, companies, associations and individuals as its
members. i.e. any person can be its member. Eg: Co-operative societies,
MARKFED, NAFED etc.
•Body of Individuals : Where group of individuals come together for a
common goal with a view to earn income/ profits is termed as a BOI.
A body of individuals (BOl) can have only individuals as its members.
BOI comprises of only individuals, whereas an AOP could include legal
entities such as companies, firms, etc.
6. Local Authority. Municipality, Municipal Corporation,
Cantonment Board, Port Trust etc. are called local authorities.
7. Artificial Juridical Person. A public corporation established
under special Act of legislature and a body having juristic
personality of its own are known to be Artificial Juridical
Persons.
Eg: Universities, RBI, etc.
Assessee Section 2(7)
• An assessee means a person:
1. Who is liable to pay any tax or any other sum of money under this
Act(Eg: interest, penalty, etc) (First category)
2. In respect of whom any proceeding under this Act has been taken.
(second category)
Proceedings may be for the assessment of: a) his income or of the
loss sustained by him b) income or loss of any other person in
respect of which he is assessable c) of the amount of refund due to
him or to such other person.
3. Who is deemed to be an assessee (Third category)
4. Who is deemed to be an assessee in default. (Fourth category)
Deemed to be an assessee
• A person who is deemed to be an assessee for some other
person is called deemed assessee.
• Eg: After the death of a person, his legal representative will be
treated as an assessee for that income of the deceased on which
tax has not been paid by the deceased before his death.
• Eg: A person representing a minor or lunatic is treated as an
assessee for the income of such minor or lunatic.
 Assessee in default
• Assessee in default is a person who has failed to fulfil his
statutory obligations as per the Income Tax Act.
Eg: 1) If a person, who is liable to deduct income tax at source and
deposit it to Government, does not do so, he will be treated as an
assessee in default.
2) If a person, who is liable to pay advance tax, does not pay
advance tax, he shall be deemed to be a an assessee in default.
3)When any sum is payable by a person as a result of any order
passed under the IT Act and a notice of demand is issued to him
U/S 156 and the amount is not paid within 30 days, he shall be
deemed to be an assessee in default.
Eg:
• 1) Income of Mr X is Rs 100,000 for the AY 2024-25. (PY 23-24). He does
not file his return of income as his income is less than the exempted
slab. He is not an assessee
• 2) Income of Mr Y is more than the exempted slab. He does not file his
return of income. He is an assesssee.
• 3) Income of Mr Z is Rs 100,000. He files his return of income. He is an
assessee.
• 4) Income of Mr A is Rs 100,000. He files his return of income to claim
refund. He is an assessee.
• 5) Income of Mr B is Rs 100,000. He paid salary of Rs 500,000 to an
employee. He did not deduct tax at source. He is an assessee.
Gross Total Income 80(B)
It means the total income computed in accordance with the provisions
of the Income Tax Act, before making any deductions under Sections
80C to 80U.
Total Income Section 2(45)
Total Income means the total income computed in accordance
with the provisions of the Income Tax Act after making
deductions under Sections 80 C to 80 U from the Gross Total
Income.
 Residential Status
The scope of total income of an assessee is determined with reference to his
residence in India in the Previous Year. In other words, the total income of
each person is based upon his residential status.
Tax incidence on an assessee depends on his residential status.
 What is relevance of residential status?
There are two types of taxpayers:
Resident in India and Non-resident in India.
Indian income (income accrued or received in India) is taxable
in India whether the person earning income is resident or non-
resident.
Foreign income (income accrued and received in India) of a
person is taxable in India only if such person is resident in
India.
Foreign income of a non-resident is not taxable in India.
What one must know for deciding residential status?

