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Model Answers Taxation 1. Residential Status of Assessee Under IT Act ?
Model Answers Taxation 1. Residential Status of Assessee Under IT Act ?
TAXATION
Income tax is imposed on the basis of duration of residence of assessee in India. Citizenship is
not precondition for liability to Income Tax. Subject of IT is person, depending on his residence
in India and not citizens. The extension of resident is greater than the extension of citizen.All
citizens are resident but all residents are not citizens.
Determination of residential status of an assessee is very important matter for the purpose of
determining the total income of any previous year of assessee.
Types of Taxable Entities
Individual
Company
Non resident
Section 6
Resident and ordinarily resident
An individual is said to be resident of India if
o He is in India in the previous year for a period of 182 days or more (60 days in the
person is a member of the crew of an Indian ship)
o He is in India for a period of 365 days or more within 4 years preceding the
assessment year AND periods amounting to all to 60 days or more in that year
The exception is given to member of the crew of an Indian ship because they work for moths
together on duty on the seas
Case Law Vijay Mallya vs Assistant commissioner :Assessee was in india for 182 days and there
after abroad for the remaining 193 days for the assessment year 1989-90.Relying on provision
6(1) a.the residential of the assessee was determined by the Asessing officer as non resident with
in the meaning of sec 2(30).Notice dated 08.01 1996 issued under sec 154 with a view to retify
the mistake apparent from the record challenged by the petitioner.
Held: Dissmissing the challenge to notice issued under sec 154 Hon’ble judge held that assessee
may be resident in india either under sec 6(1)(c) of the said Act. Is the duty bound to record his
reason as to why he is not holding the assessee as resident either under sec6(1) (a),or(c)of Act. If
assessing officer fails to record the reason why he is not holding the assesee as a resident of india
either under section 6 (1)(a)(c) of the said Act such failure would be a mistake apparent from the
record which would call for rectification.
“Not Ordinarily Resident” in India sec 6(6) a person is not ordnerily resident in india in any
previous year if such person is an individual who has been a non resident in India in nine out of
ten previous years preceding that year been in India for a period of seven hundred and twenty
nine days or less.
For determination of residential status of an assessee following principles should be considered.
a. Place and purpose of stay in India is not of significance.
b. Continuous stay is not essential.
c. Stay on a boat in territorial water
d. When a person is in India only for a part of a daythe calculation of physical presence in
India in respect of such broken period shall be made on an hourly basis. Atotal of 24
hours of stay spread over a number of days is to counted as equivalent to stay of one day
e. If statistics is not available to calculate the period of stay of an individual in India in
terms of hours then the day on which he leaves India shall be taken into account.
Residential status of hindu undivided family: A Hindu undivided family firm or other
association of person is considered resident in India in any previous year except where the contrl
and managmentof its affairs is situated wholly outside india. Under Section 6(1), an individual is
said to be resident in India in any previous year if he satisfies any one of the following basic
conditions:
He is in India in the previous year for a period of at least 182 days or,
He is in India for a period of at least 60 days during the relevant previous year and at
least 365 days during the four years preceding that previous year.
In case an Indian citizen leaves India for employment abroad in any year for the purpose of
employment (or where an individual, who is a citizen of India, leaves India as a member of
the crew of an Indian ship), or where an Indian citizen or a person of Indian Origin, who has
settled abroad, comes on a visit to India in the previous year, shall not attract clause (b) of the
basic conditions Therefore, such individuals may stay in India upto 181 days in a given
previous year without becoming resident in India for that previous year. An individual who
does not satisfy either of the above basic conditions is non-resident for that previous year.
A Hindu Undivided Family (HUF) is said to be resident in India if control and management of its
affairs is wholly or partly situated in India during the relevant previous year.
A resident individual or HUF assessee may further be classified into (i) resident and ordinarily
resident (ROR) and (ii) resident but not ordinarily resident (RNOR). A resident individual or
HUF is treated as ROR in India in a given previous year, if he satisfies the following additional
conditions:-
He has been resident in India in at least 9 out of 10 previous years (according to basic
conditions noted above) preceding the relevant previous year; and
He has been in India for a period of at least 730 days during 7 years preceding the
relevant previous year.
