Agricultural income [Sec 2(1A)]
Sec 10(1) excludes agricultural income from the total income of the person. Only the state govt. can levy tax on agricultural income. However agricultural income has become a factor in the determination of the tax on the non-agricultural income. In respect of an individual, HUF, unregistered firm, An AOP (except a company, registered firm, co-operative society and the local authority) the net agricultural income is included in the total income, if the non-agricultural income exceeds exemption limit. Thus the non-agricultural income is taxed at a higher rate. Onus of proving that an income is agricultural income is on assessee.
Sec 2(1A) of the Act defines ‘agricultural income. It includes the following incomes in agricultural income:
(a) Income derived from such land by (i) agriculture or (ii) the performance (by a cultivator or receiver of rent-in-kind) of any process ordinarily employed to render the produce fit to be taken to the market, or (iii) the sale of such produce made fit.
(b) Income from building linked to agricultural, agricultural house property. Such house property to be exempt from tax must be on or in the immediate vicinity of agricultural land and must be occupied by the cultivator or the recipient of agricultural income and the cultivator or the recipient should, by reason of his connection with the land, required it as his dwelling house or store house or other out-building. Further the land must be subject to land revenue / local tax, and where land is not assessed to land revenue, it should not be with in the jurisdiction of municipality cantonment board or within 8 Kms of it.
The three primary conditions, which must be satisfied before a particular item of income may be treated as agricultural income, are:
(i) That such income has relation to land,
(ii) That such land is situated in India and
(iii) That the land is used for agricultural purpose.
CIT VS RAJA BENOY KUMAR SAHAS ROY: Supreme Court held that agricultural process requires basic function of field cultivation in the sense of tiling the land, sewing of the seeds, planting and similar operations. So forest of spontaneous growth does not come in the preview of agriculture.
Receipt by a member from HUF [Sec 10(2)]
Any sum received by an individual as a member of HUF, either out of (i) Income of HUF or (ii) Income of the estate belonging to the family in case of impartible estate; is exempt.
Exemption is available only to those members who have an interest in the joint income of the HUF, i.e., when the member is entitled to demands his share in the event of partition of the HUF or he is entitled to maintenance under Hindu Law.
Share of the partner in the total income of the Firm [Sec 10(2A)]
In the case of a person being a partner of a firm, which is separately assessed as such, his share, as per Partner ship Deed, in the total income of the firm is not included in his income.
Allowances or perquisites granted abroad [Sec 10(7)]
Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering services outside India is not included in his total income.
Sum received under a Life Insurance Policy [Sec 10(10D)]
Any sum received under a life insurance policy including the sum allocated by way of bonus on such policy is exempt from tax.
However the following sums are not eligible for exemption
1. Sum received under the Sec. 80 DD or 80DDA (3) (Mediclaim Policies)
2. Sum received under a Keymen Insurance Policy
3. Sum under a policy in which premium exceeds 20% of the sum assured. (Not applicable, if sum is received on death)
Scholarship [Sec10 (16)]
Any scholarship granted to meet the cost of education is exempt.
Allowances to MP/ MLA[Sec.10(17)]
1. Daily allowance to a MP or MLA or Member of any Committee thereof
2. Any other allowance to MP under MP (Constituency Allowance) Rules, 1986
3. All other Allowance not exceeding Rs.2000/- per month to MLA/ or Member of any Committee thereof
Pension to Gallantry Award holders [Sec 10(18)]
(i) Pension received by an individual who has been in the service of the Central Government or State Government and has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other notified gallantry award;
(ii) Family pension received by any member of the family of an individual referred to in sub-clause (i).
Income of a local authority [Sec 10(20)]
Only income from a trade or business carried on by a local authority, which accrues or arises from the supply of a commodity or service (not being water and electricity) outside its jurisdictional area is chargeable to tax. All other incomes are not included in the total income of the local authority.
Exemption in respect of income of minor child [Sec 10(32)]
With respect to the parent in whose income the income of the minor child is included under section 64(1A), an exemption is granted in the following manner:
(1) The exemption is granted in respect of each child whose income is so included.
(2) Exemption is lower of (a) income of the minor child include in his income, or (b) Rs.1,500/- per child.
Dividend [Sec10 (34)]
Any income by way of dividends from domestic company under Section 115-O.
