Mod 1 Tax Mgt 2016

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Module 1 – Tax Management

• Basic concepts: assessment year, previous year, person,

assessee.

• Income, charges on income, GTI, NI capital and revenue

receipts.

• Residential status, receipt & accrual of income, connotation of

income deemed to accrue or arise in India.

• Incidence of tax, Tax lanning, Tax !vasion, Tax

"anagement.

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Basic concepts•The GOI has the power to levy tax. The propose of collecting tax is for

the enefit of the society.

•Taxation in India is divided into !

– #irect taxes $ Income tax

– Indirect Tax $ %T, '(T, %ustoms, ervice tax, %!N'(T

• "nderstanding of Income tax law

– Income tax act of )*+)

–

(nnual inance (ct.

• ( inance Bill passed -y -oth the houses of parliament and signed -y the president of India

-ecome an (ct.

• art ( contains proposed policies & art B contains amendments to #irect taxes

– udicial #ecisions.

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Individual resident elow #$ years of age or any

%&I ' (") ' *O+ ' BOI ' *,+ Income-tax

Income las Income Tax &ate

i. /here the taxa-le income doesnot exceed Rs. 0,12,22234.

NI5

ii. /here the taxa-le income exceeds

Rs. 0,12,22234 -ut does not exceedRs. 1,22,22234.

)26 of amount -y 7hich the taxa-le

income exceeds Rs. 0,12,22234.

iii.

/here the taxa-le income exceedsRs. 1,22,22234 -ut does not exceedRs. )2,22,22234.

Rs. 01,22234 8 026 of the amount -y 7hich the taxa-le incomeexceeds Rs. 1,22,22234.

iv. /here the taxa-le income exceedsRs. )2,22,22234.

Rs. )01,22234 8 926 of the amount -y 7hich the taxa-le incomeexceeds Rs. )2,22,22234.

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Individual resident who is of the age of #$ years or more

ut elow the age of /$ years at any time during the +0

Income las Income Tax &atei. /here the taxa-le income does not

exceed Rs. 9,22,22234. NI5

ii. /here the taxa-le income exceeds

Rs. 9,22,22234 -ut does not exceedRs. 1,22,22234

)26 of the amount -y 7hich the

taxa-le income exceeds Rs.9,22,22234.

iii. /here the taxa-le income exceedsRs. 1,22,22234 -ut does not exceed

Rs. )2,22,22234

Rs. 02,22234 8 026 of the amount -y7hich the taxa-le income exceeds

Rs. 1,22,22234.

iv. /here the taxa-le income exceedsRs. )2,22,22234

Rs. )02,22234 8 926 of the amount -y 7hich the taxa-le income exceedsRs. )2,22,22234

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Individual resident who is of the age of /$ years

or more at any time during the previous year

Income Slabs Income Tax Rate

i. /here the taxa-le income does notexceed Rs. 1,22,22234.

NI5

ii. /here the taxa-le income exceedsRs. 1,22,22234 -ut does not exceedRs. )2,22,22234

026 of the amount -y 7hich thetaxa-le income exceeds Rs.1,22,22234.

iii. /here the taxa-le income exceedsRs. )2,22,22234

Rs. )22,22234 8 926 of the amount -y 7hich the taxa-le income exceedsRs. )2,22,22234.

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• urcharge is tax after the computation of Income tax.

• Its a tax on tax.

• orm assessment year 02)24)) surcharge is not

applica-le.

• !ducation %ess is tax on Income tax.

• Its a tax on tax.

• orm assessment year 02)24)) education cess is 96

of Income Tax.

