Chanderprabhu Jain College of Higher Studies

&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)

E-Notes

CLASS & SECTION : BA LLB A+B+C VII/BBA LLB A+B+C VII

SUBJECT NAME : Tax Law

SUBJECT CODE : LLB 403

FACULTY : Mr. Sunil Kumar

Unit-II

RESIDENTIAL STATUS
Residential status of an assessee is important in determining the scope of
income on which income tax has to be paid in India.
The different types of Residential Status are:

 Resident (R)
 An individual or HUF assessee who is resident in India may be
further classified into
 resident and ordinarily resident (ROR) and
 resident but not ordinarily resident (NOR).
 Non Resident (NR)
 To be determined in each previous year (1 April to 31 March
next)

Importance of Residential Status:

 Resident – World income is taxable in India
 Non Resident – Only income arising or accruing in India is
taxable in India
 Resident but Not Ordinarily Resident – Income accruing or
arising outside India may also be taxable in India

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
Section: 6 “Resident”
An individual is said to be resident in India in any previous year, if he
satisfies any of the 2 basic conditions –
a) Physical presence in India for 182 days or more in a previous year
OR
b) Physical presence in India for 60* days or more in the previous year
and 365 days or more during the 4 years preceding the previous year *

The above is subject to the following:

I. Citizen leaves for employment or as member of crew of
an Indian ship – instead of 60 days, it is 182 days
II. Citizen or Person of Indian Origin already abroad comes
on a visit - instead of 60 days, it is 182 days

Individual - Resident but Not Ordinarily Resident

Satisfies any one Basic condition and two Additional conditions –
a) Such person has been a non resident in India in at least 9 out of 10
previous years preceding the relevant previous year;
1. or
b) The person has been in India for a period of 729 days or less during 7
years preceding the relevant previous year

 Hindu Undivided Family

 Resident unless Control and Management of affairs wholly
outside India
 R-NOR if Manager (Karta) is a non resident in India in 9 out of
10 preceding previous years or is in India for 729 days or less in
7 preceding previous years
 Company
 Resident in India
o If an Indian Company – Section 2(26)
o If Control and Management of its affairs is situated wholly in
India
 Firm, Association of Persons and Any other person
 Resident unless control and management of its affairs is
situated wholly outside India

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
SCOPE OF TOTAL INCOME
The scope of Total Income depends on the Residential Status of the tax
payer. The incidence of tax under different circumstances is given in the
following table:
ROR RNOR NR
Income received in India Yes Yes Yes
Income deemed to be received in India Yes Yes Yes
Income accruing or arising in India Yes Yes Yes
Income deemed to accrue or arise in India Yes Yes Yes
Income received/ accrued outside India from a Yes Yes No
business in India
Income received/ accrued outside India from a Yes No No
business controlled outside India

INCOME THAT IS EXEMPT FROM TAX

In the following cases Income is exempt from Income Tax:-
 Agriculture Income [Sec. 10(1)]
 Payments received from family income by a member of HUF [Sec.
10(2)]
 Share of profit from a firm [Sec. 10(2A)]
 Interest received by a non resident from prescribed securities [Sec.
10(4)]
 Interest received by a person who is resident outside India on amounts
credited in the non-resident (External) account [Sec. 10(4)]
 Leave travel concession provided by as employer to his Indian citizen
employee [Sec. 10(5)]
 Remuneration received by foreign diplomats of all categories [Sec.
10(6)]
 Salary received by a foreign citizen as an employee of a foreign
enterprise provided his stay in India does not exceed 90 days [Sec.
10(6)(vi)]
 Salary received by a non-resident foreign citizen as a member of
ship’s crew provided his total stay in India does not exceed 90 days
[Sec. 10(6)(vii)]
 Remuneration received by an employee, being a foreign national, of a
foreign government deputed in India for training in a Government
establishment or public sector undertaking [Sec. 10(6)(xi)]
 Tax paid on behalf of foreign companies [Sec. 10(6A)]