Capital gain on Compensation on Compulsory acquisition of Agricultural Land in Urban Area [Sec.10(37)]
To an individual / HUF, provided land being used for agricultural purpose during two years preceding the date of acquisition, by such individual or his parent or by such HUF
Long Term Capital gain on Sale of Shares and Units [Sec.10(38)]
Capital gain on transfer of Long Term Capital Assets (Equity shares of a Co. or Units of equity oriented Fund) be exempted provided
(1) Equity shares being sold throught Recognised Stock Exchange. In case of units, sale though recognized stock exchange or sold to the mutual fund.
(2) Such transaction is chargeable to Security Transaction Tax.
Amount Received as Loan in case of Reverse Mortgage Transaction [Sec.10(38)]
Any amount, either in Lump sum or in installments, by an individual is exempt.
Leave Travel Concession / Leave Salary/ Gratuity/ Commuted Pension/ Voluntary Retirement Compensation/ PF Balance Of Statutory or Recognised Provident Fund/ HRA/ Transport Allowance/ Medical Allowance: to be seen in ‘SALARY INCOME’
Friday, August 1, 2008
Monday, July 28, 2008
Resident in India
Sec.5 of the Income Tax Act provides for the assessment of income on the basis of residential status of the assessee. The residence of a person has to be determined with reference to a particular assessment year, but as an assessment year is related to a particular previous year, the question of residence will be dependant on the conditions in such previous year.
For the purpose of determining residence, Sec.6 divides person in four categories:
An individual, 2. A HUF, Firm and other Association of Person
A Company, and 4. Every other person
Residence of an individual
Individual would be a resident of
(A) He stays in India for 182 days or more during the previous year, OR
(B) He stays in India for 365 days or more during the four preceding previous years and stays in India for at least 60 days during the previous year. (182 days in place of 60 days in case of Indian citizen or person of Indian origin coming to visit India or Indian Citizen going abroad as crew of Indian ship or employment).
In order to become ordinarily resident an individual is required to satisfy both the following conditions:
(i) He has been resident in India in 2 out of 10 previous years preceding the relevant previous year, AND
(ii) He has been physically present in India for at least 730 days during 7 previous years immediately preceding the relevant previous year.
If an individual satisfies one of (A) Or (B) conditions but does not satisfy both the conditions (i) and (ii), he is said to be not ordinarily resident.
Residence of an HUF
Will be resident in India except where during the previous year the control and management of its affairs is situated WHOLLY outside India. In that case it will be non-resident.
HUF will be resident and ordinarily resident in India if its manager has been (I) resident in India in 2 out of 10 previous years preceding the relevant previous year, AND (II) present in India for at least 730 days during 7 previous years immediately preceding the relevant previous year. If manager does not fulfill the above condition, a HUF will be non-ordinary resident.
Residence of a company
Sec 6(3) divides companies into two categories – (1) domestic company and (2) other company.
Domestic company shall be resident in India in every case.
For other companies, to be resident in India, the control and management of its affairs is to be situated wholly in India.
Residence of every other person
Every other person is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.
Scope Of Income
Resident and ordinary resident
The total income includes all income which (A) is received or deemed to be received in India, (B) accrues or arise or is deemed to accrue or arise in India, and (C) accrues or arise to him outside India during such year.
Resident and not ordinary resident
The total income includes all three above items except income accruing outside India unless it is derived from a business controlled in or a profession set up in India.
Non resident
The total income includes all income, which (A) is received or deemed to be received in India, (B) accrues or arise or is deemed to accrue or arise in India.
Income
Sec 2(24) provides an inclusive definition of the income. So other form of income not specified in the section but treated as income as per general and natural meaning of the term are also covered by the definition unless exempted under the Act. Section provides that income includes the followings:
(A) Profits and Gains (B) Dividends
(C) Voluntary contribution received by a trust (including any other legal obligations) created wholly or partly for charitable or religious purposes or an association or institution referred to in section 10(23)(iv)(v)
(D) Value of any perquisite or profit in lieu of salary (E) Any special allowance or benefit
(F) Value of any benefit or perquisite whether convertible into money or not obtained by the director or any person having substantial interest in the company. (G) Income as per section 28, 41 and 59.
(H) Capital Gains U/S 45
(I) Winning from lotteries, crossword puzzles, race, card games etc.
(J) Sum received by assessee from his employees as contribution to (a) any provident fund, (b) superannuation fund (c) any fund set up under ESI Act or (d) any other fund for the welfare of such employees.
Income deemed to be received
a. Annual accretion in the previous year to the balance at the credit of an employee in a Recognised Provident Fund.
b. Transferred Balance in Recognised Provident Fund from an unrecognized provident fund.
c. TDS from any payment made to assessee.
d. Deemed profit U/S 41 of I.T. Act.