Different taxable entities: All taxable entities are divided in the

following categories for the purpose of determining residential status.
a. An individual
b. A Hindu undivided family
c. A firm or an Association of Person
d. A Joint stock company
e. Every other person.
Different residential status
An assessee is either :
a) Resident in India
b) Non-resident in India.
However, a resident individual or an HUF has to be:
a) Resident and ordinarily resident
b) Resident but not ordinarily resident.
Therefore: an individual and an HUF can be:
a) Resident and Ordinarily Resident in India
b) Resident but not ordinarily resident in India
c) Non-resident in India.
Residential Status of an individual(Sec 6)
An individual may be:
1) Resident and ordinarily resident (Ordinarily resident)
2)Resident but not ordinarily resident Persons (Not ordinarily resident)
3) Non-Resident
Residential Status of individuals Sec 6(1)

Residential Status
of Individuals

Resident Non-Resident

Resident but
Resident and
Ordinarily Not- Ordinarily
resident resident
 Procedure for determining residential status of individual

Step 1: First, find out whether such individual is resident in India

(By Checking whether he satisfies any of the basic conditions or not)
Step 2: If such individual is resident in India, then find out whether he
is a ordinarily resident in India or a not-ordinarily resident in India
(by checking satisfaction of both the additional conditions).

However, if such individual is a non-resident in India, then no further

investigation is necessary.
Basic conditions to test as to when an individual is resident in India