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
 Tax paid by Government or an Indian concern in case of a non-
resident / foreign company [Sec. 10(6B)]
 Income arising to notified foreign companies from services provided
in or outside India in project connected with the security of India [Sec.
10(6C)]
 Commuted value of pension and any payment received by way of
commutation of pension by as individual out of annuity plan of LIC or
any other insurer from a fund set up by that corporation or insurer
[Sec. 10(10A)] Leave salary [Sec. 10(10AA)]
 Compensation received by victims of Bhopal gas leak disaster [Sec.
10(10BB)]
 Compensation from the Central Government or a state Government or
a local authority received by an individual or his legal heir on account
of any disaster [Sec. 10(10BC)]
 Compensation received from a public sector company at the time of
voluntary retirement or separation [Sec. 10(10C)]
 Tax on perquisite paid by employer [Sec. 10(10CC)]
 Any sum (including bonus) on life insurance policy (not being a key-
man insurance policy) [Sec. 10(10D)]
 Any amount from provident fund paid to retiring employee [Sec.
10(11)]
 Special allowance granted to an employee [Sec. 10(14)]
 Interest from certain exempted securities [Sec. 10(15)]
 Amount from an approved superannuation fund to legal heirs of the
employee [Sec. 10(13)]
 House rent allowance subject to certain limits [Sec. 10(13A)]
 Payment made by an Indian company, engaged in the business of
operation of an aircraft, to acquire an aircraft on lease from a foreign
Government or foreign enterprise [Sec. 10(15A)]
 Scholarship granted to meet the cost of education [Sec. 10(16)]
 Daily allowance of a member of parliament or state Legislature (entire
amount is exempt), any other allowance subject to certain conditions
[Sec. 10(17)]
 Rewards given by the central or state Government for literary,
scientific or artistic work or attainment or for service for alleviating or
for service for alleviating the distress of the poor, the weak and the
ailing, or for proficiency in sports and games or gallantry awards
approved by the Government [Sec. 10(17A)]

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
 Pension and family pension of gallery award winners [Sec. 10(18)]
 Family pension received by family members of armed forces [Sec.
10(19)]
 National property income of any one place occupied by a former ruler
[Sec. 10(19A)]
 Income from local authorities [Sec. 10(20)]
 Any income of housing boards constituted in India for planning,
development or improvement of cities, town or villages [Sec.
10(20A)]
 Any income of an approved scientific research association [Sec.
10(21)]
 Income of specified non- agencies [Sec. 10(22B)]
 Any income (other than interest on securities income from property
income received for rendering any specific services and income by
way of interest or dividends) of approved professional bodies [Sec.
10(23A)]
 Any income received by any person on behalf of any Regimental
Fund or non public fund established by the armed forces of the union
for the welfare of the past and present members of the such forces or
their dependents [Sec. 10(23AA)]
 Income of funds established for the welfare of employees [Sec.
10(23AAA)]
 Any income of the pension fund set by LIC or any other insurer
approved by the controller of insurance or Insurance Regulatory and
Development Authority [Sec. 10(23AAB)]
 Any income (other than business income) of a trust or a society
approved by Khadi and village industries commission [Sec. 10(23B)]
 Income of an authority whether known as Khadi and village industries
board or by any other name for the development of Khadi and village
industries [Sec. 10(23BB)]
 Income of the European Economic Community derived in India by
way of, interest, dividends or capital gains in certain cases under the
European Community International Institutional Partners Scheme,
1993 [Section 10(23BBB)]
 Any income arising to anybody or authority established, constituted or
appointed under any enactment for the administration of public
religious or charitable trusts or endowments or societies for religious
or charitable purposes [Section 10(23BBA)]