An individual or HUF becomes ROR in India if the individual or Karta of HUF satisfies at least
one of the basic conditions and both the additional conditions. An individual or Karta of HUF
who is resident in India but does not satisfy both the additional conditions is RNOR for that
previous year.
Residential status of assessee other than an Individual & HUF
In case of an assessee, other than an individual and HUF, the residential status depends upon the
place from which its affairs are controlled and managed.
As per Section 6(2), a partnership firm or an association of persons are said to be resident in
India if control and management of their affairs are wholly or partly situated within India during
the relevant previous year. They are, however, treated as non-resident if control and management
of their affairs are situated wholly outside India.
As per Section 6(3), an Indian company is always resident in India. A foreign Company is
resident in India only if, during the previous year, control and management of its affairs is
situated wholly in India. Where part or whole of control and management of the affairs of a
foreign company is situated outside India, it shall be treated as a non-resident company.
As per Section 6(4), every other person is resident in India if control and management of his
affairs is, wholly or partly, situated within India during the relevant previous year. On the other
hand, every other person is non-resident in India if control and management of its affairs is
wholly situated outside India.
Case. SubbayyChettiar Vs CIT : HUF shall be taken to be resident in India unless control and
management of its affairs is situated wholly out side India..Official visit of kartha to India does
not make HUF resident of India.
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2. Discuss in brief the provision regarding appeal under Income Tax Act 1961?
Introduction:
Appeal proceeding taken to rectify an erroneous decisions of a court right to appeal under
IT law is a creation of statute not an inherent right. Income tax liability is determined at the level
of assessing officer first. Sec.252 to 255 of Income Tax Act deals with Appeal provision.
A tax payer aggrieved by various action of assessing officer can appeal before
Commissioner of Income Tax. Further appeal can be preferred before the Income Tax Appellate
Tribunal. On substantial question of law further appeal can file before the High Court and even
to the Supreme Court with the ladder up approach appeal procedure.
Appeal before the Commissioner
Appeal before the High Court
Appeal before Supreme Court
Supreme Court:
Under Article 136of the Constitution of India against the order of High Court the tax
payer or the commissioner can appeal before the Supreme Court.
3. Authorities under IT Act ? Powers and function ?
The Income Tax Department, also referred to as IT Department, is a government agency in
charge of monitoring the income tax collection by the Government of India. It functions under
the Department of Revenue of the Ministry of Finance.
1. INCOME TAX AUTHORITIES SECTION 116 • Central Board of Direct Taxes
( CBDT) • Directors- General of Income tax or Chief commissioner of income tax • Additional
directors of income tax or additional commissioner of income tax • Joint directors or joint
commissioner of income tax • Deputy director or deputy commissioner of income tax
Assistant directors or assistant commissioner of income tax • Income tax officers • Tax
recovery officers • Inspectors of income tax
2. CBDT • The Central Board of Direct Taxes (CBDT) is a part of Department of Revenue
in the Ministry of Finance. The CBDT provides inputs for policy and planning of direct taxes in
India, and is also responsible for administration of direct tax laws through the IT Department.
The CBDT is a statutory authority functioning under the Central Board of Revenue Act, 1963.
The officials of the Board in their ex officio capacity also function as a division of the Ministry
dealing with matters relating to levy and collection of direct taxes. The CBDT is headed by
Chairman and also comprises six members, all of whom are ex officio Special Secretary to the
Government of India.
5 The Chairman and members of the CBDT are selected from the Indian Revenue Service (IRS),
whose members constitute the top management of the IT Department. The Chairman and every
member of CBDT are responsible for exercising supervisory control over definite areas of field
offices of IT Department, known as Zones. Various functions and responsibilities of the CBDT
are distributed amongst Chairman and six members, with only fundamental issues reserved for
collective decision by the CBDT. The areas for collective decision by the CBDT include policy
regarding discharge of statutory functions of the CBDT and of the Union Government under the
various direct tax laws. They also include general policy relating to:
Set up and structure of Income Tax Department; • Methods and procedures of work of the
CBDT; • Measures for disposal of assessments, collection of taxes, prevention and detection of
tax evasion and tax avoidance; • Recruitment, training and all other matters relating to service
conditions and career prospects of all personnel of the Income-tax Department; • Laying down of
targets and fixing of priorities for disposal of assessments and collection of taxes and other
related matters; • Write off of tax demand exceeding Rs.25 lakhs in each case; • Policy regarding
grant of rewards and appreciation certificates. • Any other matter, which the Chairman or any
Member of the Board, with the approval of the Chairman, may refer for joint consideration of the
Board
3. APPOINTMENT OF INCOME TAX AUTHORITIES SECTION 117 The Central
Government may appoint such persons as it thinks fit to be income-tax authorities. Without
prejudice and subject to the rules and orders of the Central Government regulating the conditions
of service of persons in public services and posts, the Central Government may authorise the
Board, or a Director-General, a Chief Commissioner or a Director or a Commissioner to appoint
income-tax authorities below the rank of an Assistant Commissioner or Deputy Commissioner.
