Illustration 1:
Determination of Residential status : Mr. X, an indian citizen, is employed in XYZ Ltd. He was sent on deputation is US on 15-07-2022.
Determine his residential status for assessment year 2023-24.
Solution 1:
In the given case – Mr. X was sent on deputation to US during the previous year 2022-23 i.e. he is leaving India for employment outside India. It is irrelevant that he is employed in India before leaving India for employment outside India. For him basic condition number 2 is not applicable. His total stay in India during the previous year = 30 + 31 + 30 + 15 = 106 days.
Since Mr. X does not satisfy the first basic condition applicable to him, therefore he is a non-resident for the Assessment Year 2023-24.
Illustration 2:
Determination of Residential Status : In the year 2022-23 previous year, a sailor has remained on a ship for a private company owning ocean-going ships as follows :
Outside the territorial waters of India for 182 days;
Inside the territorial waters of India for 183 days;
Is he considered to be a resident for the assessment year 2023-24?
Solution 2:
An individual is an Indian resident if he is in India for period of 182 days or more during the previous year. India includes territorial waters of India. Since the sailor remained inside the territorial waters of India for 183 days, he is regarded as resident in India for the assessment year 2023-24.
Illustration 3:
Determination of Residential Status : Mr. Ram an Indian citizen left India on 22-09-2022 for the first time to work as an officer of a company in Germany. Determine the residential status of Ram for the assessment year 2023-24 and explain the conditions to be fulfilled for the same under the Income- tax Act, 1961.
Solution 3:
Mr. ram is an Indian Citizen who left India during the previous year for employment outside India. For him basic condition no. 2 is not applicable. Hence, for being resident in India, he should be in India for 182 days or more during the previous year. In this case, Mr. Ram was in India only for 175 days during the previous year (01-04-2022 to 22-09-2022 = 30 + 31 + 30 + 31 + 31 + 22 = 175 days). Since he does not satisfy the minimum criteria of residence of 182 days during the previous year, hence, he is a non- resident for assessment year 2023-24.
Illustration 4:
Determination of Residential Status : Teji, a citizen of India, is an export manager of Arjun Overseas Ltd., an Indian company since 1st May, 2018. He has been regularly visiting USA for export promotion. He spent the following days in USA during the last 5 years : Previous year ended
31-03-2019 31-03-2020 (Leap Year) 31-03-2021
Number of days spent in USA
320 days 150 days 270 days
31-03-2022 310 days
31-03-2023 295 days
Determine his residential status for assessment year 2023-24 assuming that prior to 1st May, 2018 he had never travelled abroad.
Solution 4:
During the previous year 2022-23, Teji was in India 70 days (365 days – 295 days in USA) and during the immediately preceding previous year, he was in India for 411 days as shown below:-
Year
No. of days spent in USA
No. of days stayed in India
Thus, he satisfies one basic condition and thus, he is a resident in India for the previous year 2022- 23. He satisfy both of the additional conditions, hence Mr. Teji is a resident & ordinarily resident.
Illustration 5:
Determination of Residential status: A, a British national, comes to India for first time during 2018- 19. During financial years 2018-19, 2019-20, 2020-21, 2021-22 and 2022-23, he was in India for 65 days, 60 days, 80 days, 160 days and 70 days respectively. Determine his residential status for assessment year 2023-24.
Solution 5:
During the previous year 2022-23, a was in India for 70 days and during 4 years immediately preceding the previous year, he was in India for 365 days as shown below:-
Year 2018-19 2019-20 2020-21 2021-22 Total No. of days stayed in India 65 60 80 160 365 Thus, he satisfies the second basic condition and is, therefore, resident in India for the previous year 2022-23. Further, he satisfies additional conditions as follows:-
(a) He was non resident in India in all of the last 10 preceding years;
(b) He resided in India only for 365 days during the 7 preceding previous years.
Accordingly, he is ‘Not Ordinarily Resident in India’ for the previous year 2022-23.
2018-19 2019-20 (Leap year) 320 150
2020-21 2021-22 Total 270 310 1050
45 216
95 55 411
Illustration 6:
Determination of Residential status: Mr. Karuna Kapoor, is a the following information about her stay in India.
