INCOME TAX

Basic Terms
and
Provisions relating to
Residential Status
(2019-20)

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Scheme of Income Tax
Every person, whose total income of the previous year exceeds the maximum amount
which is not chargeable to income tax, is an assessee and chargeable to income-tax
in the assessment year at the rate or rates prescribed in the Finance Act/Income-tax
Act for that relevant assessment year.
Procedure to charge Income Tax
1. Income of a person is determined on the basis of his residential status in India.
2. Income earned by every person is chargeable to income tax if it exceeds the
maximum amount which is not chargeable to tax (known as maximum exemption
limit).
3. It is charged on the total income of the previous year but is taxable in the next
following assessment year at the rates applicable to such assessment year.
(there are certain exceptions to this rule).
4. Income-tax is charged at two rates: (i) normal rates and (ii) special rates.
5. Tax is charged on the total income computed in accordance with the provisions
the Act.
6. Although the income of the previous year is chargeable to tax in the assessment
year, but the assessee may have to pay income tax in the same previous year in
which income is earned (paid in the form of advance tax).
Type of Persons
As per section 2(31) of the income tax act 1961 the term ‘Person’ includes the
followings:
1. Individual: An individual means a natural person i. e. a human being. It includes
a male, female, third gender and minor child. (income of a minor is now generally
included in the income of a parent. Sometimes the minor is himself liable to tax on
income earned by him. Since minor is not competent to contract, his income
shall be taxable through his legal guardian.
2. Hindu Undivided Family (HUF): A ‘Hindu Undivided Family’ means a family
which consists of all persons lineally descended from a common ancestor
including their wives and daughters. An HUF cannot be created under a contract,
it is created automatically in a hindu family. (Jain and Sikh families even though
are not governed by the Hindu Law, but they are treated as HUF under the Act).
3. Firm: A firm shall have the meaning assigned to it in the Indian Partnership Act,
1932 and shall include a limited liability partnership as defined in the Limited
Liability Partnership Act, 2008.
4. Company: As per section 2(17), Company means (i) Any Indian company, (ii)
Any body corporate incorporated by or under the laws of a country outside India,
(iii) Any institution, association or body which was assessed as a company for
any assessment year under the Income-tax Act, 1922 or was assessed under
this Act as a company for any assessment year commencing on or before 1.4.1970,
(iv) Any institution, association or body, whether incorporated or not and whether
Indian or Non Indian, which is declared by a general or special order of CBDT to
be a company.
5. Association of persons (AOP) or Body of individuals (BOI): Association of
persons means two or more persons who join for a common purpose with a view
to earn an income. It need not be on the basis of a contract. Therefore, if two or
more persons join hands to carry on a business but do not constitute a partnership,
they may be assessed as an Association of Persons. Whereas Body of individuals
means a conglomeration of individuals who carry on some activity with the
objective of earning some income. It would consist only of individuals. Entities
like companies or firms cannot be members of a body of individuals.
6. A local authority: The expression local authority means (i) Panchayat, (ii)
Municipality, (iii) Municipal Committee and District Board entrusted by the
Government, (iv) Cantonment Board.
7. Artificial juridical persons: Artificial juridical persons are entities which are not
natural persons but are separate entities in the eyes of law. Though they may not
be sued directly in a court of law but they can be sued through persons managing
them. God, Idols and Deities are also falls under the defination of artificial persons
and their income, like offerings and donations, are taxable (however, under the
Income-tax Act, they have been provided exemption from payment of tax under
separate provisions of the Act, if certain conditions mentioned therein are satisfied).
Similarly, all other artificial persons, with a juristic personality, will also fall under