Subject to the rules and orders of the Central Government regulating the conditions of service of
persons in public services and posts, an income- tax authority authorised in this behalf by the
Board may appoint such executive or ministerial staff as may be necessary to assist it in the
execution of its functions.
4. CONTROL OF INCOME TAX AUTHORITIES SECTION 118 • The Board may, by
notification in the Official Gazette, direct that any income-tax authority or authorities specified
in the notification shall be subordinate to such other income-tax authority or authorities as may
be specified in such notification.
5. INSTRUCTIONS TO SUBORDINATE AUTHORITIES SECTION 119 • 1) The Board
may, from time to time, issue such orders, instructions and directions to other income-tax
authorities as it may deem fit for the proper administration of this Act, and such authorities and
all other persons employed in the execution of this Act shall observe and follow such orders,
instructions and directions of the Board: • Provided that no such orders, instructions or directions
shall be issued • (a) so as to require any income-tax authority to make a particular assess-ment or
to dispose of a particular case in a particular manner; or • (b) so as to interfere with the discretion
of the Commissioner (Appeals) in the exercise of his appellate functions. • (2) Without prejudice
to the generality of the foregoing power, • (a) the Board may, if it considers it necessary or
expedient so to do, for the purpose of proper and efficient management of the work of
assessment and collection of revenue, issue, from time to time general or special orders in
respect of any class of incomes or fringe benefits or class of cases, setting forth directions or
instructions as to the guidelines, principles or procedures to be followed by other income-tax
authorities in the work relating to assessment or collection of revenue or the initiation of
proceedings for the imposition of penalties and any such order may, if the Board is of opinion
that it is necessary in the public interest so to do, be published and circulated in the prescribed
manner for general information;
6. (b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine
hardship in any case or class of cases, by general or special order, authorise any income-tax
authority, not being a Commissioner (Appeals) to admit an application or claim for any
exemption, deduction, refund or any other relief under this Act after the expiry of the period
specified by or under this Act for making such application or claim and deal with the same on
merits in accordance with law; • (c) the Board may, if it considers it desirable or expedient so to
do for avoiding genuine hardship in any case or class of cases, by general or special order for
reasons to be specified therein, relax any requirement where the assessee has failed to comply
with any requirement specified in such provision for claiming deduction thereunder, subject to
the following conditions, namely: • (i) the default in complying with such requirement was due
to circumstances beyond the control of the assessee; and • (ii) the assessee has complied with
such requirement before the completion of assessment in relation to the previous year in which
such deduction is claimed : • Provided that the Central Government shall cause every order
issued under this clause to be laid before each House of Parliament.
7. JURISDICTION OF INCOME TAX AUTHORITIES SECTION 120 • 1) Income-tax
authorities shall exercise all or any of the powers and perform all or any of the functions
conferred on, or, as the case may be, assigned to such authorities by or under this Act in
accordance with such directions as the Board may issue for the exercise of the powers and
performance of the functions by all or any of those authorities. • Explanation. For the removal of
doubts, it is hereby declared that any income-tax authority, being an authority higher in rank,
may, if so directed by the Board, exercise the powers and perform the functions of the income-
tax authority lower in rank and any such direction issued by the Board shall be deemed to be a
direction issued under sub-section (1). • (2) The directions of the Board may authorise any other
income-tax authority to issue orders in writing for the exercise of the powers and performance of
the functions by all or any of the other income-tax authorities who are subordinate to it.