Basic concepts – urcharge 2ducation 3ess

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Basic concepts – Tax rates for 3ompanies

+articulars 4omestic

3os up to 13r Income

4omestic

3os withincome 5 13r Income

)oreign

3os withincome up

to 1 3r

)oreign

3os withincome 5

1 3r

Tax Rate 926 926 ;26 ;26

urcharge Nil

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• Tax rates for 5ocal (uthorities

• Tax rate $ 926

• urcharge $ Nil

• !ducation %ess $ 96

• !ffective Tax Rate $ 92.*6

• Tax rates for %o4op ocieties

Tax rates for 6ocal *uthorities and 3o-op ocieties

Total Income &ange Tax rate urcharge 2ducation 3ess

=p to Rs )2,222 )26

Nil 96)2,22) to 02,222 026

(-ove 02,22) 926

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articulars Rs Rs

Income from alaries xxx

Income from >ouse roperty xxx

Income from Business and rofession xxx

Income from %apital Gains xxx

Income from ?ther sources xxx

Gross Total Income xxxx

5ess deduction under chapter I'4( @A2% to A2= xx

%et Total Income xxxxTax 5ia-ility

Tax on income chargea-le C normal rate xxx

Tax on income chargea-le C special rate xxx

u-total xxxx(dd:4 urcharge if applica-le xxx

(dd:4 !ducation %ess if applica-le xx

Total Tax payale xxx

5ess:4 T# or advance tax paid xxx

%et Tax payale xxx

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• (ssessment Dear Eec. 0@*F•

Period of 12 months starting from 1 st

April to 31 st

March ofevery year.

• Income earned in previous year is taxed in the Assessment Yr.

• Assessment year succeeds the pervious year.

• revious Dear Eec. 9F• Income earned in previous year is taxed in the Assessment

year. Previous year precedes the AY .• All assesses are required to follo financial year as PY.

• In case of ne !usiness the PY starts from the date of settingup the !usiness and ending immediately folloing 31 st March.

Basic concepts

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!xception, 7hen (D and D are same.

• In the follo7ing cases D and (D are.

– "hipping !usiness of #on $esidents %"ec 1&2'

– Persons leaving India permanently %"ec 1&('

– )odies formed for short duration %"ec 1&(A'

– Persons li*ely to transfer property to avoid tax %"ec 1&+'

– ,iscontinued !usiness %"ec 1&-'

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• erson Eec. 0@9)F, person means & includes

• An individual

• A indu /ndivided 0amily%/0'

•

A ompany• A 0irm

• An Association of persons%AoA' or )ody of

Individuals %)oI' hether incorporated or not.

• A ocal Authority

• very Artificial 4udicial Person

Basic concepts

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• IN#I'I#=(5 "!(N

–

A natural person including males or females – A minor as ell as a ma5or

– A person of sound and unsound mind.

– A living as ell as deceased person.

• IR" "!(N

– 0irm is treated as a separate entity different from its partners

under I6 Act

– A partnership firm assessed as such%P0A"'

– A partnership firm assessed as Association of Persons %P0A7P'

Basic concepts

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• >IN#= =N#I'I#!# ("I5D @>= "!(N

–

All persons lineally descended from a common male 8 includestheir ives and unmarried daughter

– /0 is separate taxed entity other than its mem!ers or *arta

– 2 types of /0 1' Mita*shara /09 2' ,aya!haga /0

• IN%?"! T>(T %?NTIT=T! >= IN%?"!

– Ancestral property

–

Property !uilt !y /0 out of its income

– :ifts received !y /0

– Accretion to the existing property

–

onverting self property into the property of /0

Basic concepts

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• %?"(ND Eec. 0@)

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Basic 3oncepts

*o+

• Means 2 or more persons

5oining in for a common

purpose ith a o!5ective to

earn income.

• Any person can !e mem!er of

AoP

• reated voluntarily

BoI

• It;s a group of individuals

ho ith a o!5ective to earnincome.

• 7nly individuals can !e

mem!ers of )oI

• reated !y operation of a.

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• (!!! 4 Eec 0@

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Basic 3oncepts

•

%oncept of Income

• Income should !e regular 8 definite can !e in cash or *ind

• Illegal income is also an income

• ,ispute title to any income does not ma*e any difference

• Income should !e real and not fictional

• Income has to differentiated !eteen capital receipts and

revenue receipt.

• Income can !e taxed either or receipt or accrual !ases9

hichever is earlier.