Hollywood actress. Her passport reveals
2022-23 2021-22 2020-21 2019-20 2018-19 2017-18 2016-17 2015-16 2014-15
From April 3rd From June 22nd From February 10th From September 7th From May 17th From April 3rd From April 3rd From April 3rd From April 3rd
to to to to to To To To To
July 11th
July 11th March 26th March 26th September 30th July 11th
July 11th July 11th July 11th
Find out her residential status for the assessment year 2023-24.
Solution 6:
An individual is said to be a Resident in India in any previous year if he satisfies one or both of the basic conditions as given under section 6(1).
(i) Basic conditions :
He must be in India for a period of 182 days or more during the previous year; or
He must be in India for a period of 60 days or more during the previous year and 365 days or more during the four years preceding the previous year.
(ii) If he does not satisfy either of these conditions, he would be a resident and ordinarily resident.
During the previous year 2022-23, Mrs. Karuna Kapoor was in India for 100 days (April : 28 + May : 31 + June : 30 + July : 11) and during the immediately preceding 4 previous years, she was in India for 404 days as shown below:-
Year 2018-19 2019-20 (Leap year) 2020-21 2021-22 Total No. of days stayed in India 137 202 45 20 404 Thus, she satisfies one basic condition and thus, she is a resident in India for the previous year 2022- 23.
As per Section 6(6), a person will be “Not ordinarily Resident” in India in any previous year, if such person:
(i) (ii)
has been a non-resident in 9 out of 10 previous years preceding the relevant previous year; or
has during the 7 previous years immediately preceding the relevant previous year been in India for 729 days or less.
Year
2014-15 2015-16 (Leap Year)
2016-17 100
Determination of Residential status : Ms. Bindu, a non-resident, residing in New York since 1991, came back to India on 19-02-2021 for permanent settlement in India. Explain her residential status of Ms. Bindu for the Assessment Year 2023-24 in accordance with the various provision of Indian Income-tax Act.
Solution 7:
Ms. Bindu is a resident in assessment year 2023-24 since she has stayed in India for a period of 365 days (more than 182 days) during the Previous Year 2022-23, respectively.
As per section 6(6), a person will be “Not ordinarily Resident” in India in any previous year, if such person :
(i) has been a non-resident in 9 out of 10 previous years preceding the relevant previous year, or
(ii) has during the 7 previous years immediately preceding the relevant previous year been in India for 729 days or less.
(iii) A citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources, exceeding Rs. 15 lakh during the previous year, and he comes to India for the purpose of visit to India during the relevant previous year and he has been in India for a period or periods amounting in all to 120 days or more but less than 182 days; or
(iv) a citizen of India who is deemed to be resident in India under section 6(1A).
If he does not satisfy either of these conditions, he would be a resident and ordinarily resident.
In the instant case, applying the above provision, the status of Ms. Bindu for the previous year 2022- 23 (A.Y. 2023-24) would be Resident but not ordinarily resident since she was non-resident in 9 out of 10 previous years immediately preceding the previous year and also had stayed for less than 729 days in 7 previous years immediately preceding the previous year.
Therefore her status for A.Y. 2023-24 – “Resident but not ordinarily resident”.
Illustration 8:
Determination of residential status of crew member of ship : Mr. Rohan is an Indian citizen and a member of the crew of a London bound Indian ship engaged in carriage of passengers in international traffic departing from Mumbai port on 10th August, 2022. From the following details for the F.Y. 2022-23, determine the residential status of Mr. Rohan for A.Y. 2023-24 assuming that his stay in India in the last 4 previous years (preceding P.Y. 2022-23 is 380 days and last seven previous years (preceding P.Y. 2022-23) is 780 days.