Basic He is in India in that previous year for 182 days or

Condition (a) more
Basic He is in India in that previous year for 60 days or more
Condition (b) and 365 days or more in the 4 years immediately
preceding that previous year
A)Resident Indian: If an individual satisfies any of the above basic
conditions(a) or (b), he is said to be Resident in India
B) Non-resident Indian: If an individual satisfies none of the above
basic conditions (a) and (b), he is said to be Non-resident Indian
 Additional conditions
Additional He has been resident in India in at least 2 out of 10 previous
Condition (i) years immediately preceding the relevant previous year.
Additional He has been in India for a period of 730 days or more during
Condition (ii) the seven previous years immediately preceding the
relevant previous year.
• If a resident individual satisfies both the above additional
conditions, he will be treated as resident and ordinarily resident
(i.e. Ordinarily Resident)
• If not(i.e. fails to satisfy both the above conditions), he will be
treated as resident but not ordinarily resident (Not Ordinarily
Resident
Deemed Resident
• An Indian citizen, whose Indian income exceeds Rs 15 lakhs
during the previous year and is not liable to pay tax in any
other country or territory by reason of his domicile or residence
or any other criteria of similar nature, shall be deemed to be
resident in India. He shall be treated as Not ordinarily resident
in India.
• "The above rule of determining a person as a 'deemed resident' of
India will only be applicable where the normal rule of residency based
on the individual's physical presence in India during the relevant
previous year and/or past four tax years is not applicable."
1-Ordinarily resident
An individual becomes ordinarily resident in India if he satisfies
at least one of the basic conditions [i.e (a) or (b)] and the two
additional conditions(i.e. (i) and (ii)
2-Not ordinarily resident
An individual becomes Not ordinarily resident in India if he
satisfies at least one of the basic conditions (i.e (a) or (b) but does
not satisfy the two additional conditions(i.e. (i) and (ii)
 A resident individual is said to be Not
ordinarily Resident in India if:
1. He has been a resident in India in less than 2 out of 10 previous
years immediately preceding the relevant previous year; or
2. He has been in India for less than 730 days during the 7 previous
years immediately preceding the relevant previous year; or
3. He is an Indian citizen or a foreign national of Indian origin, who
normally resides outside India, comes on a visit to India during the
previous year having Indian income exceeding Rs 15 lakh during
the previous year and has been in India for a period amounting in
all to 120 days or more but less than 182 days during the relevant
previous year;or
4. An Indian Citizen who is deemed to be resident.
3- Non-Resident
An individual is a non-resident in India if he satisfies none of the
basic conditions (i.e. (a) or (b).
 Exceptions to the above rule
1) An Indian Citizen, who leaves India during the previous year for
employment purpose(business or profession) or for joining as a
member of crew of an Indian ship.
2) An Indian citizen or a foreign national of Indian origin, who normally
resides outside India, comes on a visit to India during the previous year
and his Indian income is up to Rs 15 lakh during the previous year .
Above assessees shall be treated as resident in India only if they reside in
India for 182 days or more in the relevant previous year.
3) In the case of an Indian citizen or a foreign national of Indian origin,
who normally resides outside India, comes on a visit to India during the
previous year having Indian income exceeding Rs 15 lakh during the
previous year, second basic condition is:
He has been in India for at least 120 days in the previous year and has
been in India during the 4 years immediately preceding the relevant
previous year for a total period of 365 days or more.
4) In the case of deemed resident.
 Note:
• A person is deemed to be of Indian origin if he or either of his parents or