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Basic 3oncepts

3apital &eceipt

• $eceipt on a

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Basic 3oncepts

• Income Eec. 0@0;F means

– Profit and gain9 dividends9

– >alue of any perquisites or profit in lieu of salary

– Profit from insurance !usiness ?"ec ((@

– inning from lotteries9 crossord puBBles9 horse races9 gam!ling

– "um received under *eyman insurance policy

– >oluntary contri!ution received !y charita!le trust.

– "pecial alloance received to cover personal expenses.

– apital gains chargea!le u

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•

Income Eec. 0@0;F means – Any sum chargea!le u

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• Gross Total Income 7GTI8

– u

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• The scope of total income is governed -y the residential status

• Residential status is determined separately for each category of

persons for each D as it may vary from year to year.

•

The different taxed entities are – (n individual

– >=

– ( firm of (o

– ( %ompany

– !very other person

• 3iti9enship and &esidential tatus are ! different concepts

Basic 3oncepts – &esidential tatus

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&esidential status

Residential status

Resident

Resident and

?rdinarily Resident@R?R

Resident -ut Not

?rdinarily Resident@N?R

Non Resident

@NR

Residency is determined by physical number of days stay in India

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25

Residential status ..%ontd

%one ofthe

conditions

satisfied

*ny one ofthe two

conditions

satisfied

&O& ' %O& %&

Basic conditions

• )A0 days or more in a financial year

• +2 daysH or more in a financial year plus 9+1 days or more in fourfinancial years preceding the relevant financial year

* -G days gets su!stituted for 1C2 days only in the year of departure for an

Indian citiBen proceeding a!road for the purposes of employment. In the

year of arrival to India for resuming employment9 the threshold limit is -Gda s.

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Residential status...%ontd

(dditional conditions:• ResidentJ in India in at least t7o out of ten financial years

preceding the relevant financial yearK and

• resent in India for

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• There are 9 types of Residential tatus

– Resident (R)

• as to satisfy any one or !oth the !asic conditions.

– Resident but not ordinary resident(R – NOR)

• as to satisfy any one or !oth the !asic condition and

satisfy !oth the additional conditions.

– Non resident (NR)

• ,oes not satisfy any of the !asic conditions.

Basic 3oncepts – &esidential tatus

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• Resident Eec. +@)F means

–

An individual is said to !e a resident in the PY if he satisfies any of one or both the !asic 2 conditions.

• If he is in India in the PY for a period of 1C2 days or more

• .g. 2G11E2G121&+ days

% 1 st ondition not satisfied9 chec* for next'

OR

• If he is in India for a period of -G in the PY and 3-+ days or

more during the ( years immediately preceding the PY.

• .g. 2G1G = 2G11 (G days

2GGD = 2G1G 1GG days 3&G2GGC = 2GGD 2GG days

2GG& = 2GGC 3G days

&esidential tatus for Individual

& id i l f I di id l

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• Resident -ut Not ?rdinary Resident Eec.+@+F

– An individual is said to !e a $ = #7$ in the PY if he satisfies

any of one or both the !asic 2 conditions and should satisfy

both the additional conditions

•

He has been “resident” in India in at least 2 out of 1 !"

immediately precedin# the rele$ant !" %

&N'

•

He has been in India for a period of days or moredurin# years immediately precedin# the rele$ant !"


21 – 11 2* – 1 2+ – * 2 – + 2, - 2. – , 2/ - .

/ 1 2 12. 12 12.

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•%on &esident :ec. !7;$8<

• An individual is said to !e a #on $esident in

the PY if he does not satisfies any of the

!asic 2 conditions and does not satisfy !oth

the additional conditions.


& id ti l t t f I di id l

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=ey +oints

1. "tay in India need not !e continuous9 total stay in India is to

!e considered. "tay can !e at different places.

2. "tay in territorial aters of India is to !e treated as stay in

India.

3. Period of stay in India !egins from the day on hich source

of income comes into existence in case of an assessee

(. If a person is in India for a part of the day9 calculation

should !e made on hourly !asis %12hrs F 0ull day and less

than 12 hrs no day to !e counted.'