Particulars
Date entered Into the Continuous Discharge Certificate in respect of joining the ship by Mr. Rohan
Date entered Into the Continuous Discharge Certificate in respect of signing off the ship by Mr. Rohan
Solution 8:
Date
10th August, 2022 13th February, 2023
As per Section 6, where an Indian citizen leaves India as a member of crew of an Indian ship or for the purpose of employment outside India, he will be resident only if he stayed for 182 days during the previous year. In this case, the voyage is undertaken by an Indian ship engaged in the carriage of passengers in international traffic, originating from a port in India (i.e. the Mumbai port) and having its destination at a port outside India (i.e. the London port) is an eligible voyage and therefore the period beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage shall not be counted for stay in India.
Therefore, the period beginning from 10th August, 2022 and ending on 13th February, 2023, being the dates entered into the Continuous Discharge Certificate in respect of joining the ship and signing off from the ship by Mr. Rohan, has to be excluded for computing the period of his stay in India. Accordingly, 188 days [22 (August) + 30 (September) + 31 (October) + 30 (November) + 31 (December) + 31 (January) + 13 (February)] have to be excluded from the period of his stay in India. Consequently, Mr. Rohan’s period of stay in India during the P.Y. 2022-23 would be 177 days (i.e., 365 days – 188 days). Since his period of stay in India during the P.Y. 2022-23 is less than 182 days, he is a non-resident for A.Y. 2023-24.
Note : Since the residential status of Mr. Rohan is ‘non-resident’ for A.Y. 2023-24 consequent to his number of days of stay in P.Y. 2022-23 being less than 182 days, his period of stay in the earlier previous years become irrelevant.
Illustration 9:
Determination of Residential status : Mr. X, Karta of HUF, claims that the HUF is non-resident as the business of HUF is transacted from UK and all the policy decisions are taken there.
Solution 9:
True since the business of the HUF is transacted from UK and policy decisions are taken there, therefore, the ‘Control and Management’ of its affairs is wholly situated outside India.
Illustration 10:
Determination of Residential status : XYZ Inc. is incorporated in Cayman Island. Its key management and commercial decisions are taken in Board meetings held in Mumbai during financial year 2022- 23. Determine its residential status for assessment year 2023-24.
Solution 10:
As per section 6(3), A company is said to be resident in India in any previous year, if its place of effective management, in that year, is in India. In this case though the company is incorporated outside India, it will be regarded as resident in India as its place of effective management during the relevant financial year is in India since its key management and commercial decisions are taken in its board meetings held in Mumbai.
Illustration 11:
Determination of Residential status : Lotus Inc., a US company headquartered at NewYork, not having a permanent establishment in India, has set up a liaison office in Delhi in April, 2022 in compliance with RBI guidelines to look after its day to day business operations in India, spread awareness about the company’s products and explore further opportunities. The liaison office takes decisions relating to day to day routine operations and performs support functions that are preparatory and auxiliary in nature. The significant management and commercial decisions are, however in substance made by the Board of Director at NewYork. Determine the residential status of Lotus Inc. for A.Y. 2023-24.
Solution 11:
In the case of Lotus Inc., its place of effective management for P.Y. 2022-23 is not in India, since the significant management and commercial decisions are, in substance, made by the Board of Directors outside India in NewYork.
Lotus Inc. has only a liaison office in India through which it looks after its routine day to day business operations in India. The place where decisions relating to day to day routine operations are taken and support functions that are preparatory or auxiliary in nature are performed are not relevant in determining the place of effective management.
Hence, Lotus Inc., being a foreign company is non-resident for A.Y. 2023-24, since its place of effective management is outside India in the P.Y. 2022-23.
Illustration 12:
Taxability of interest income : Mr. A, a citizen of India, left for USA for the purposes of employment on 01.05.2022. He has not visited India thereafter. Mr. A borrows money from his friend Mr. B, who left India one week before Mr. A’s departure, to the extent of Rs. 10 lakhs and buys shares in X Ltd., an Indian company. Discuss the taxability of the interest charged @ 10% in B’s hands where the same has been received in New York.
Solution 12:
In this case:-
(a) Mr. A and Mr. B are non-resident in India during the previous year 2022-23.
(b) The purpose of borrowal by Mr. A is not ‘carrying on of any business of profession in India’
but for the purpose of investment in India i.e. earning any source of income in India.
Hence, the provisions of section 9(1)(v) relating to deeming fiction of accrual is not applicable in this case. Accordingly the interest does not accrue of arise in India and is, therefore, not taxable in India.