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
 Income of SAARC Fund for Regional Projects, set up by Colombo
Declaration [Section 10(23BBC)]
 Any income of Secretariat of Asian Organisation of Supreme Audit
Institutions [Section 10(23BBD)]
 Income of Insurance Regulatory Authority [Section 10 (23 BBE)]
 Income of North Eastern Development Financial Corporation to the
extent of 60 % for assessment year 2007-08 [Section 10(23 BBF)]
 Income of the Central Electricity Regulatory Commission (applicable
from the assessment year 200809) [Section 10(23BBG)]
 Any income received by any person on behalf of specified national
funds and approved public charitable institution, educational institute
and hospital [Section 10(23C)]
 Income of Mutual Fund set up by — a public sector bank or a public
financial institution [Section 10(23D)]
 Income of investor protection fund [Section 10(23EA)]
 Income of Credit Guarantee Funds Trust for Small Industries [Section
10(23EB)]
 Income of Investor Protection Fund by way of contributions from
commodity exchange and the members thereof (applicable from the
assessment year 2008-09) [Section 10 (23EC)]
 Any income by way of dividend, or long term capital gains of venture
capital funds and venture capital or undertaking [Section 10(23FA)]
 Income of venture capital fund/venture capital company [Section
10(23FB)]
 Income by way of interest on securities, property income and income
from other sources of a registered trade union or an association of
registered trade unions [Section 10(24)]
 Any income received by a person on behalf of statutory provident
fund, recognized provident fund, approved superannuation fund,
approved gratuity fund and approved coal-mines provident fund
[Section 10(25)]
 Income of Employee’s State Insurance Fund [Section 10 (25A)]
 Income of a member of Scheduled Tribe, living in Nagaland,
Manipur, Tripura, Arunachal Pradesh and Mizoram from any source
arising by reason of his employment therein and income by way of
dividend and interest on securities [Section 10(26)]
 Income of Sikkim individual which accrues or arise to him/her from
any source in the state of Sikkim or income from dividend/interest on

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
securities from anywhere in the world (exemption available to a
Sikkim woman who, on or after April 1, 2008, marries a Non- Sikkim
individual) [Section 10 (26AAA)]
 Any income of a statutory Central or State corporation or of a
body/institution, financed by the Government formed for promoting
the interest of Scheduled Castes/Tribes [Section 10(26B)]
 Income of National Minorities Development and Finance Corporation
[Section 10 (26BB)]
 Income of ex-serviceman corporations [Section 10 (26BBB)]
 Income of co-operative society formed for promoting interests of
members of Scheduled Castes/Scheduled Tribes [Section 10(27)]
 Income of certain Commodity Boards/Authorities [Section 10(29A)]
 Income by way of subsidy from Tea Board for replanting or
replacement of tea bushes or for the purpose of rejuvenation or
consolidation of areas used for cultivation of tea in India [Section
10(30)]
 Subsidy received by planters of Rubber, Coffee etc. [Section 10(31)]
 Income of a minor child up to Rs. 1,500 in respect of each minor child
whose income is includible under section 64(1A) [Section 10(32)]
 Capital gains on transfer of US-64 units [Section 10(33)] Dividend on
or after April, 2003 from domestic companies [Section 10(34)]
 Income on units of Mutual Funds on or after April 1, 2003 [Section
10(35)]
 Capital gains on transfer of listed equity shares [Section 10(36)]
 Capital gain on compensation received on compulsory acquisition of
urban agriculture land [Section 10(37)]
 Long term capital gain on transfer of securities not chargeable to tax
in cases covered by transaction tax [Section 10(38)]
 Income of an international sporting event held in India [Section
10(39)]
 Grant received by subsidiary company from holding company
[Section 10 (40)]
 Capital gain in above case [Section 10 (41)]
 Income of notified non-profit body/authority [Section 10(42)]
 Any amount received by an individual as a loan (either in lump sum
or installment in transaction of reverse mortgage) [Section 10(43)]
 Any income received by any person, or on behalf of, the New Pension
System Trust (established on February 27, 2008) [Section 10(44)]