grand parents was born in undivided India.
Illustration 1
Sam, a foreign national, came to India first time during the PY 2024-25.
Determine his residential status for the AY 2025-26, if he stayed in
India during the PY for:
(1) 50 days
(2) 190 days
(3) 153 days.
Answer
1. Since Sam resides in India only for 50 days during the PY, he does
not satisfy any of the basic conditions. He is, therefore, a
non-resident in India.
2. Since Sam resides in India for 190 days during the PY, he satisfy
the basic condition. He is, therefore, a resident in India. However,
since he fails to satisfy both the additional conditions, he is
resident but not ordinarily resident in India.
3. Though Sam resides in India for 153 days during the PY, he did
not reside for 365 days or more during the 4 previous years
immediately preceding the PY. Thus, he does not satisfy any of the
basic conditions. He is, therefore, a non-resident in India.
Illustration 2
Andrews, a British national, came to India for the first time
during 2020-21. During the financial years 2020-21, 2021-22,
2022-23, 2023-24 and 2024-25, he was in India for 75 days, 60
days, 80 days, 160 days and 70 days respectively. Determine his
residential status for the assessment year 2025-26.
Answer Step 1: Checking of satisfaction of any of the two basic condition:
Basic condition (a):At least 182 days in the PY.
PY No. Of
days Basic condition(a) is not satisfied since he is not in India during the PY
PY 2024-25 70 2024-25 for a period of at least 182 days.
1 2023-24 160 Basic condition (b): At least 60 days in PY and 365 in 4 PYs
2 2022-23 80
immediately preceding the PY
3 2021-22 60 Number of days in the PY 2024-25 in India= 70
4 2020-21 75 Number of days in the 4 PYs immediately preceding the PY= 375
5 2019-20 0 Basic condition(b) is satisfied. Therefore, he is Resident in India for the
PY 2024-25.
6 2018-19 0
Step 2: Checking of satisfaction of both the additional conditions:
7 2017-18 0
i and ii: Resident in 2 PYs out of 10 PYs immediately preceding the PY
8 2016-17 0
and 730 days in 7 PYs immediately preceding the PY
9 2015-16 0
He does not satisfy both the additional conditions. Hence, he is
10 2014-15 0 Resident but not ordinarily resident. That is, he a Not Ordinarily
Resident
Illustration 2-a
Thomas, a British national, comes to India for the first time
during 2019-20. During the financial years 2020-21, 2021-22,
2022-23, 2023-24 and 2024-25 , he was in India for 350 days, 360
days, 20 days, 30 days and 70 days respectively. Determine his
residential status for the previous year 2024-25.
Answer Step 1: Checking of satisfaction of any of the two basic condition:
Basic condition (a):At least 182 days in the PY.
PY No. Of
days Basic condition(a) is not satisfied since he is not in India during the PY
2024-25 for a period of at least 182 days.
PY 2024-25 70
2023-24
Basic condition (b): At least 60 days in PY and 365 in 4 PYs
1 30
immediately preceding the PY
2 2022-23 20
Number of days in the PY 2024-25 in India= 70
3 2021-22 360
Number of days in the 4 PYs immediately preceding the PY= 375
4 2020-21 350
Basic condition(b) is satisfied. Therefore, he is Resident in India for the
5 2019-20 0 PY 2024-25.
6 2018-19 0 Step 2: Checking of satisfaction of both the additional conditions:
7 2017-18 0 i and ii: Resident in 2 PYs out of 10 PYs immediately preceding the PY
8 2016-17 0 and 730 days in 7 PYs immediately preceding the PY
9 2015-16 0 He satisfies both the additional conditions. Hence, he is Resident and
10 2014-15 0 ordinarily resident. That is, he is a Ordinarily Resident for the PY
2024-25.
Illustration 3
• Mr Mathew a citizen of USA came to India for the first time on
01/05/2017. He stayed here without any break for 3 years and left for
Bangladesh on 01/05/2020. He returned to India on 01/04/2021 and
went back to UK on 01/12/2021. He was posted back to India on
20/01/2025. Determine his residential status for the Assessment year
2025-26.
 Answer
• Number of days in the Previous Year 2024-25.
• He went back to UK on 01/12/2021 and was posted back to India on
20/01/2025.