Illustration 13:
Taxability of fees for technical services : Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant practising in Colombo, specializing in project financing. The payment was made in Colomba Mr. Kulasekhara is a non-resident. The consultancy related to a project in India with possible Ceylonese collaboration is this payment chargeable to tax in India in the hands of Mr. Kulasekhara, since the services were used in India?
Solution 13:
A non-resident is chargeable to tax in respect of income received outside India only if such income accrues or arises or is deemed to accrue or arise to him in India. The income deemed to accrue or arise in India under section 9 comprises, inter alia, income by way of fees for technical services, which includes any consideration for rendering of any managerial, technical or consultancy services. Therefore, payment to a management consultant relating to project financing is covered within the scope of “fees for technical services”.
According to explanation to section 9, income by way of, fees for technical services, from services utilized in India would be deemed to accrue or arise in India in case of a non-resident and be included in his total income, whether or not such services were rendered in India.
In the instant case, since the services were utilized in India, the payment received by Mr. Kulasekhara, a non-resident, in Colombo is chargeable to tax in his hands in India, as it is deemed to accrue or arise in India.
Illustration 14:
Scope of total Income : Following incomes are derived by Mr. Krishna Kumar during the year ended 31-03-2023.
Particulars
Pension received from the US Government
Agricultural income from lands in Malaysia
Rent received from let out property in Colombo, Sri Lanka
Amount (Rs.)
3,20,000 2,70,000 4,20,000
Discuss the taxability of the above items where the assesse is (i) Resident (ii) Non-resident.
Solution 14:
Computation of Gross total income (amount in Rs.):
Particulars
Pension received from the US Government
(Net of standard deduction of Rs. 50,000)
Income from agriculture land situated in Malaysia
Rent received from let out property in Colombo, Sri Lanka (WN) Gross Total Income
Resident
2,70,000
2,70,000 2,94,000 8,34,000
Non Resident
-
-
- Nil
It has been assumed that the above incomes has been received outside India. If the
in India, then the said amounts will also be taxable even if Krishna Kumar is non resident.
Working Note : It has been assumed that the rental income is the gross annual value of the property. Therefore, deduction @ 30% under section 24, has been provided and the net income so computed is taken into account for determining the total income of a resident and ordinarily resident.
same is received
Rent received (assumed as gross annual value)
Less: Deduction under section 24 (30% of Rs. 4,20,000) Income from house property
Illustration 15:
(Amount in Rs.)
4,20,000 1,26,000 2,94,000
Scope of total Income : Explain with reasons whether the following transactions attract income tax in India in the hands of recipients?
(i) Salary (Computed) paid to Mr. David, a citizen of India Rs. 15,00,000 by the Central
Government for the services rendered in Canada.
ii) Legal charges of Rs. 7,50,000 paid to Mr. Johnson, a lawyer of London, who visited India to represent a case at the Supreme Court.
(iii) Royalty paid to Rajeev, a non-resident by Mr. Kukesh, a resident for a business carried on in Sri Lanka.
(iv) Interest received of Rs. 1,00,000, on money borrowed from France, by Ms. Dyana, a non- resident for the business at Bangalore.
Solution 15: Taxable/ Not
Taxable
(i)
(ii) Taxable (iii)
(iv)
Illustration 16:
Amount liable to tax (Rs.)
7,50,000
Reason
Legal charges paid to Mr. Johnson, a lawyer of London, who visited India to represent a case at the Supreme Court, since it accrues or arises in India.
Taxable
15,00,000
As per Section 9(1)(iii), salaries payable by the Government to a citizen of India for service rendered outside India shall be deemed to accrue or arise in India. Therefore, salary paid by Central Government to Mr. David for services rendered outside India would be deemed to accrue or arise in India since he is a citizen of India.
Not taxable
--
Royalty paid by a resident to a non-resident in respect of a business carried outside India would not be taxable in the hands of the non-resident provided the same is not received in India. This has been provided as an exception to deemed accrual mentioned in Section 9(1)(vi)(b).