8. 3) In issuing the directions or orders ,the Board or other income-tax authority authorised
by it may have regard to any one or more of the following criteria, namely : • (a) territorial area;
• (b) persons or classes of persons; • (c) incomes or classes of income; and • (d) cases or classes
of cases. • (4) Without prejudice to the provisions of sub-sections (1) and (2), the Board may, by
general or special order, and subject to such conditions, restrictions or limitations as may be
specified therein, • (a) authorise any Director General or Director to perform such functions of
any other income-tax authority as may be assigned to him by the Board; • (b) empower the
Director General or Chief Commissioner or Commissioner to issue orders in writing that the
powers and functions conferred on, or as the case may be, assigned to, the Assessing Officer by
or under this Act in respect of any specified area or persons or classes of persons or incomes or
classes of income or cases or classes of cases, shall be exercised or performed by a Joint
Commissioner or a Joint Director, and, where any order is made under this clause, references in
any other provision of this Act, or in any rule made thereunder to the Assessing Officer shall be
deemed to be references to such Joint Commissioner or Joint Director by whom the powers and
functions are to be exercised or performed under such order, and any provision of this Act
requiring approval or sanction of the Joint Commissioner shall not apply.
9. (5) The directions and orders may, wherever considered necessary or appropriate for the
proper management of the work, require two or more Assessing Officers (whether or not of the
same class) to exercise and perform, concurrently, the powers and functions in respect of any
area or persons or classes of persons or incomes or classes of income or cases or classes of cases;
and, where such powers and functions are exercised and performed concurrently by the
Assessing Officers of different classes, any authority lower in rank amongst them shall exercise
the powers and perform the functions as any higher authority amongst them may direct, and,
further, references in any other provision of this Act or in any rule made there under to the
Assessing Officer shall be deemed to be references to such higher authority and any provision of
this Act requiring approval or sanction of any such authority shall not apply. • (6)
Notwithstanding anything contained in any direction or order issued the Board may, by
notification in the Official Gazette, direct that for the purpose of furnishing of the return of
income or the doing of any other act or thing under this Act or any rule made there under by any
person or class of persons, the income-tax authority exercising and performing the powers and
functions in relation to the said person or class of persons shall be such authority as may be
specified in the notification. •
Powers
Sec Power regarding discovery, production of evidence, etc. (1) The
131 Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner,
Commissioner (Appeals) and Chief Com-missioner or Commissioner shall,
for the purposes of this Act, have the same powers as are vested in a court
under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in
respect of the following matters, namely : (a) discovery and inspection;
(b)enforcing the attendance of any person, including any officer of a
banking company and examining him on oath; (c) compelling the
production of books of account and other documents; and (d) issuing
commissions.
132 Search and seizure: The authorised officer to
(i) enter and search any building, place, vessel, vehicle or
aircraft where he has reason to suspect that such books of account, other
documents, money, bullion, jewellery or other valuable article or thing are
kept;
(ii) break open the lock of any door, box, locker, safe, almirah or
other receptacle for exercising the powers conferred by clause (i) where the
keys thereof are not available;
(iia) search any person who has got out of, or is about to get into,
or is in, the building, place, vessel, vehicle or aircraft, if the authorised
officer has reason to suspect that such person has secreted about his person
any such books of account, other documents, money, bullion, jewellery or
other valuable article or thing;
(iib) require any person who is found to be in possession or
control of any books of account or other documents maintained in the form
of electronic record as defined in clause (t) of sub-section (1) of section 2 of
the Information Technology Act, 2000 (21 of 2000), to afford the authorised
officer the necessary facility to inspect such books of account or other
documents;
(iii) seize any such books of account, other documents, money,
bullion, jewellery or other valuable article or thing found as a result of such
search:
Provided that bullion, jewellery or other valuable article or
thing, being stock-in-trade of the business, found as a result of such search
shall not be seized but the authorised officer shall make a note or inventory
of such stock-in-trade of the business;
(iv) place marks of identification on any books of account or
other documents or make or cause to be made extracts or copies therefrom;
(v) make a note or an inventory of any such money, bullion,
jewellery or other valuable article or thing :
8.Short note
a. Wealth tax
The tax levied by the government on a person’s personal net wealth or capital is called wealth
tax. Net wealth is the net value of a person’s assets. The Wealth Tax Act 1957 lays down the
rules governing wealth tax in India. It applies to three kinds of assessees viz. Individuals, HUFs
and companies. Personal assets refer to an assessee’s land (urban), house, car, boats and yachts,
aircrafts, precious metals in various forms like jewellery, furniture etc.