Month Number of days in India

April 2024 to Dec 2024 0

January 2025 12

February 2025 28

March 2025 31

Total 71
 Step 1: Checking of satisfaction of any of the two basic
condition:
PY No. Of
days Basic condition (a):At least 182 days in the PY.
PY 2024-25 71 Basic condition(a) is not satisfied since he is not in India during
1 2023-24 0 the PY 2024-25 for a period of at least 182 days.
2 2022-23 0 Basic condition (b): At least 60 days in PY and 365 in 4 PYs
3 2021-22 245
immediately preceding the PY
4 2020-21 31
Number of days in the PY 2024-25 in India= 71 days
Number of days in the 4 PYs immediately preceding the PY= 276
Basic condition(b) is also not satisfied.
Therefore, he is a Non-Resident in India for the PY 2024-25.
Step 2: Checking of satisfaction of both the additional
conditions:
Checking of additional condition is irrelevant here since he a
non-resident for the PY 2024-25
 Illustration 4
• Mr X a citizen of UK came to India for the first time on 01/05/2017. He
stayed here without any break for 3 years and left for Bangladesh on
01/05/2020. He returned to India on 01/04/2021 and went back to UK on
01/12/2021. He was posted back to India on 20/01/2024 for three years.
Determine his residential status for the Assessment year 2025-26.
Answer Step 1: Checking of satisfaction of any of the two basic condition:
Basic condition (a):At least 182 days in the PY.
PY No. Of Basic condition(a) is satisfied since he is in India during the PY 2024-25 for a period
days of at least 182 days(He is in India for 365 days)
PY 2024-25 365 Therefore, he is Resident in India for the PY 2024-25.
1 2023-24 71 Step 2: Checking of satisfaction of both the additional conditions:
2 2022-23 0 First additional condition: Resident in 2 PYs out of 10 PYs immediately
preceding PY
3 2021-22 245
He is resident in India during the PY 2023-24, 2021-22,2019-20, 2018-19, and 2017-
4 2020-21 31 18. He satisfies first additional condition
5 2019-20 365 Second additional condition: 730 days in 7 PYs immediately preceding the PY
6 2018-19 365 He is in India for 1412 days during 7 PYs immediately preceding the PY. He
satisfies second additional condition also.
7 2017-18 335
Since he satisfies both the additional conditions, he is Resident and ordinarily
8 2016-17 0 resident. That is, he is a Ordinarily Resident for the PY 2024-25 (AY 2025-26)
9 2015-16 0
10 2014-15 0
Illustration 5
Smt Shobhana an Indian citizen left India for first time on 1
April 2023 for joining job in Tokyo. She came to India on 10
Oct 2023 (for a visit). Her Indian income during the PY 2023-24
was Rs 10 lakh. Determine her residential status for the PY
2023-24.
Answer
She was in India for a period of 173 days(10 October 2023 to 31
March 2024(22+30+31+31+28+31) in the PY 2023-24. Therefore,
she does not satisfy the basic condition(a). Here, basic condition
(b) cannot be applied since she left India for employment
purpose (see exceptions).
She has to stay in India for at least 182 days for becoming
resident. Since she is in India for only 173 days during the PY
2023-24, she is a non resident in India for the PY 2023-24.
 A Hindu Undivided family(HUF) Sec 6(2)
A) Resident
• A Hindu Undivided family(HUF)is resident in India in any previous year if
the control and management of its affairs is situated wholly or partly in
India during the relevant previous year.
a) Ordinarily Resident: A resident HUF will be ordinarily resident only
when its Karta satisfies both the additional conditions of ordinarily
resident as an individual.
(Resident for at least 2 PY out of 10 PY immediately preceding the PY and
present in India at least for 730 days in 7 PY immediately preceding PY)
b)Not Ordinarily Resident: A resident HUF will be not ordinarily resident
when its Karta fails to satisfy two additional conditions of ordinarily
resident as an individual).
B) Non Resident
HUF is non-resident only when the control and management of their affairs is
situated wholly outside India
 Notes:
• In order to determine whether an HUF is resident or non-resident,
where the control and management of its affairs is situated during
the relevant previous year is checked.
• Control and Management: Control and management is situated at a
place where the head, the seat and the directing power are situated.
• For determining whether a resident HUF is “ordinarily resident” or “Not
ordinarily resident”, residential status of the Karta during the
preceding years of the relevant previous year is considered
 Procedure for checking residential status of HUF
Step1: Determine whether the HUF is resident or non resident:
If the control and management of its affairs is wholly or partly situated in
India, the HUF is resident in India during the PY.
If the control and management of its affairs is wholly situated outside India,
the HUF is non-resident in India during the PY
Step 2: If HUF is resident, determine whether the HUF is ordinarily resident or
not ordinarily resident.
A resident HUF will be ordinarily resident in India, if Karta or manager of the
family satisfies the following two additional conditions.
Additional He has been resident in India in at least 2 out of 10 previous years
Condition (i) immediately preceding the relevant previous year.
Additional He has been in India for a period of 730 days or more during the
Condition (ii) seven PYs immediately preceding the relevant previous year.
if Karta or manager of resident HUF does not satisfy the above two additional conditions, the
family is treated as resident but not ordinarily resident in India.
Qn 10
• X an individual, is resident but not ordinarily
resident in India for the PY 2023-24. During the PY
2023-24, the affairs of Y(HUF), a Hindu Undivided
Family, whose Karta is X since 1960, are partly
managed from Delhi and partly from Nepal.
Determine the residential status of Y(HUF) for the AY
2024-25.
 Answer
• As during the PY 2023-24, the affairs of Y(HUF) are partly
managed from India, the HUF will be treated as resident in
India. A resident HUF may be ordinarily resident if Karta of
HUF satisfies both the additional condition as an individual.
Here, the Karta X is resident but not ordinarily resident in India
for the PY 2023-24 in his individual capacity. Therefore, Y
(HUF) is resident but not ordinarily resident in India for the
PY 2023-24.
Qn 11
The Head of Office of XY, an HUF, is situated in Hong Kong.
The family is managed by Y since 1980 who is resident in
India in 3 out of 10 years immediately preceding the PY
2023-24 and who is present in India for more than 729 days
during the last 7 years immediately preceding the PY 2023-
24. Determine the residential status of the family for the PY
2023-24 if affairs of the family business are:
(a) Wholly controlled from Hong Kong
(b) Partly controlled from India
An
a) Residential status of the family for the PY 2023-24 if affairs of the
family business are Wholly controlled from Hong Kong: Non-Resident
HUF in India
b) Residential status of the family for the PY 2023-24 if affairs of the
family business are partly controlled from India and Karta satisfies two
additional condition as an Individual: Resident and Ordinarily Resident
HUF in India because its affairs are partly managed from India and
Karta satisfies both the additional conditions as an individual.
 Firm or Association of Persons
1)Resident
A firm or association of persons (AOP) are resident in India in any
previous year if the control and management of its affairs is situated
wholly or partly in India during the relevant previous year.
2)Non Resident
Firm or AOP are non-resident only when the control and management
of their affairs is situated wholly outside India