this category, if they do not fall within any of the preceding categories of persons.
Note: An association of persons or a body of individuals or a local authority or an artificial
juridical person shall be deemed be a person, whether or not, such person or body or
authority or juridical person, was formed or established incorporated with the object of
deriving income, profits or gains. [Explanation to section 2(31)]
Tax Years
1. Assessment year [Sections 2(9)]: Assessment year means the period of 12
months commencing on the first day of April every year. It is, therefore, the period
from 1st of April to 31st of March, for example, the assessment year 2019-20 will
commence on 1.4.2019 and will end on 31.3.2020. The tax is levied, in each
assessment year on the total income earned by the assessee in the previous
year.
2. Previous year [Sections 3]: Previous year means the financial year immediately
preceding the assessment year. Financial year means a year which starts on
1st April and ends on 31st March.
[Income-tax is payable on the income earned during the previous year and it is assessed
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in the immediately succeeding financial year which is called an assessment year. Therefore,
the income earned during the previous year 1.4.2018 to 31.3.2019 will be assessed or
charged to tax in the assessment year 2019-20]
First previous year in case (i) a business or profession is newly set up, or (ii) a
new source of income comes into existence during the financial year, then the
period beginning from the date of setting up of the business or from the date the
new source came into existence, and ending on the last day of that financial year
i. e. 31st of March shall be the first previous year for that business or source of
income. For example, if a new business is set up on 18.07.2018 then the first
previous year for that business will be the period starting from 18.07.2018 to
31.3.2019. Therefore, the first previous year of a newly set-up business/profession
or a new source of income will be either 12 months or less than 12 months but it
can never exceed a period of 12 months.
Income of Previous Year is assessed in the same year
As a normal rule, the income earned during any previous year is assessed or charged
to tax in the immediately succeeding assessment year. However, in the following
circumstances the income is taxed in the same year in which it is earned. Therefore,
the assessment year and the previous year in these exceptional circumstances will
be the same. These exceptions have been provided to safeguard the collection of
taxes so that assessees, who may not be traceable later on, are not allowed to
escape the payment of the taxes. The exceptions are as follows:
1. Shipping business of non-residents [Section 172]: A non-resident who is
carrying on a shipping business and earns income from carrying passengers/
livestock/goods from a port in India, will be charged income-tax before the ship is
allowed to leave the Indian port. Therefore, before the ship leaves the Indian port,
the master of the ship is under an obligation to furnish a return of the full amount
earned on account of fare and freight (including the amount paid or payable by
way of demurrage charge or handling charge or any other amount of similar nature)
and pay the tax accordingly. In this case 7.5% of the amount of fare/freight/charge,
etc. shall be deemed to be income of such assessee on which the income-tax
will be charged. Therefore, in this case the tax is chargeable on the income in the
same year in which it is earned.
2. Persons leaving India [Section 174]: When it appears to the Assessing Officer
that any individual may leave India during the current assessment year or shortly
after its expiry, and such individual has no present intention of returning to India,
the total income of such individual, from the expiry of previous year for that
assessment year up to the probable date of his departure from India shall be
chargeable to tax in the same assessment year.
3. Entities formed for a particular event or purpose [Section 174/1]: Where it
appears to the Assessing Officer that any association of persons or a body of
individuals or an artificial juridical person formed or established or incorporated
for a particular event or purpose is likely to be dissolved in the assessment year
