Income tax in India Income-tax
is a charge on Income earned in a financial year which starts
on 1st April of a calendar year and ends on 31st March of the
following calendar year.
the Indian Income-tax Act, the word "income", in addition to
the common man's understanding of the term, also refers to
certain items of receipts and accruals which ordinarily would
not have been treated as income in common parlance. Section 14
classifies the various income sources under the following
Income from house property
3. Profits and gains of
business or profession
4. Capital gains
5. Income from
location is classified
Indian Income is that income which accrues to an assessee in
the taxable territories of India.
World Income refers
to income which accrues, arises or is being received outside
NRIs are taxed only on their Indian income. Income earned
outside India which is later remitted to India is not taxable
in India. However, pension directly remitted to India by
overseas employers after the employee's permanent return to
India would be
Section 9 deals with income deemed to accrue or arise in India
which refers to income from
connections in India or
any property or asset in India
a transfer of capital asset in India.
other source of income in India
from salary is deemed to accrue or arise in India
it is earned in India.
it is income from services rendered in India
received abroad by Indian nationals from Government of India
for services rendered outside India
allowances and perquisites paid abroad are fully exempt under
Section 10(7). The following incomes which are payable outside
India are deemed to arise in India:-
paid by an Indian company outside India.
payable on money borrowed and brought into India.
and technical service fees payable in respect of any
technical services used for business or profession in India.
However, royalty and fees for technical services is exempt,
where such royalty / fees earned is in respect of computer
software supplied by a Non-resident manufacturer along with
the computer or computer based equipment under an approved
Previous year and Assessment
Income-tax is charged in the financial year following the year
in which the income is earned. Accordingly, the financial year
in which income is earned is known as "Previous year" and the
financial year in which the charge on that income is due is
known as "Assessment year". It means income earned by any
person from 1-4-2007 to 31-3-2008 for which the previous year
is 2007-2008 will be taxed in the following financial year
which is known as assessment year 2008-2009.
Under the Indian Income Tax Act, the entity on which Income
Tax is levied is called an "Assessee". An "assessee" is a
"person" by whom any tax or any other sum of money (such as
interest, penalty, etc.) is payable under the Income Tax Act
or in respect of whom any proceeding under the Act has been
taken for the assessment of his income or loss. It also
includes every representative assessee deemed to be an
assessee under Chapter 15 of the Income Tax Act,
"Person" as per the IT Act,
As per Section 2(31) of the I.T. Act a "person" refers not
only to an individual but also corporate bodies like companies
or non-corporate bodies such as Partnership firms,
Associations, societies, local authorities, civic or town
planning bodies and even artificial entities like temple,
deities etc. It also includes the Hindu Undivided Family
(H.U.F.), a status enjoyed by Hindus in India who follow the
joint family system owning joint property.
The residential status is crucial in determining the taxes an
assessee is required to pay. Section 6 of the Income Tax Act
defines the following categories liable to pay tax in
but not ordinarily resident (RNOR)
and RNORs are liable to pay tax only on their "Indian income"
while tax payers who are resident in India as per Income Tax
Act are taxed on their "world income".
NRI, as per the IT Act,
The definition of Non-Resident under FEMA is different from
that given in the Income Tax Act. Chapter XI of the Act
defines a non-resident Indian as an individual, being a
citizen of India or a person of Indian origin, who is not a
resident. A person is of Indian origin if he or either of his
Indian parents or any of his grand parents was born in
undivided India. To avail of tax sops extended to NRIs, an
individual must satisfy the following
person who has been in India for 60 days or more during a
financial year and 365 days or more during the preceding
four financial years qualifies as a 'Resident' of India.
This has been relaxed and can be extended to 182 days. Not
meeting this criterion qualifies the individual for a
based outside India can continue to enjoy non-resident
status in India if their presence in India is more than 60
days but less than 182 days, even if their stay in India
during the past four financial years is 365 days or more
been deputed overseas for over 6 months also qualifies an
individual for NRI status.
relaxation to 182 days applies to:
crew members sailing overseas on Indian ships - their stay
abroad is treated as employment outside India
the case of Indian citizens as well as in the case of
"Persons of Indian Origin" who are settled abroad but visit
India for personal reasons.
concession of extended stay is available only to Indian
citizens or to "persons of Indian origin" A "Person of Indian
origin" is a person who is not an Indian citizen, but was
born, or either of his parents or grandparents was born in
other company or Association of Persons is treated as
non-resident when the control and management of its affairs is
situated throughout the year wholly outside India.
follows that in cases of non-Individual categories of persons,
it is the control and management that determines whether that
person is Non-resident or otherwise. If the control and
management is in India, the status is Resident, if outside
India, it is non-resident.
Criteria for RNOR (Resident but Not Ordinarily
a NRI comes back to India and loses his NRI status, he will
not be subject to tax in India on his world-wide income, for 2
years, if either of the following two conditions are
1. He has been in
India for not more than 729 days during the preceding seven
financial years; or
2. He has qualified as a non-resident
for nine out of 10 preceding financial years.
if in any particular financial year, his stay in India exceeds
182 days and he loses his NRI status for that year, his income
outside India will still not be taxable if any of the above
two conditions are satisfied and his tax status will be that
of a 'Not Ordinarily Resident' Indian.