Introduction of the Host
Mrs.Geetha Dasaraty is a commerce graduate with a Masters in Business Administration specialising in finance. Her stint with a Coimbatore based company and later with a consulting firm in Chennai has provided her with a decade of experience in project finance and appraisals, accounting and tax laws. She is a freelance writer and money matters are her forte. She is currently pursuing her final course in Company Secretaryship and is doing a course on Vaishnavism. She has a passion for literature and Carnatic music. She is also a violinist.

About the Class
We bring you an online class titled 'Elementary Finance'. This will have 12 lessons - one a month. Each lesson is further subdivided into 4 chapters. And we will give you one new chapter every week.

Chapter 6 Lesson A - Income Tax Basics
Every citizen whose total income or the total income of any other person in respect of which he is assessable under the Income Tax Act, exceeds the maximum amount not chargeable to tax, namely Rs. 50,000, should furnish a return of his income or the income of such other person voluntarily.

What is income?
Certain incomes are deemed to accrue or arise in India, although they may actually accrue or arise outside India. The following fall under this category:

• Income from business connection: Any income that arises due to a business carried on by a non-resident which results in profits or gains due to the activity in India is considered to be income earned and accrued in India.
• Income from any property, asset or source of income in India: Property includes any tangible movable or immovable property and assets includes interest, dividends, patents, royalties and rent.
• Income through capital gains: Capital gains earned by a non-resident by transfer of capital asset in India are deemed to accrue or arise in India.
• Income from Salaries: Income from salaries is deemed to accrue in India if it is earned in India.
• Any salary payable abroad by the Government of India to Indian nationals, for the services rendered outside India is deemed to arise and accrue in India.
• Dividend paid by an Indian company outside India is deemed to accrue or arise in India.
• Any income by way of interest is also income earned in India.
• Royalties are also treated as income.
• Incomes by way of fees for technical services rendered are also treated as income.

Assessment year:
For the purpose of calculating income tax, the Assessment year is the year in which the income of the previous year is to be assessed. The assessment year always starts on April 1st. and ends on March 31st.

Previous year:
The income of the previous year is taxed in the immediately following assessment year. The exceptions to this rule are income of a non-resident from shipping, income of persons leaving India either permanently or for a long period of time, income of a discontinued business, and income of a person trying to alienate his assets so as to avoid tax.

Assessee:
An assessee is a person by whom income tax or any other sum of money is payable under the Act. A person, under the act includes an individual, a Hindu Undivided Family, a company, a firm, an association of persons or a body of individuals, a local authority and every artificial juridical person not falling within the above categories.

Residential Status:

• Individuals:
  An individual may be
  a. Resident and ordinarily resident
  b. Resident but not ordinarily resident
  c. Non-resident

Basic conditions for an individual to be resident in India
An individual is said to be resident in India in any previous year if he satisfies at least one of the following basic conditions:

a. He is in India in the previous year for a period of 182 days or more; or

b. He is in India for a period of 60 days or more during the previous year and 365 days or more during the four years immediately preceding the previous year.

For the assessment years 1990 to 1991 onwards, for an Indian citizen who leaves India during the previous year for employment outside India or an Indian citizen who leaves India as a member of the crew of an Indian ship, the extended period is 182 days.

For the assessment years 1983-1984 to 1989-90,for an Indian citizen who leaves India for employment outside India in the previous year, the extended period is 182 days.

In the case of a person who comes on a visit to India, the period of 60 days has been extended as follows:
For the assessment years 1995-1996 onwards, for an Indian citizen or for a person of Indian origin, the extended period is 182 days. For the assessment years 1990-91 to 1994-95, for an Indian citizen or person of Indian origin, the extended period is 150 days.

Resident and ordinarily resident:

• The first step is to check whether he is " resident" in India as per the above.
• The next will be to check the following additional conditions:

a. If he has been resident in India in at least 9 out of 10 previous years immediately preceding the relevant previous year and

b. He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.

Resident but not ordinarily resident:
An individual who satisfies one or more of the basic conditions but does not satisfy the two additional conditions is a resident but not ordinarily resident in India.

Non Resident:
If an individual satisfies none of the basic conditions in the previous year he is considered a non-resident.

• Residential Status of a Hindu undivided family:
  A HUF is considered to be resident in India, if the control and management of its affairs is wholly or partly done from India.
  A resident HUF is 'ordinarily resident' in India, if the Karta is resident in India in at least 9 out of 10 years immediately preceding the relevant previous year and is in India for 730 days or more during the 7 years immediately preceding the relevant previous year.
  A resident HUF is 'not ordinarily resident' in India, if the karta of a resident HUF is not resident in India in at least 9 out of 10 immediately preceding previous years or is not present in India for at least 730 days in the 7 immediately preceding previous years.
  Where the control and management is situated wholly outside India, the HUF is said to be non-resident.

• Residential status of a firm:
  A partnership firm or association of persons is said to be resident in India, if the control and management of its affairs are situated wholly or partly in India during the previous year.
  It is said to be non-resident, if the control and management is situated wholly outside India.

• Residential status of a company:
  An Indian company will always be resident in India.
  In the case of a foreign company, it will be treated as a resident company, only if the control and management of its affairs was wholly from India in the previous year.

It will be considered to be non-resident if it affairs are managed wholly or partly from outside India.

Incidence of tax:
In the case of a resident and ordinarily resident assessee:

• He is assessed to tax for income received or deemed to be received in India by or on his behalf in the previous year.
• Income which accrues or arises or is deemed to accrue or arise to him in the previous year.
• Income which accrues or arises to him outside India during the relevant previous year.

In the case of a resident but not ordinarily resident:
The incidence of tax is the same as in the case of a resident and ordinarily resident. But, his income is not liable to tax in India unless:

• Income is received or deemed to be received in India,
• Income is accrued or deemed to be accrued in India or,
• The business is controlled from a place within India or the profession is set up in India.

Incidence of tax in the case of a non-resident:

• A non-resident is liable to tax for income received or deemed to be received in India by him or on his behalf and for income that accrues or arises or is deemed to accrue or arise in India during the previous year.

Questions on Chapter 5 Lesson D
1. What is a Receipts and payments account and what are its characteristics?
2. Distinguish between Income and expenditure account and receipts and Payments account.