DIRECT TAX

By Piyush Jain (B.Com, ACCA (Aff.))

INDEX Basic Concepts Income from Salaries Income from House Property Profits & Gains of Business or Profession Income from Capital Gains Income from Other Sources, Carry Forward & Set Off Deductions from Total Income, Advance Tax, Interest Computation of Taxable Income – Individual Computation of Taxable Income – Firm Income Tax Return TDS Concept

Basic Concepts

TAX

DIRECT

Paid directly to Government- Income Tax, Wealth Tax

INDIRECT

Not paid directly to Government- Service Tax, Sales Tax

Basic Concepts

To understand the subject “Income Tax”, we have to be familiar with the following terms:

Assessee Previous Year Assessment Year Person Heads of Income Residential Status

Basic Concepts• Assessee - Any person who is liable to pay tax or other some of money like

interest, penalty etc. is an assessee.

• Previous Year – It means the financial year in which the income is earned. For e.g. if we are earning income in the year 2011-12, so 2011-12 will be previous year. It starts from 1st April and ends on 31st March.

• Assessment Year – It is the year just after the previous year in which the income of the previous year is assessed or computed. So for Previous Year 2011-12; Assessment Year would be 2012-13.

• Person – It includes the following: Individual Hindu Undivided Family Company Firm Association of Person (AOP) Local Authority Every Artificial Judicial Person (Not Falling Under any of the Preceding

Categories)

Basic Concepts

• Heads of Income:1. Income from Salaries2. Income from House Property3. Profits & Gains of Business or Profession4. Income from Capital Gains5. Income from Other Sources

Note: For computation of TOTAL INCOME, all 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 of

thefirst four heads, it should be part of the fifth head, i.e. Income from Other Sources.

Basic Concepts

Residential Status

Resident

Ordinary Resident (OR)

Not Ordinary Resident (NOR)Non

Resident (NR)

Basic ConceptsResidential Status of an Individual is determined on

thebasis of the following conditions:A. Primary Conditions:

1. Has stayed in India for 182 days or more in PY; OR2. Has stayed in India for at least 60 days during PY, and 365

days or more during the last 4 preceding PY.

B. Secondary Conditions:3. He must be resident for 2 out of last 10 years preceding the

relevant PY, AND 4. Has stayed in India for at least 730 days in the last 7 years

immediately preceding the relevant PY

Contd…

Basic Concepts

An individual satisfying any ONE OR MORE of the PRIMARY conditions and ALL the SECONDARY conditions, will be considered to be RESIDENT.

However, an individual satisfying any ONE OR MORE of the PRIMARY conditions but only ONE ORNONE of the SECONDARY conditions will be considered NOT ORDINARILY RESIDENT.

Lastly, any individual who is satisfying NONE ofthe PRIMARY conditions will be considered NOT RESIDENT.

Basic Concepts

• Residential Status of HUF: If the control and management of the affairs of HUF is situated

wholly or partly in India the HUF is said to be RESIDENT in India. If the control & management of the affairs of the HUF is situated wholly outside India, then HUF is said to be NON RESIDENT in India.

A RESIDENT HUF is said to be ‘NOT ORDINARILY RESIDENT’ in India if KARTA /Manager thereof satisfies anyone or both the following additional conditions: He has been non-resident in India in 9 out of 10 years

immediately preceding the relevant PY, OR He has been present in India for 729 days or less during the 7

years immediately preceding the PY.

• Residential Status of Company:An Indian company is always resident in India. A foreign companywill be resident in India if control & management of its affairs iswholly situated in India.

Basic Concepts• Example

Mr. Singhal provides the detail of his stay in India for the following AYs’:

Determine his residential status for AY 2011-12.

Years Days

1997-98 365

1998-99 365

1999-00 336

2000-01 115

2001-02 80

2002-03 50

2003-04 150

2004-05 150

2005-06 67

2006-07 160

2007-08 59

2008-09 105

2009-10 120

2010-11 120

Basic Concepts

Solution:a) Primary Conditions:

i. 182 days or more during relevant PY; OR -- Noii. At least 60 days during PY, and 365 days or more during last 4 yrs preceding

relevant PY. – Y & Y

b) Secondary Conditions:iii. Resident for 2 out of last 10 years preceding relevant PY; AND -- Y

iv. At least 730 days in the last 7 yrs immediately preceding relevant PY. – Y

Mr. Singhal has been in India for more than 60 days during the PY and for 444 days

during 4 years just preceding PY. As such he is RESIDENT. However, as he is in India

for a total period of 811 days in 7 years just preceding the PY and was resident for 2 out

of 10 years just preceding the PY, so he is RESIDENT & ORDINARILY RESIDENT of

India.