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&2I42%TI*6 T*T" O) * (")•>= can -e R?R , RN?R or NR under follo7ing conditions.

•

ituation I> (") ?ualifies as a @&2I42%TA )asicondition

6he ontrol and Management of affairs of the /0is holly or partly situated in India.

Additional

ondition %a'

Harta has !een residentJ in India in at least 2 out

of 1G PY immediately preceding the PY Additionalondition %!'

Harta has !een in India for a period of &3G days ormore during & years immediately preceding the PY

tatus 3ontrol and Management of *ffairs

$"I,#6 Is situated holly in India < Partly in India

#7# $"I,#6 Is situated totally 7utside India

http://indiataxes.com/Information/incometax/contents/definitions/typeofresstatus/res_indiv.htmhttp://indiataxes.com/Information/incometax/contents/definitions/typeofresstatus/res_indiv.htmhttp://indiataxes.com/Information/incometax/contents/definitions/typeofresstatus/res_indiv.htmhttp://indiataxes.com/Information/incometax/contents/definitions/typeofresstatus/res_indiv.htm

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&2I42%TI*6 T*T" O) )I&M O& *O+

• A 0irm or AoP can either !e $ < #$ in India9 !ut cannot !e

assessed as $7$ or $#7$9 under the folloing conditionsK

– 6he term ontrol and management herein refers to in case a firm

is in the hands of the Partner and in case of A7P in the hands of

the hief 7fficer and in no sense refers to the management of day

to day !usiness affairs

tatus 3ontrol and Management of *ffairs

$"I,#6 Is situated holly in India < Partly in India

#7# $"I,#6 Is situated totally 7utside India

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&2I42%TI*6 T*T" O) * 3OM+*%0

• A ompany can !e assessed as $ < #$ in India under the

folloing conditions for a PY.

• 6he term ontrol and management herein refers to entral

ontrolling Poer and has no reference to the day to day

affairs of the ompany

*n Indian3ompany

* )oreign3ompany

3ontrol and Management of *ffairs

R0I'0N

R0I'0N

NON R0I'0N

Is situated holly in India

Is situated Partly in India

Is situated totally 7utside India

& l ti hi t

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&elationship etweenresidential status incidence of tax

• Incidence of tax depends

– $esidential status

–6ime of accrual or receipt of income.

Indian Income and foreign income

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Indian Income and foreign income

(ny of the follo7ing 9 incomes are Indian Income

1. Income is received or deemed to !e received in India9during PY and accrues

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)oreign IncomeIncome is treated as foreign income if it

satisfies 0 conditions

1. Income is not received or not deemed to !e received

in India9 during PY

2. Income does not accrues

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hether Income is

received or deemedto !e received in India9 during PY

hether Income

accrues

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Incidence of tax for &esidentsIndividuals and (")

&esidents &esidents %o& %on&esidents

Indian Income

6axa!le in India

6axa!le in India 6axa!le in India

0oreign Income

6axa!le in India

7nly 2 types %case 1 andcase 2' of income are

taxa!le the rest are not.

#ot 6axa!le in India

%ase ) $ If its a -usiness income and -usiness is controlled7holly or partly from India.

%ase 0 4 If its a income from profession that is setup in India

Incidence of tax for Others

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Incidence of tax for Others3os firms co-op societies *o+ BoI

&esidents in India %on &esidents in India

Indian Income 6axa!le in India 6axa!le in India

0oreign Income 6axa!le in India #ot 6axa!le in India

= i t

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=ey points

1. Indian Income = alays taxa!le in India9 irrespective of

residential status of taxpayer.

2. 0oreign Income = is taxa!le in the hands of resident

%incase of os9 firms9 coEop societies9 AoP9 )oI ' or R-

OR %incase of Individuals and /0 ' in India and not

taxa!le for #$ in India.

In case of $E#o$9 foreign income is taxa!le only if9

1. If it;s a !usiness income and !usiness is controlled

holly or partly from India.