Taxable
1,00,000
As per Section 9(1)(v)(c), interest payable by a non- resident on moneys borrowed and used for the purposes of business carried on by such person in India shall be deemed to accrue or arise in India in the hands of the recipient.
Computation of total income : Determine the taxability of income of US based company Heli Ltd., in India on entering following transactions during the financial year 2022-23.
(i) Rs. 5 lacs received from an Indian domestic company for providing technical know how in
India.
(ii) Rs. 6 lacs from an Indian firm for conducting the feasibility study for the new project in
Finland.
(iii) Rs. 4 lacs from a non-resident for use of patent for a business in India.
(iv) Rs. 8 lacs from a non-resident Indian for use of know how for a business in Singapore.
(v) Rs. 10 lacs for supply of manuals and designs for the business to be established in Singapore.
Explain the rate of tax applicable on taxable income for US based company, Helf Ltd., in India.
Solution 16:
A non resident is chargeable to tax in India in respect of following incomes :
(i) Income received or deemed to be received in India.
(ii) Income accruing or arising or deemed to accrue or arise in India.
In view of the above provisions, taxability of income is determined in following manner :
S.No.
(i) (ii)
Particulars
Amount received from an Indian domestic company for providing technical know how in India is from Business Connection in India, therefore taxable in India. Conducting the feasibility study for the new project in Finland for the Indian firm
Rs.
5,00,000 Nil
is not taxable in India as done for the business outside India.
(iii) The income from business set up in India is taxable in India. Therefore, money 4,00,000
received from a non resident for use of patent for a business in India is taxable in
India.
(iv) Money received from a non resident India for use of know-how for a business in Nil
Singapore is for the business outside India, therefore non taxable in India.
(v) Payment made for supply of manuals and designs for the business to be Nil
established in Singapore is not taxable in India.
Total Income taxable in India 9,00,000
Tax rate applicable to Heli Ltd. : In respect of foreign companies, certain specified income such as Royalty and fees for technical service is taxable @ 10% + Surcharge + Health and education cess. The rates are also depends on Double Taxation Avoidance Agreement, if any, entered into between India and the respective country of the foreign company, whichever is more beneficial to the assesse. The basic normal rate applicable for the US based company who is a foreign company is 40%. In case the taxable income is more than Rs. 1 crore but upto Rs. 10 crores in the previous year, the surcharge @ 2% is applicable. If Total income exceeds Rs. 10 crores surcharge of 5% is applicable. The Health and education cess is payable @ 4%. The effective rate of tax in case of foreign companies in India is 42.432% / 43.68% respectively.
Illustration 17:
Computation of total income : From the following particulars of Income furnished by Mr. Anirudh pertaining to the year ended 31-03-2023, compute the total income for the assessment year 2023- 24, if he is :
(i) (ii) (iii)
(a) (b) (c)
(d) (e)
Resident and ordinary resident; Resident but not ordinarily resident; Non-resident:
Particulars
Profit on sale of shares in Indian Company received in Germany
Dividend from a Japanese Company received in Japan
Rent from property in London deposited in a bank in London, later on remitted to India through approved banking channels
Dividend from RP Ltd., an Indian Company
Agricultural Income from lands in Gujarat
Amount (Rs.)
15,000 10,000 75,000
6,000 25,000
Non- resident
15,000
-- --
6,000 -- 21,000
Solution 17:
The total income, in each case, is computed herein below (amounts in Rs.)-
Particulars
Profit on sale of shares in Indian company received in Germany
Dividend from Japanese Company, received in Japan Rent from property in London deposited in a bank in London [WN-1]
Dividend from RP Ltd. an Indian company [WN-2] Agricultural income from lands in Gujarat [WN-3]
Total Income
Working Note:
(1) It has been assumed that the rental income is the gross
Therefore, deduction @ 30% under section 24, has been provided and the net income so
Resident & ordinarily resident
15,000
10,000 52,500
6,000 -- 83,500
Resident but not ordinarily resident
15,000
-- --
6,000 -- 21,000
annual value of the property.
computed is taken into account for determining the total income of a resident and ordinarily resident.
