NTA UGC NET 2019 Commerce full free notes for income tax and corporate planning

Unit 10 - Income-tax and corporate planning

Residential status:

(A) Residential status of an individual: (Section 6)

Basic conditions: 

1. An individual is in india for 182 days or more during the relevant previous year.
2. An individual is in india for 365 days or more during the four years preceding the relevant previous year and he/she is in india for 60 days or more during the relevant previous year.

Additional conditions:

1. He/she has been resident in india for atleast 2 previous years out of 10 previous years preceding the relevant previous year.
2. He/she has been in india for atleast 730 days in 7 previous years preceding the relevant previous year.

• Ordinarily resident - An individual is considered as resident in india if he/she satisfies any one of the basic conditions and two additional conditions.
• Non-ordinarily resident - An individual is considered as non-ordinarily resident if he/she satisfies any one of the basic conditions and one or none of the additional conditions.
• Non-resident - An individual is considered as non-resident if he satisfies none of the basic conditions.

Other important points to remember:

• An assessee can be resident in two or more countries at the same time.
• For tax calculation, the residential status of an assessee during the assessment year is not important. Only residential status of the previous year is relevant.
• If the individual is in india only for a part if the day, the calculation is made on 'hourly basis'. If data is not available, then the day of arrival in india and the day of departure from india are taken into account for determining the residential status.
• If an indian citizen goes abroad for employment or as a member of crew of an Indian ship in the previous year or if an Indian citizen or a person of Indian origin living outside india visited india in the previous year, the first basic condition will remain the same. But the 60 days in the second basic condition will be replaced by 182 days.
• A person of Indian origin means if he/she or either of his/her parents or grand parents, was born in India or undivided India. (Grand parents include both maternal and paternal grand parents).
• Residential status of an individual is not fixed in nature. It changes from time to time, i.e., a an individual may be ordinarily resident in one previous year and non-resident in another previous year.
• The residential status of an individual applies to all sources of income in the relevant previous year.
• The object of stay of an individual in india is not important.
• The stay of an individual in India may be continuous and need not be at one place.

(B) Residential status of Hindu Undivided Family (H.U.F) [Section 6(2)] 

1. Resident - The control and management of affairs of HUF is situated wholly or partly in india during the relevant previous year.
2. Ordinarily resident - If the 'Karta' (head of the HUF) satisfies both the additional conditions as an individual, then the HUF is said to be ordinarily resident in India.
3. Non-ordinarily resident - If the 'Karta' satisfies one or none of the additional conditions as an individual, then the HUF is said to be non-ordinarily resident.
4. Non-resident - The control and management of  affairs of HUF is situated wholly outside India during the previous year.

(C) Residential status of Firm, Association of persons (AOP), Body of individuals (BOP) [Section 6(2)] and every other person (Local authority and other artificial judicial persons) [Section 6(4)]

1. Resident - The control and management of its affairs is situated wholly or partly in India during thr relevant previous year.
2. Non-resident-The control and management of its affairs is situated wholly outside India during the relevant previous year.

(D) Residential status of Companies [Section 6(3)]

• Indian company: An Indian company is always a resident in india.
• Foreign company:

1. Resident - The control and management of its affairs is situated wholly in India during the previous year.
2. Non-resident-The control and management of its affairs is situated wholly or partly outside India during the previous year.

Other important points to remember:

• The control and management of affairs indicates the head, controlling and directing power.
• Firm, Association of persons, body of individuals, companies and every other artificial judicial persons cannot enjoy non-ordinarily resident status.

Tax incidence:(Section 5)

Three important points to be remembered for calculating the total income of an assessee:

1. The residential status of an assessee.
2. The place of accrual or receipt of income.
3. The point of time at which the income had accrued or was received.

(A) Indian Income

• Income was received and accrued in  india during the relevant previous year.
• Income was received in india but accrued outside India during the relevant previous year.
• Income was received outside India but  accrued in india during the relevant previous year.

(B) Foreign Income

• Income received and accrued outside India during the relevant previous year.
• Income not received and not accrued in india during the relevant previous year.

Total taxable income of resident/non-ordinarily resident:

1. Income received or deemed to be received in india but accrued in India or outside India.
2. Income accrued or deemed to be accrued in India but received in India or outside India.
3. Income accrued and received outside India.
4. Income received or accrued in India from the business controlled from India or profession in India.
5. Income received or accured outside India from the business controlled from India or professiom in India.

Total taxable income of non-ordinarily resident:

1. Income received or deemed to be received in india but accrued in India or outside India.
2. Income accrued or deemed to be accrued in India but received in India or outside India.
3. Income received or accrued in India from the business controlled from India or profession in India.

Total taxable income of non-resident:

1. Income received or deemed to be received in india but accrued in India or outside India.
2. Income accrued or deemed to be accrued in India but received in India or outside India.

Other important points to remember:

• Income remitted to india during the relevant previous year which was accrued and received outside India during the preceding previous years is not taxable.
• Share of profit from firm in india and past untaxed profits brought to india are exempted from tax.
• Dividend from Indian companies and UTI, etc are not taxable.