The government abolished wealth tax as announced in the budget 2015. In its stead, the
government decided to increase the surcharge levied on the ‘super rich’ class by 2% to 12%.
Super rich are persons with incomes of Rs.1 crore or higher and companies that earn Rs.10
crores or higher. The abolition was a move to do away with high costs of collection and also to
simplify the existing tax structure thereby discouraging tax evasion.
It was a form of direct tax payable by individuals/entities on their wealth.
Wealth tax has been abolished (w.e.f April 1, 2016 for wealth held as on March 31, 2016) by the
central government, as announced by the finance minister, in his budget speech, in March, this
year. Super rich taxpayers, therefore, need not file their wealth returns for the financial year
2015-16 Some of the main objectives cited by experts behind the wealth tax abolished are
Focus on more governance and less government: Finance minister, during his budget
speech, cited the lack of ease of doing business as one of the reasons for abolishing the
wealth tax. Also, by abolishing wealth tax, government has reduced the scope of some
taxpayers taking undue advantage of the loopholes in the wealth tax act.
Simplification of tax procedures: According to experts, Indian tax laws are, by and
large, very complex and therefore, prone to litigations. Government wants to simplify
procedures for easier tracking and enhance transparency.
Incurs high collection costs but provides low yield: In a country with increasing
number of billionaires, government collected a meagre Rs. 1008 crore as wealth tax last
fiscal, exposing how the cost of collecting the tax is much higher compared to the low
yield. Also, wealth tax does not form a major chunk of collection of direct taxes in India
(Rs.788.67 crore and Rs.844.12 crore were collected as wealth tax in 2011-12 and 2012-
13 respectively).
Increase the revenue collection: By abolishing the wealth tax and replacing it with
additional surcharge, government can collect up to Rs. 9000 crore in a fiscal year, opined
the finance minister in his budget speech.
Additional administrative burden: Taxpayers had to value their assets as per the
Wealth Tax Rules to compute their net wealth. For certain assets such as jewellery,
taxpayers had to obtain a valuation report from a registered valuer.
Tax compliance and widening the tax base: Government wants to bring more persons
under its tax net given that individuals who file income tax returns outnumber those who
file wealth tax returns.
Additional reporting: Taxpayers will have to do some additional reporting of
information in their income tax returns in terms of listing out their assets and liabilities.
No leakage: Details about assets submitted by the taxpayer in the income tax returns will
help officials correlate declared wealth with the declared income. Tax officers can,
therefore, ensure that there is no tax ‘leakage’. Earlier, unproductive assets such as
jewelry which cannot be readily tracked would allow assessees to skip making such
disclosures in their wealth returns.
Low Awareness: According to rough estimates, many assessees in the country are only
dimly aware of the existence of the wealth tax. Consequently, more often than not,
assessees are served with notices for failing to pay wealth tax. In 2011-12, the number of
wealth tax assessees in India stood at 1.15 lakhs.
.
Wealth Tax Rules:
Who does wealth tax apply to or who has to pay wealth tax and how is it applied?
The residential status of an individual was one of the key parameters to ascertain wealth tax
liability. Resident Indians were liable to pay wealth tax on their global assets. However, non-
resident Indians and foreigners were liable to pay wealth tax on their assets in India only. If a
non-resident Indian returns to India, his assets would not be exempt from wealth tax. Assets
acquired by NRIs within one year of their return are also exempt.
Assets which were covered under wealth tax:
Wealth tax was payable on assets such as real estate and gold. Assets such as shares,
mutual funds and securities termed as ‘productive assets’, were exempt from wealth tax.
Yachts, aircraft and boats came under the purview of wealth tax.
While one residential home is exempt, more than one own house would come under the
purview of wealth tax. However, wealth tax is not applicable on a property if it is used
for business or rented for 300 days in a year.
Tax is levied on the market price of a car, except when used in a car hiring business.