Income Deemed To Accrue Or Arise In India
Income accruing or arising from a business connection in India
Income accruing or arising from any house property in India
Income accruing or arising through transfer of a capital asset situated in India
Salary income earned in India
Salary income payable by Govt. to a citizen in India for services rendered outside India
Dividend paid by an Indian company outside India
Interest / Royalty Income / Fees for technical services payable by
Govt.
Resident Person except where the debt used for the purpose of business carried outside India or making any income from any source outside India.
Non-resident provided the debt used for the purpose of business carried in India.
Capital receipt Vs Revenue receipts
Capital means accumulated wealth employed reproductively. Revenue means the return, yield or profit of any land, property or other important source of income. Whereas capital is a fund; revenue is a flow. A receipt on account of circulating capital is revenue receipt. A receipt on account of fixed capital is capital receipt. In order to determine whether a receipt is a capital or revenue in nature, one has to go by its nature in the hands of recipient. The source from which the payment is made has no bearing. Similarly the payer’s motive is not relevant in deciding whether a particular receipt is revenue or capital in nature. A receipt in lieu of source of income is a capital receipt. A receipt in lieu of income is a revenue receipt.
Income
Income connotes a periodical monetary return coming in some sort of regularity. Income may be received in cash or in kind. Income arises either on receipt basis or on accrual basis. The I.T. Act does not make any difference in between legal or illegal source of income or in between temporary or permanent income. Income includes negative incomes (losses). Same income cannot be taxed twice.
Reimbursement of expenses is not treated as income. Gift of a personal nature or pin money do not constitute income & thus not liable to tax under the Act. Mere production does not amount to income.
Income should be real and not fictional. Income must come from outside. Thus a person cannot make a taxable profit out of a transaction with himself.
Previous Year (Sec.3)
Income earned in a year is taxable in next year. The year in which income is earned is known as previous year.
Previous year always starts on 1st April and ends on 31st March. But in case of newly set up business, first previous year starts from the date of starting of business and ends on immediately following 31st March.
Assessment Year [Sec. 2 (9)]
Assessment Year is the year in which the income of previous year is to be assessed. Thus the next year from the previous year in which income is taxed is known as Assessment Year.
General rule is that the income of the previous year is taxed in the assessment year. But there are few exceptions to the rule:
Income of non-resident shipping companies if they do not have any representative in India;
Income of any person leaving India permanently or for long period;
Income of bodies formed for short term
Income of a person trying to alienate his assets with a view to avoiding tax; and
Income of a discounted business.
PERSON [Sec 2(31)]
The term includes:
a. An Individual b. A HUF c. A Company d. A Firm
An AOP or BOI f. A Local Authority g. Every Artificial Person
Assessee
Means a person by whom any tax or any other sum of money is payable under the Act.
Sec.5 of the Income Tax Act provides for the assessment of income on the basis of residential status of the assessee. The residence of a person has to be determined with reference to a particular assessment year, but as an assessment year is related to a particular previous year, the question of residence will be dependant on the conditions in such previous year.
For the purpose of determining residence, Sec.6 divides person in four categories:
An individual, 2. A HUF, Firm and other Association of Person
A Company, and 4. Every other person
Residence of an individual
Individual would be a resident of
(A) He stays in India for 182 days or more during the previous year, OR
(B) He stays in India for 365 days or more during the four preceding previous years and stays in India for at least 60 days during the previous year. (182 days in place of 60 days in case of Indian citizen or person of Indian origin coming to visit India or Indian Citizen going abroad as crew of Indian ship or employment).
In order to become ordinarily resident an individual is required to satisfy both the following conditions:
(i) He has been resident in India in 2 out of 10 previous years preceding the relevant previous year, AND
(ii) He has been physically present in India for at least 730 days during 7 previous years immediately preceding the relevant previous year.
If an individual satisfies one of (A) Or (B) conditions but does not satisfy both the conditions (i) and (ii), he is said to be not ordinarily resident.
Residence of an HUF
Will be resident in India except where during the previous year the control and management of its affairs is situated WHOLLY outside India. In that case it will be non-resident.
HUF will be resident and ordinarily resident in India if its manager has been (I) resident in India in 2 out of 10 previous years preceding the relevant previous year, AND (II) present in India for at least 730 days during 7 previous years immediately preceding the relevant previous year. If manager does not fulfill the above condition, a HUF will be non-ordinary resident.
Residence of a company
Sec 6(3) divides companies into two categories – (1) domestic company and (2) other company.
Domestic company shall be resident in India in every case.
For other companies, to be resident in India, the control and management of its affairs is to be situated wholly in India.