Rent received (assumed as gross annual value)
Less: Deduction under section 24 (30% of Rs. 75,000) Income from house property
(2) Dividend from Indian company is taxable.
(3) Agricultural income is exempt under section 10(1).
Illustration 18:
(amount in Rs.)
75,000 22,500 52,500
Computation of total income : Mrs. Geetha and Mrs. Leena are sisters and they earned the following income during the Financial Year 2022-23. Mrs. Geetha is settled in Malaysia since 1988 and visits India for a month every year. Mrs. Leena is settled in Indore since her marriage in 1996. Compute the total income of Mrs. Geetha and Mrs. Leena for the assessment year 2023-24:
(amount in Rs.)
Particulars
Mrs. Geetha
Mrs. Leena
-- -- --
9,000
8,000 51,000 4,000 -- --
15,000 14,000 25,500
8,000 30,000
Leena
--
-- --
9,000 8,000
1. Income from Profession in Malaysia, (set up in India) 15,000 received there
2. Profit from business in Delhi, but managed directly from 40,000 Malaysia
3. Rent (computed) from property in Malaysia deposited in a 1,20,000 Bank at Malaysia, later on remitted to India through
approved banking channels
4. Dividend from PQR Ltd. an Indian Company 5,000
5. Dividend from a Malaysian company received in Malaysia 15,000
6. Cash gift received from a friend on Mrs. Leena 50th birthday --
7. Agricultural income from land in Maharashtra 7,500
8. Past foreign untaxed income brought to India 5,000
9. Fees for technical services rendered in India received in 25,000
Malaysia
10. Income from a business in Pune (Mrs. Geetha receives 50% 12,000
of the income in India)
11. Interest on debentures in an Indian company (Mrs. Geetha 18,500
received the same in Malaysia)
12. Short-term capital gain on sale of shares of an Indian 15,000
company
13. Interest on saving account with SBI 12,000
14. Life insurance premium paid to LIC
Solution 18:
Computation of total income of Mrs. Geetha and Mrs. Leena (Amount in Rs.):
Particulars
1. Income from Profession in Malaysia, (set up in India) received there [WN-3]
2. Profit from a business in Delhi, but managed directly from Malaysia
3. Rent (computed) from property in Malaysia deposited in a Bank at Malaysia, later on remitted to India through approved banking channels
(Remittance in India is not taxable)
4. Dividend from PQR Ltd. an Indian Company (taxable in hands of
shareholder)]
5. Dividend from a Malaysian company received in Malaysia [WN-4]
--
Geetha
--
40,000 --
5,000 --
Cash gift received from a friend on Mrs. Leena’s 50th birthday
7. Agricultural income from land in Maharashtra [WN-4]
8. Past foreign untaxed income brought to India [It is not taxable]
9. Fees for technical services rendered in India, but received in Malaysia
[WN-2]
10. Income from a business in Pune (Mrs. Geetha receives 50% of the
income in India)
11. Interest on debentures in an Indian company (Mrs. Geetha received the
same in Malaysia)
12. Short-term capital gain on sale of shares of an Indian company
13. Interest on savings account with SBI
Gross Total Income
Less: Deduction u/s 80C in respect of Life Insurance premium paid
Less: Deduction u/s 80TTA in respect of Interest on deposits in saving a/c [WN-5]
Total Income
Working Note :
(1) Mrs. Geetha is a non-resident since she has been living in Malaysia since 1988. Mre. Leena, who is settled in Indore, is a resident.
(2) In case of resident, his global income is taxable as per section 5(1). However, as per section 5(2), in case of a non-resident, only the following income are chargeable to tax:
(a) Income received or deemed to be received in India; and
(b) Income accruing or arising or deemed to accrue or arise in India.
Therefore, fees for technical services rendered in India would be taxable in the hands of Mrs. Geetha, even though she is a non-resident. The income referred to in SI. No. 10, 11, 12 and 13 are taxable in the hands of both Mrs. Teetha and Mrs. Leena since they accrue or arise in India.
(3) Income from Profession in Malaysia, (set up in India) received there by Mrs. Geetha is not taxable since it accrues and received outside India.