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
 Allowance or Perquisite to the chairman of UPSC [Section 10(45)]
 Income arising to a body, authority or Board or trust or Commission
[Section 10(46)]
 Income of an infrastructure debt fund [Section 10(47)]
 Complete tax holiday for industrial units situated in free trade zones
[Section 10 A]
 Special provision in respect of newly established 100% export
oriented undertakings [Section 10B]
 Special provision in respect of certain industrial undertakings in
North-Eastern region [Section 10C]

Heads of Income (Sec 14, 14A)

A person receives income i.e. taxable income from different sources. All
these different sources of income are classified & Assessed under certain
group or heads. These are known as “Heads of Income”.

Income from Five Heads is as Follows:

1. Income from salary
2. Income from house property
3. Income from profit or gain from business or profession.
4. Income from capital gain.
5. Income from other sources

Complete Process of Computation of Taxable Income & Tax

1. Determine the residential status of the assesse
2. Determine the incidence of tax
3. Classify income after considering specific exemption into
respective head.
4. Aggregate the income.
5. Apply clubbing Provision.
6. Setoff/Carry forward losses (if any)
7. Balance shall be gross total income.
8. Allow deduction 80C to 80U chpt VI A.
9. Balance shall be total income.
10. Determine the tax payable, applying the rates applicable
11. Deduct rebate/relief of tax.
12. Add surcharge.
13. Add educational cess.

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
14. Balance is tax payable.
15. File return of income before the due date of filing.
Income from Salary

Meaning
Salaries U/ S 17 (1) include the following:
1. Wages
2. Pension
3. Gratuity
4. Any Fees, Commission, Perquisite, Profit in Lieu of Salary
5. Any Advance Salary
6. Bonus
7. Annuity
8. Income from Provident Fund
9. Leave Encashment
10. Allowances

Basis of Charge
Income is taxable under head “Salaries”, only if there exist Employer -
Employee Relationship between the payer and the payee.
The following incomes shall be chargeable to income- tax under the head
“Salaries”:-
1. Salary Due
2. Advance Salary [u/s 17(1)(v)]
3. Arrears of Salary Note:
(i)Salary is chargeable on due basis or receipt basis,
whichever is earlier.
(ii)Advance salary and Arrears of salary are chargeable
to tax on receipt basis only.

List of Allowances exempt from Tax

• Conveyance Allowance
• House Rent Allowances
• Entertainment Allowance
• Any Allowance granted to an employee to meet the hostel
expenditure of his child
• Children Education Allowance
• Overtime Allowance

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 Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, AffiliatedtoGGS Indraprastha University, Delhi)
PERQUISITE
Perquisite may be defined as any Casual Emolument or Benefit
attached to an office or position in Addition to Salary or Wages. It also
denotes something that benefits a man by going in to his own pocket.
Perquisites may be provided in cash or in kind. Perquisites are included
in salary income only if they are received by an employee from his
employer.
The term “perquisites” is defined by section 17 (2) as including the
following items:
• The value of Rent-free Accommodation provided to the assessee
by his employer
• The value of any concession in the matter of rent respecting
any accommodation provided to the assessee by his employer
• The value of any benefit or amenity granted or provided free of
cost or at concessional rate in any of the following cases :
 By a company to an employee who is a director thereof ;
 By a company to an employee, being a person who has
substantial interest in the company;
 By any employer (including a company) to an employee to
whom provisions of (i) and (ii) above do not apply and whose
income under the head “salaries” exclusive of the value of all
benefits or amenities not provided for by way of monetary
benefits, exceeds Rs. 50,000
• Any sum paid by the employer in respect of any obligation which
but for such payment would have been payable by the assessee.
Obligation of Employee met by Employer.
• Any sum payable by the employer, whether directly or through a
fund other than a recognized provident fund or approved
superannuation fund or a deposit-linked insurance fund, to effect
an assurance on the life of the assessee or to effect a contract for an
annuity
• The value of any other fringe benefits or amenity as may be
prescribed

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