Note:Firm or AOP cannot be ‘not ordinarily resident’

 Residential Status of Companies Sec 6(3)
Section Company Residential Status
6(3)(i) Indian Company Always resident in India
6(3)(ii) A foreign Company (whose It will be resident in India if its place of
turnover in the PY is more effective management during the relevant
than Rs 50 crore previous year is in India
6(3)(iii) A foreign Company (whose Always non-resident in India.
turnover in the PY is Rs 50
crore or less)

Place of effective management means a place where key management and

commercial decisions that are necessary for the conduct of the business of
an entity as a whole are made.
Place of Effective Management
• Place of effective management means a place where key
management and commercial decisions that are necessary for the
conduct of the business of an entity as a whole, in substance, are
made.
Qn 12
X Limited an Indian Company. It has 10 shareholders who are foreign
citizens and non-resident in India. The business of the Company is
fully controlled from outside India. Find out the residential status of X
Limited for the PY 2023-24.
An
X Ltd is an Indian Company. An Indian Company is always resident in
India. This rule is equally applicable even if shareholders are foreign
citizens as well as non-resident or even if business is controlled from
outside India.
Hence, X Ltd is resident in India.
Qn 13
Y Limited is a company incorporated in Japan(turnover in the PY is
more than Rs 50 crore). It has 10 shareholders who are Indian citizens
and resident in India. What is the residential status of Y Ltd for the AY
2024-25 if:
a) Place of effective management is in Japan. That is, Company has
active business outside India and is controlled wholly from outside
India.
b) Place of effective management is in India. That is, Company has
active business in India and is controlled wholly from India.
Answer
a) Y Ltd is a foreign Company with turnover more than Rs 50 crore. Its
place of effective management is in Japan. That is, Company has
active business outside India and is controlled wholly from outside
India. Therefore, Y Ltd is non-resident in India.
Residential status and nationality of shareholders are irrelevant.
a) Y Ltd is a foreign Company with turnover more than Rs 50 crore Its
place of effective management is in India. That is, Company has
active business in India and is controlled wholly from India.
Therefore, Y Ltd is resident in India.
Qn 14
• Z Ltd is incorporated in Japan. It has 15 shareholders (10 are Indian
citizens and resident in India. The Company has no business in Japan.
Gross Annual Turnover of the Company for the PY 2023-24 is Rs 48
crore. The Company is managed by a team of professionals from
India( [Link] is in India). Find out the residential status of Z Ltd
for the AY 2024-25.
An
Z Ltd is a foreign company. Gross Turnover of the Company for the
relevant PY is Rs 48 crore. A foreign company whose turnover is not
more than Rs 50 crore is treated as non-resident in India even if its
POEM is in India.
Therefore, Z Ltd is non-resident in India.
Every other person(Sec 6(4))
1 Resident
• Every other person (local authority, artificial juridical person, etc) is
said to be resident in India in any previous year if the control and
management of its affairs wholly or partly situated in India.
2 Non Resident
• If control and management of the affairs of the assessee are situated
wholly outside India, it is a Non-Resident.
Scope of Total Income/ Incidence of Tax (Sec 5)
What is the relationship between residential status and incidence of tax?
•Section 5 of the Income Tax act deals with Scope of Total Income.
This Section explains what incomes should be included in the total
income.
•This Section also explains the relationship between residential status
and incidence of tax.
•Incidence of tax on tax-payer depends on his residential status and
also on place and time of accrual or receipt of income.
•Based on the place of accrual or receipt, income is classified into
Indian income and foreign income.
 Indian Income vs Foreign Income
Indian Income: Any of the following three is an Indian Income:
1) If Income is received (or deemed to be received) in India in the Previous Year
and at the same time it accrues (or arises or is deemed to accrue or arise) in
India during the previous year.
2) If Income is received (or deemed to be received) in India in the Previous Year
but it accrues ( or arises or is deemed to accrue or arise) outside India during
the previous year
3) If Income is received (or deemed to be received) outside India in the Previous
Year but it accrues ( or arises or is deemed to accrue or arise) in India during
the previous year
Foreign Income: If the following two conditions are satisfied, then such income is
foreign income.
a) Income is not received or not deemed to be received in India, and
b) Income does not accrue or arise or does not deem to accrue or arise in India.
 Individual and HUF
Ordinarily Resident Not ordinarily Resident Non Resident

Indian Taxable in India Taxable in India Taxable in India

Income
Foreign Taxable in India Only two types of foreign income are taxable Not taxable in India
Income in India. Any other foreign income is not
taxable in India.
1)If it is business income and business is
controlled wholly or partly from India.
2) If it is income from Profession which is set
up in India.

Any other tax payer like Company, firm, AOP, etc.