(4) Agricultural income from a land situated in India is exempt under section 10(1) in the case of both non-residents and residents.
(5) Interest on savings bank deposit is eligible for deduction u/s 80TTA subject to maximum limit of Rs. 10,000.
Illustration 19:
Computation of GTI : Mr. Rajnesh, a citizen of India, serving in the Ministry of Finance in India and transferred to High Commission of Australia on 15th March 2022. He did not come to India during the financial year 2022-23. His income during the financial year 2022-23 is given here under :
-- -- --
25,000
12,000
18,500
15,000
12,000 1,27,500 -- -10,000
1,17,500
51,000 -- -- --
15,000
14,000
25,500 8,000 1,30,500 -30,000 -8,000
92,500
Particulars
Salary from Government of India
Foreign Allowances from Government of India
Rent from a house situated at London, received in London
Interest accrued on National Saving Certificate during the year 2022-23
Compute the Gross Total Income of Mr. Rajnesh for the Assessment Year 2023-24.
Solution 19:
Rs.
7,20,000 6,00,000 3,60,000
45,000
Mr. Rajnesh did not visited India during Financial Year 2022-23, hence he is non resident in India. Since Mr. Rajnesh is an Indian citizen being government employee his salary income is deemed to accrue or arise in India and is taxable in India. Thus even if he is non resident in India, the salary income will be taxable in India.
Computation of Gross Total Income (amount in Rs.): Income under the head Salaries
Salary
Foreign Allowances from Government of India
[Such allowance is exempt u/s 10(7)]
Gross Salary
Less : Standard deduction u/s 16(ia)
Income form House Property
Rent from house property situated in London, received in India
[It will not be taxable, since he is non resident]
Income from other sources
Interest accrued on National Saving Certificate during the year 2022-23
Gross Total Income
Illustration 20:
Determination of residential status and scope of total income : DAISY Ltd., a foreign company, incorporated in USA and engaged in the manufacturing and distribution of diamonds, set up a branch office in India in June 2022. The branch office was required to purchase uncut and un- assorted diamonds from dealers of Mumbai and export them to USA. During the Previous Year 2022- 23, profit from such export amounted to Rs. 75 lakhs.
Out of 20 shareholders of DAISY Ltd., 12 shareholders are non-resident in India. All the major decisions were taken through Board Meetings held at USA.
(i) Determine the residential status of DAISY Ltd. for the Assessment Year 2023-24.
(ii) Discuss the tax treatment of profit from export business.
Solution 20:
(i) Residential Status of Daisy Ltd. : According to Section 6(3) of the Income tax Act, 1961, a foreign company is said to be resident in India in any previous year, if its place of effective management, in that year, is in India.
“Place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole, are in substance made.
Since in case of Daisy Ltd., all the major decisions were taken through Board Meetings held
at USA, hence it will be non resident in India.
(ii) According to Explanation 1(b) to Section 9(1)(i), in the case of a non-resident, no income
shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export. Thus export profits of Rs. 75 lakhs shall not be taxable in India in hands of DAISY Ltd.
Illustration 21:
Computation of GTI : Compute the Gross Total Income in the hands of an individual, if he is-
7,20,000 Nil
7,20,000
50,000
6,70,000 Nil
45,000
7,15,000
(a) (b)
S.No.
(i) (ii) (iii)
(iv) (v)
(vi)
a resident and ordinary resident; and a non-resident for the A.Y. 2023-24.
Particulars
Interest from German Derivatives Bonds (1/3rd received in India)
Income from agriculture land situated in Malaysia, remitted to India Income earned from business in Dubai, controlled from India (Rs. 20,000 received in India)
Profit from business in Mumbai, controlled from Australia
Interest received from Mr. Ashok (NRI) on loan provided to him for business in India
Dividend from Brown Ltd., an Indian Co.
Amount (Rs.)