Residence of every other person
Every other person is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.
Scope Of Income
Resident and ordinary resident
The total income includes all income which (A) is received or deemed to be received in India, (B) accrues or arise or is deemed to accrue or arise in India, and (C) accrues or arise to him outside India during such year.
Resident and not ordinary resident
The total income includes all three above items except income accruing outside India unless it is derived from a business controlled in or a profession set up in India.
Non resident
The total income includes all income, which (A) is received or deemed to be received in India, (B) accrues or arise or is deemed to accrue or arise in India.
Income
Sec 2(24) provides an inclusive definition of the income. So other form of income not specified in the section but treated as income as per general and natural meaning of the term are also covered by the definition unless exempted under the Act. Section provides that income includes the followings:
(A) Profits and Gains (B) Dividends
(C) Voluntary contribution received by a trust (including any other legal obligations) created wholly or partly for charitable or religious purposes or an association or institution referred to in section 10(23)(iv)(v)
(D) Value of any perquisite or profit in lieu of salary (E) Any special allowance or benefit
(F) Value of any benefit or perquisite whether convertible into money or not obtained by the director or any person having substantial interest in the company. (G) Income as per section 28, 41 and 59.
(H) Capital Gains U/S 45
(I) Winning from lotteries, crossword puzzles, race, card games etc.
(J) Sum received by assessee from his employees as contribution to (a) any provident fund, (b) superannuation fund (c) any fund set up under ESI Act or (d) any other fund for the welfare of such employees.
Income deemed to be received
a. Annual accretion in the previous year to the balance at the credit of an employee in a Recognised Provident Fund.
b. Transferred Balance in Recognised Provident Fund from an unrecognized provident fund.
c. TDS from any payment made to assessee.
d. Deemed profit U/S 41 of I.T. Act.
Income Deemed To Accrue Or Arise In India
Income accruing or arising from a business connection in India
Income accruing or arising from any house property in India
Income accruing or arising through transfer of a capital asset situated in India
Salary income earned in India
Salary income payable by Govt. to a citizen in India for services rendered outside India
Dividend paid by an Indian company outside India
Interest / Royalty Income / Fees for technical services payable by
Govt.
Resident Person except where the debt used for the purpose of business carried outside India or making any income from any source outside India.
Non-resident provided the debt used for the purpose of business carried in India.
Capital receipt Vs Revenue receipts
Capital means accumulated wealth employed reproductively. Revenue means the return, yield or profit of any land, property or other important source of income. Whereas capital is a fund; revenue is a flow. A receipt on account of circulating capital is revenue receipt. A receipt on account of fixed capital is capital receipt. In order to determine whether a receipt is a capital or revenue in nature, one has to go by its nature in the hands of recipient. The source from which the payment is made has no bearing. Similarly the payer’s motive is not relevant in deciding whether a particular receipt is revenue or capital in nature. A receipt in lieu of source of income is a capital receipt. A receipt in lieu of income is a revenue receipt.
Income
Income connotes a periodical monetary return coming in some sort of regularity. Income may be received in cash or in kind. Income arises either on receipt basis or on accrual basis. The I.T. Act does not make any difference in between legal or illegal source of income or in between temporary or permanent income. Income includes negative incomes (losses). Same income cannot be taxed twice.
Reimbursement of expenses is not treated as income. Gift of a personal nature or pin money do not constitute income & thus not liable to tax under the Act. Mere production does not amount to income.
Income should be real and not fictional. Income must come from outside. Thus a person cannot make a taxable profit out of a transaction with himself.
Previous Year (Sec.3)
Income earned in a year is taxable in next year. The year in which income is earned is known as previous year.
Previous year always starts on 1st April and ends on 31st March. But in case of newly set up business, first previous year starts from the date of starting of business and ends on immediately following 31st March.
Assessment Year [Sec. 2 (9)]
Assessment Year is the year in which the income of previous year is to be assessed. Thus the next year from the previous year in which income is taxed is known as Assessment Year.
General rule is that the income of the previous year is taxed in the assessment year. But there are few exceptions to the rule:
Income of non-resident shipping companies if they do not have any representative in India;
Income of any person leaving India permanently or for long period;
Income of bodies formed for short term
Income of a person trying to alienate his assets with a view to avoiding tax; and
Income of a discounted business.
PERSON [Sec 2(31)]
The term includes:
a. An Individual b. A HUF c. A Company d. A Firm
An AOP or BOI f. A Local Authority g. Every Artificial Person
Assessee
Means a person by whom any tax or any other sum of money is payable under the Act.
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