2. If it;s a income from profession that is setup in India

Taxale income from & ' &-%O& ' %&

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. %o Income & &-%o& %&

1 Income received or deemed to !e

received in India9 hether accruing

or arising in India or outside India

"es "es "es

2 Income accruing or deemed to accrue

or arise in India9 hether accruing orarising in India or outside India

"es "es "es

3 Income accruing or arising and

received outside India from a !usinesscontrolled or profession setup in India

"es "es No

( Income Accruing< arising and

received outside India from any other

source

"es No No


T l i f & ' & %O& ' %&

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Type of Income &O& &-%O& %&

•

3orei#n Income - Income from a!usiness controlled holly or partly

from India

6axedin India

6axed in India

#ot taxedin India

• It is from Income from Profession

hich is setup in India

6axed

in India

6axed in

India

#ot taxed

in India

• If it is )usiness Income 8 !usiness

is controlled from outside India

6axed

in India

#ot 6axed in

India

#ot taxed

in India

• It is Income from Profession hich is

setup outside India

6axed

in India

#ot 6axed in

India

#ot taxed

in India

• Any other 0oreign Income 6axed #ot 6axed #ot taxed


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4ate Type of Income &O

&

&-

%O&

%&

1G

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4ate Type of Income &O& &-

%O&

%&

1G

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R!%!IT ? IN%?"! vs. R!"ITT(N%! ? IN%?"! $eceipt of income refers to the 1 st occasion hen the

recipient gets money under his control. 7nce an amt is

received as income9 any remittance or transmission of the

amt to another place does not result in receipt.

• A" >" HI#,

• $IP6 >" A$/A

• A6/A $IP6 >" ,M, $IP6

Example

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Example

• "r. (, an Indian %itiLen received M;222 in out of ixed

#eposits made -y him in Ban of (merica, =(. /hich helater remitted to India at an exchange rate of )MO Rs. ;234

@i.e., ),+2,22234 INR, Is his Income taxed in India or =(P

• The (ns7er is that his Income is not taxed in India -ut is

taxed in =(. The reason -ehind this is the Income out of

Interest aroused & 7as received in =( -y the assessee, only

later it 7as remitted to India. >erein the la7 clearly states

that only receipts in India are taxed and not remittances made

after any receipt of such Income outside India

pecial 3ase ec C

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pecial 3ase ec C

• Income deemed to accrue3arise in India even though

it may actually accrue 3arise outside India.). Income from DBusiness 3onnectionE in India

0. Income from any property, asset or source of income in

India.

9. %apital gain on Transfer of capital asset situated in India.

;. Income from salary -y the G?I, for services rendered

outside India.

1. #ividend paid -y an Indian %ompany outside India, is

deemed to accrue or arise in India., except dividend u3s

0@00@e.

pecial 3ase ec C

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• Income -y 7ay of Interest Esec *@)@vF

). R?" G?'T (=T>?RITD 4 Interest received fromGovt. authorities, is deemed to accrue or arise in India,

in the hand of recipient.

0. R?" R!I#!NT 4 Interest received from a resident

shall -e deemed to accrue3arise in India in the hands of

recipient in all cases except the follo7ing,

• Interest received from a resident in respect of any de-t

incurred3 money -orro7ed and used -y the payer ofinterest, for -usiness 3profession outside India, shall not

taxed in India.

pecial 3ase ec C

i l % *

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–

Interest received from a resident in respect of any de-tincurred3 money -orro7ed and used -y the payer of interest,

for the purpose of maing 3earning any income from any

source outside India. 9. R?" N?N R!I#!NT 4 Interest received from a NR

shall -e deemed to accrue3arise in India in the hands ofrecipient in respect of any de-t incurred for the purpose of

-usiness 3 profession carried in India.

pecial %ase ec *Income -y 7ay of Interest Esec *@)@vF

Problem – E.g

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Problem E.g• "r. Q is NR, #uring the D, he receives interest outside. If

interest accrues3arises in India, it shall -e treated as Indian

Income, else it shall not -e treated as Indian Income.

). Rs )2.1lac received from G?I.