21,000 51,000 75,000
1,75,000 35,000
30,000
vii) Profit from business in Canada controlled from Mumbai (60% of profits deposited in a bank in Canada and 40% remitted to India)
(viii) Amount received from an NRI for the use of know-how for his business in Singapore
60,000
8,00,000
25,000 50,000
Non Resident
7,000 -- 20,000 1,75,000 35,000 30,000
--
--
25,000 -- 2,92,000
(ix) Dividend received from foreign company in India
(x) Past years untaxed foreign income brought to India
Solution 21:
Computation of Gross total income (amount in Rs.):
S.No. Particulars
(i) Interest from German Derivatives Bonds (1/3rd received in India) [WN-1]
(ii) Income from agriculture land situated in Malaysia, remitted to India [WN-1 & 3]
(iii) Income earned from business in Dubai, controlled from India (Rs. 20,000 received in India) [WN-1]
(iv) Profit from business in Mumbai, controlled from Australia [WN- 1]
(v) Interest received from Mr. Ashok (NRI) on loan provided to him for business in India [WN-1]
(vi) Dividend from Brown Ltd., Co. (taxable in hands of shareholder
(vii) Profit from business in Canada controlled from Mumbai (60% of profits deposited in a bank in Canada and 40% remitted to India)
[WN-3]
(viii) Amount received from an NRI for the use of know-how for his
business in Singapone [WN-4]
(ix) Dividend received from foreign company in India [WN-2]
(x) Past years untaxed foreign income brought to India Gross Total Income
Working Notes:
Resident
21,000 51,000 75,000
1,75,000
35,000
30,000 60,000
8,00,000
25,000 -- 12,72,000
(1) In case of a resident, his global income is taxable as per Section 5(1). However, as per Section 5(2), in case of a non-resident, only the following income are chargeable to tax:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or deemed to accrue or arise in India.
The income referred to in SI. No. 4, and 5 are taxable in India whether assesse is resident or non resident since they accrue or arise in India.
Interest on German derivatives Bonds would be fully taxable in case of resident, whereas only 1/3rd which is received in India is taxable in the hands of Non resident.
(2) Dividend received from foreign company in India will be taxable in both cases since it is received in India.
(3) In case of non resident, Receipt in India is chargeable to tax and not remittance. Hence, Profit from business in Canada controlled from Mumbai and Agricultural Income from land situated in Malaysia will not be taxable in case of non resident. No exemption will be available in respect of agricultural income from Malaysia, since agricultural income from land situated in India is exempt from tax under Section 10(1).
(4) In case use of know how is outside India, Income from it does not accrue or arise in India. Hence, it will not be taxable in case of non resident.
Illustration 22:
Computation of GTI : The following are the incomes of Shri Subhash Chandra, a citizen of India for the previous year 2022-23.
(i) Income from business in India Rs. 2,00,000. The business is controlled from London and Rs.
60,000 were remitted to London.
(ii) Profits from business earned in Japan Rs. 70,000 of which Rs. 20,000 were received in India.
This business is controlled from India.
(iii) Untaxed income of Rs. 1,30,000 for the year 2019-20 of a business in England which was
brought in India on 3rd March, 2023.
(iv) Royalty of Rs. 4,00,000 received from Shri Ramesh a resident for technical service provided
to run a business outside India.
(v) Agricultural income of Rs. 90,000 in Bhutan.
(vi) Income of Rs. 73,000 from house property in Dubai, which was deposited in bank at Dubai.
Compute Gross total income of Shri Subhash Chandra for the A.Y. 2023-24, if he is-
(a) A Resident and Ordinary Resident, and
(b) A Resident and Not Ordinarily Resident.
Solution 22:
Computation of Gross total income of Shri Subhash Chandra (amount in Rs.)
Particulars
(i) Income from business in India
(ii) Profits from business earned in Japan controlled from India
(iii) Untaxed income from business in England
(iv) Royalty received from resident for technical services provided to
run a business outside India (Income is deemed to accrue or arise
outside India)
(v) Agricultural income in Bhutan
(vi) Income from house property in Dubai which was deposited in Dubai Bank (Rs. 73,000 less standard deduction 30% of Rs. 73,000]
Gross Total income
__**__
Resident
2,00,000 70,000 -- 4,00,000
90,000 51,100
8,11,100
NOR
2,00,000 70,000 -- --
-- --
2,70,000