in which such association of persons or body of individuals or artificial juridical
person was formed or established or incorporated or immediately after such
assessment year, the total income of such person or body or juridical person, for
the period from the expiry of the previous year for that assessment year up to the
date of its dissolution, shall be chargeable to tax in that assessment year.
4. Persons likely to transfer property to avoid tax [Section 175]: If it appears to
the Assessing Officer during any current assessment year, that any person is
likely to charge, sell, transfer, dispose of or otherwise part with any of his assets
with a view to avoiding any payment of his tax liability, then the total income of
such person for the period from the expiry of the previous year for that assessment
year till the date when the assessing officer commences proceedings, shall be
chargeable to tax in the same assessment year.
5. Discontinued business [Section 176]: Where any business or profession is
discontinued in any assessment year, the income of the period from expiry of the
previous year for that assessment year up to the date of such discontinuance
may, at the discretion of the assessing officer, be charged to tax in that
assessment year.
[It is mandatory for the Assessing Officer to charge the tax in the same previous year in
case of first 4 exceptions given above. On the other hand, in the 5th exception given
above the Assessing Officer has the discretionary power and as such he may charge in
the same previous year or may wait till the assessment year]
Assessee [Section 2(7)]
Assessee means a person by whom any tax or any other sum of money is payable
under this Act and may be of the type given below:
1. Normal Assessee: An individual who is liable to pay taxes for the income earned
during a financial year is known as a normal assessee. Every individual who has
earned any income earned or losses incurred during the previous financial years
are liable to pay taxes to the government in the current financial year. Further, all
individuals who pay interest/penalty or who are supposed to get a refund from the
government are categorised as normal assessees.
2. Representative Assessee: There may be a case in which a person is liable to
pay taxes for the income or losses incurred by a third party. Such a person is
known as representative assessee. Representatives come into the picture when
the person liable for taxes is a non-resident, minor, or lunatic. Such people will not
be able to file taxes by themselves. The people representing them can either be an
agent or guardian.
3. Deemed Assessee: An individual might be assigned the responsibility of paying
taxes by the legal authorities and such individuals are called deemed assessees.
Deemed assessees can be son or a legal heir of a deceased person.
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4. Assessee-in-Default: Assessee-in-default is a person who has failed to fulfil his Amount which is not chargeable to Income Tax and Tax Slab
statutory obligations as per the income tax act such as not paid taxes to the
government or not file his income tax return. For example, an employer is supposed
Individual below 60 Years Of Age
to deduct taxes from the salary of his employees before disbursing the salary. If
the employer fails to deposit the tax deducted, he will be considered as an assessee- Below Rs.2,50,000 = Nil
in-default. Rs.2,50,001 - Rs.500,000 = 5% of Income exceeding Rs.2,50,000
Rs.500,001 - Rs.10,00,000 = 20% of Income exceeding Rs.5,00,000
Permanent Account Number (PAN) Above Rs.10,00,000 = 30% of Income exceeding Rs.10,00,000
Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued by the
Income Tax Department, to any "person" who applies for it or to whom the department
allots the number without an application. It enables the department to link all transactions
Senior Citizens (Age 60 years or more but less than 80 years)
of the "person" with the department. These transactions include tax payments, TDS,
returns of income, specified transactions and correspondence etc. PAN, thus, acts Below Rs.3,00,000 = Nil
as an identifier for the "person" with the tax department. Rs.3,00,001 - Rs.500,000 = 5% of Income exceeding Rs.2,50,000
Rs.500,001 - Rs.10,00,000 = 20% of Income exceeding Rs.5,00,000
Computation of Taxable Income Above Rs.10,00,000 = 30% of Income exceeding Rs.10,00,000