0. Rs *lac received from ( 5td. @?4R & ( ltd has used the capital

-orro7ed form "r. Q for carrying -usiness outside income.

9. Rs 0lac received from B 5td. @?4R & B ltd has used the capital

-orro7ed form "r. Q for carrying -usiness & profession in India.

;. Rs

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• Income -y 7ay of Royalty Esec *@)@viF

). R?" G?'T (=T>?RITD $ Royalty received fromGovt. authorities, is deemed to accrue or arise in India,

in the hand of recipient.

0. R?" R!I#!NT 4 Royalty received from a resident

shall -e deemed to accrue3arise in India in the hands of

recipient in all cases except the follo7ing,

• Royalty received from a resident in respect relata-le to

any -usiness 3profession outside India, shall not -e taxedin India.

pecial 3ase ec C

i l % *

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–

Royalty received from a resident in respect of any othersource of income outside India, is not taxed in India.

9. R?" N?N R!I#!NT $ Royalty received from a NR shall -e deemed to accrue3arise in India in the hands of

recipient if -usiness 3 profession is carried in India.

pecial %ase ec *Income -y 7ay of Royalty Esec *@)@viF

i

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Tax +lanning• Tax lanning means devising strategies to minimiLe

the tax payment to the govt and saving more money

of oneself, -y investing in various schemes of the

Income Tax (ct such as ecA2#, A2% and 0;@-.

• The various methods are

– ?7ning the house

– By investing on a -usiness premises

– By maing investments that are exempted from tax

– By investing in investments that enoy treatment of

concessional tax

Tax 2vasion

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Tax 2vasion

• Tax 2vasion means efforts made -y firms, to avoid paying

taxes -y illegal and unfair means. =sually taes place 7hen

taxpayers deli-erately hide their incomes to reduce their

lia-ility of tax.

• ?ften occurs 7hen the people report dishonest tax that includes

declaring less gains, profits.

• Tax !vasion is a crime and the guilty parties are su-ected to

imprisonment and fines. The methods of Tax !vasion are

– muggling

– %ustoms duty evasion

– 'alue added tax evasion

–

Illegal income tax evasion

ro-lem

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• Q furnishes the follo7ing details, of his income, during the D.

– Interest on German -onds@031th received in India $ Rs +2222

– Income from Bangladesh, received there -ut later on Rs

12,222 is remitted in India, @(gricultural activity controlled

from Bangladesh $ Rs ),A),222

– Income from roperty in %anada, received outside India@Rs

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• #ividend paid -y foreign company -ut received in India $ Rs

;+,122

•

ast untaxed profit of 022)40220, -rought to India 02)24)), Rs)2,;9,222

• rofit from -usiness in "adras and managed from outside India,

Rs 0

8/19/2019 Mod 1 Tax Mgt 2016

58/58

Interest on German bonds

• 2/5th received in India

• 3/5th received outside India

24,000

3,000

24,000

!

24,000

!Income "rom #angladesh, received there

$%gricultural activit& controlled "rom #angladesh' (,)(,000

! !

Income "rom Pro*ert& in +anada, received outside

India $s -,000 is used In +anada "or educational

e*enses (0000 remitted to India. ),000

! !

Income earned "rom business in inga*ore,

controlled "rom 1elhi

• $s (5000 is received in India'

• #al amt taable "or and !o

(5,000

50,000

(5,000

50,000

(5,000

50,0001ividend *aid b& "oreign com*an& but received in

India

45,000 45,000, 45,000

Past untaed *rot o" 200(!2002, brought to India

20(0!((,

! ! !

Prot "rom business in adras and managed "rom

outside India,

2-,000 2-,000 2-,000

Prot on sale o" a building in India but received in

ri an6a, s (0,)0,000

(0,)0,000 (0,)0,00

0

(0,)0,0

00Pension "rom a "ormer em*lo&er in India,

received in angoon

3,000 3,000 3,000

Gi"t in "oreign currenc& "rom a "riend received in )0,000 )0,000 )0,000

Documents

Mod 1 Tax Mgt 2016