Resident Non Resident
Indian Income Taxable in India Taxable in India
Foreign Income Taxable in India Not taxable in India
 Nature of Income Remarks.
Income received in Received means receipt of income on the first occasion only.
India in the Previous Subsequent receipt (remittance) is not considered as receipt.
Year Eg: Salary received in India
Income deemed to be Other incomes not actually received by the assessee, but it is deemed
received in India in the to be received under the Income Tax Act
Previous Year Eg: Any sum deducted by way of tax at source.
Employer’s contribution to a Pension Scheme
Income accrued or Accrues or arises means when the right to receive the income becomes
arisen to him in India in vested in the assessee.
the Previous Year Eg: Share of profit from resident partnership firm
Income deemed to It means that income has actually not accrued in India but it is deemed
accrue or arise to him to accrue in India during the Previous Year.
in India in the Previous Eg: Salary payable by the Government of India to a citizen for
Year services rendered outside India
Income by way of interest or royalty of fee for technical service from
GOI.
 Scope of Total Income on the basis of Residential status(Sec 5)

Whether Taxable or Not (Tax incidence) in the case of

Resident and
Nature of Income Resident but not
Ordinarily Non Resident
ordinarily Resident
Resident
1. Income received or is
deemed to be received in
India in the Previous Year, Taxable Taxable Taxable
whether accrued or arisen in
India or outside India.
2. Income accrued or arisen
or is deemed to accrue or
arise to him in India in the Taxable Taxable Taxable
PY, whether received in India
or outside India.
 Whether Taxable or Not (Tax incidence) in the case of

Nature of Income Resident and Resident but not

Non Resident
Ordinarily Resident ordinarily Resident
[Link] accrued or arisen and
received outside India in the
Previous year from a business
Taxable Taxable Not taxable
controlled (wholly or partly)
from India or profession set up
in India

[Link] accrued or arisen and

received outside India in the
Previous year from a business
Taxable Not taxable Not taxable
wholly controlled from outside
India or profession set up outside
India.
 Whether Taxable or Not (Tax incidence) in the case of
Resident and Resident but not
Nature of Income Ordinarily ordinarily Non Resident
Resident Resident
[Link] accrued or arisen and
received outside India in the
Taxable Not taxable Not taxable
Previous year from any other
source
[Link] accrued or arisen and Not taxable as it
received outside India in earlier is not the income
Not taxable Not taxable
years but later on remitted to India of the previous
during the previous year year.
Not taxable as it Not taxable as it
[Link] untaxed foreign income is not the income is not the income
Not taxable
brought in India in the previous year of the previous of the previous
year. year.
 Notes:
1. Any dividend paid by an Indian company outside India is deemed to accrue
or arise in India.
2. Dividend received in India from foreign company is taxable.
3. Agricultural income from land situated in India is exempt.
4. Agricultural income from land situated outside India is taxable for OR and
NOR.
5. Share of Income from Indian Partnership firm is exempted.
 Illustration N0.15
• The following are the incomes of Shri Ram for the PY 2023-24:
a) Profits from business in Iran received in India-Rs 5,000
b) Income from house property in Iran received in India- Rs 500
c) Income from house property in Pakistan deposited in a bank there-Rs 1000
d) Profits of business established in Pakistan deposited in a bank there Rs 20,000
(out of Rs 20,000, a sum of Rs 10,000 is brought into India)-This business is
controlled from India
e) Accrued in India but received in England-Rs 2,000
f) Profits earned from business in Kanpur Rs 6000
g) Income from agriculture in England-it is all spent on the education of children
in London-Rs 5,000; and
h) Past untaxed foreign income brought into India during the previous year Rs
10,000.
From the above particulars, ascertain the taxable income of Shri Ram for the
PY 2023-24 if he is (i) An ordinarily resident, (ii) Not ordinarily resident, and
(iii)Non-Resident
 Computation of Taxable Income
(for the assessment year 2024-25)
Resident and Resident but
Nature of Income
Ordinarily not ordinarily Non Resident
Resident Resident
Profits from business in Iran received in India 5,000 5,000 5,000

Income from house property in Iran received in India- 500 500 500
Income from house property in Pakistan deposited in a 1,000 Nil Nil
bank there
Profits of business established in Pakistan deposited in 20,000 20,000 Nil
a bank there Rs 20,000 (out of Rs 20,000, a sum of Rs
10,000 is brought into India)-This business is
controlled from India
Accrued in India but received in England 2,000 2,000 2,000
Profits earned from business in Kanpur 6,000 6,000 6,000
Income from agriculture in England-it is all spent on 5,000 Nil Nil
the education of children in London
Past untaxed foreign income brought into India during Nil Nil Nil
the previous year
Taxable income 39,500 33,500 13,500