(i) Income from the head of Salary xxxx

(ii) Income from the head of House Property xxxx
(iii) Income from the head of Business or Profession xxxx Senior Citizens (Age 80 years or more)
(iv) Income from the head of Capital Gain xxxx Below Rs.5,00,000 = Nil
(v) Income from the head of Other Sources xxxx Rs.500,001 - Rs.10,00,000 = 20% of Income exceeding Rs.5,00,000
Gross Total Income (Round off to the nearest multiple of Rs.10) xxxx
Above Rs.10,00,000 = 30% of Income exceeding Rs.10,00,000
Less : Deduction u/c VI A (i.e. 80C to 80U) (xxx)
Net Taxable Income / Total Income xxxx
[The exemption limit in case of an individual who is of the age of 60 years and above but who
Computation of Income Tax of an Individual is non-resident in India is Rs.2,50,000 instead of Rs.3,00,000 or Rs.5,00,000]

Tax on Net Taxable Income (As per Slab or at Special Rate) xxxx
Less: Rebate u/s 87A (If Total Income does not exceeds Rs.3,50,000) (xx)
Balance Tax xxxx Hindu Undivided Family / BOI / AOP / Artificial Judicial Person
Add: Surcharge (If Applicable) xx Below Rs.2,50,000 = Nil
Total xxxx Rs.2,50,001 - Rs.500,000 = 5% of Income exceeding Rs.2,50,000
Add: Health and Education Cess (4%) on Pevious Total xx Rs.500,001 - Rs.10,00,000 = 20% of Income exceeding Rs.5,00,000
Income Tax Payable (Round off to the nearest multiple of Rs.10) xxxx
Above Rs.10,00,000 = 30% of Income exceeding Rs.10,00,000

Firms / Limited Liability Partnership (LLP) / Local Authority

Whole Income = 30% of Net Income
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Domestic Company
Gross Receipts below Rs.50 crore = 25% of Net Income Residential Status
ross Receipts above Rs.50 crore = 30% of Net Income

For Foreign Company Individual

Whole Income = 40% of Net Income

Resident (1/2, 2/2) Non Resident (0/2)

For Co-operative Society
Taxable income up to Rs. 10,000 = 10% of Income
Rs.10,000 - Rs.20,000 = 20% of Income exceeding Rs.10,000
Ordinary (2/2) Non Ordinary (1/2, 0/2)
Above Rs.20,000 = 30% of Income exceeding Rs.20,000

Basic Conditions:- For becoming a resident an individual must have satisfy any
one of the following conditions :

(1) He/She had spent at least 182 days in India during the relevant previous year.
•••••••••••••••••••••••••
(2) He/She had spent at least 60 days in India during the relevant previous year.
+
He/She had spent at least 365 days in India during the 4 years period immediately
preceding the relevant previous year.

Note:- In case of the following individuals 2nd condition (60 days + 365 days) mentioned above will
not be applicable. These individual will have to satisfy 1st condition only:
(a) A person of Indian origin who visit India.
(b) An Indian citizen who leaves India for employment purpose.

Additional Conditions:- For becoming an ordinary resident an individual must have

satisfy both of the following conditions :

(1) He/She had been resident in India atleast 2 times out of 10 years immediately
preceding the relevant previous year.

(2) He/She had spent atleast 730 days in India during the 7 years period immediately
preceding the relevant previous year.
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Hindu Undivided Family

Tax Laibility based on Residential Status

(Fully of partly controlled from India) (Fully controlled outside India)
Nature of Income Ordinary Non Ordinary Non
Resident Non Resident
Resident Resident Resident

(1) Income earned or deemed to be earned in India   

Ordinary (2/2) Non Ordinary (1/2, 0/2)
(2) Income received or deemed to be   
Additional Conditions:- For becoming an ordinary resident, ‘Karta’ of the HUF must received in India
have satisfy both of the following conditions :
(3) Income earned and received outside India   
(1) He/She had been resident in India atleast 2 times out of 10 years immediately from a business controlled in India
preceding the relevant previous year.

(2) He/She had spent at least 730 days in India during the 7 years period immediately
(4) Income earned and received outside India   
preceding the relevant previous year. other then business controlled in India

(5) Past untaxed income brought in India   

(6) Dividend from Domestic Company   

Firm / AOP / BOI / Artificial Person (7) Gifts from relatives   

(Fully of partly controlled from India) (Fully controlled outside India)

Resident Non Resident

Company

Indian Company Foreign Company

Resident

(Fully controlled from India) (Fully of partly controlled outside India)

Resident Non Resident

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Summary of Rules for Residentioal Status of an Individual

Year Basic Conditions Additional Conditions

(1) (2) (1) (2)
2019-20 (Ass.Yr)    
2018-19 (Pre. Yr) 182 60  
2017-18 (1)
2016-17 (2)
2015-16 (3)
2014-15 (4) 365
2013-14 (5) 730
2012-13 (6) 2 Times
2011-12 (7) Resident
2010-11 (8)
2009-10 (9)
2008-09 (10)
2007-08 (11)
2006-07 (12)
2005-06 (13)
2004-05 (14)

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