Gold, platinum and silver ornaments came under the purview of wealth tax. Also, wealth
tax is applicable to cash-in-hand above Rs. 50,000.
If a taxpayer had to pay wealth tax, transferring his or her assets to the spouse would not
result in evasion of levy, since assets even if gifted, would be considered the property of
the taxpayer.
A) Baggage includes –
i) Dutiable goods imported by
- Passengers
- Member of a crew
In his baggage
ii) Unaccompanied baggage if dispatched previously or subsequently within prescribed period.
Baggage does not include
- Motor vehicles, alcoholic drinks & goods imported their courier
- Articles imported under imported license for himself or for others
B) Following are general prohibitions
i) Indian/ Foreign currency (above RBI limits )
ii)Narcoticdrugs
iii) Domestic pets (If not as per health regulations )
iv) Exoctic Birds, wind orchids, wild life
v) Endangered species
vi) Ivory
vii) Reptile skins
viii) Antiques
(b) He shall be allowed to avail himself of this exemption only once in three
years,
(c) Items in Annex I, Annex II or Annex III to Baggage Rules are not allowed
under this rule,
(d) Goods should be contained in his bona fide baggage.
· Exemption to Baggage of Tourists – Following are the exemptions –
(a) Used personal effects of tourist and travel souvenirs are allowed duty free. Personal effects
should be for personal use of the tourist and these goods, other than consumed should be re-
exported when tourist leaves India for foreign destination.
(b) Tourists of Indian Origin (even if holding foreign passport ) other than those coming from
Pakistan by land route as specified in Annexure IV of Baggage Rules, are entitled to General
Free Allowance in addition to ‘ personal effects ‘.
(c) Foreign Tourists are permitted to bring articles up to Rs. 8,000 for making gifts. This can
include up to 200 cigarettes or 50 cigars or 250 gms of tobacco and up to two liters of alcoholic
liquor or wine. Duty will have to be paid for gifts over the value of Rs. 8,000 (Rs. 6,000 if they
are coming from Pakistan)
(d) Tourists of Pakistani origin or foreign tourists coming from Pakistan or tourists of Indian
origin coming from Pakistan, by land route as specified in Annexure IV of Baggage Rules, are
entitled to bring used personal effects and travel souvenirs are allowed duty free. Personal effect
should be for personal use of the tourist and these goods, other than consumed, should be re-
exported when tourist leaves India for foreign destination. In addition, articles up to value of Rs.
6,000 for making gifts are permitted duty free
(e) Tourists of Nepalese origin coming from Nepal or of Bhutanese origin coming from Bhutan
are not entitled to any exemption.
Import by foreign experts – Foreign experts assigned to India under various UN schemes etc. are
permitted to bring various articles, including VCR, video camera and Air – conditioners. These
are exempt from customs duty on obtaining certificate of undertaking from the expert. Duty will
be paid by concerned ministry / department
c. Agricultural income.
Section 2. (1A) of IT act “agricultural income”means—
(a) any rent or revenue derived from land which is situated in India and is used for agricultural
purposes b. any income derived from such land by (i) agriculture; or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily
employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by
him fit to be taken to market ; or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him,
in respect of which no process has been performed other than a process of the nature described in
paragraph (ii) of this sub-clause ;
(c) any income derived from any building owned and occupied by the receiver of the rent or
revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any
land with respect to which, or the produce of which, any process mentioned in paragraphs (ii)
and (iii) of sub-clause (b) is carried on : Provided that—
(i) the building is on or in the immediate vicinity of the land, and is a building which the
receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his
connection with the land, requires as a dwelling house, or as a store-house, or other out-building,
and
(ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and
collected by officers of the Government as such or where the land is not so assessed to land
revenue or subject to a local rate, it is not situated—
in any area which is comprised within the jurisdiction of a municipality (whether known
as a municipality, municipal corporation, notified area committee, town area committee,
town committee or by any other name) or a cantonment board and which has a population
of not less than ten thousand according to the last preceding census of which the relevant
figures have been published before the first day of the previous year ; or
in any area within such distance, not being more than eight kilometres, from the local
limits of any municipality or cantonment board referred to in item (A), as the Central
Government may, having regard to the extent of, and scope for, urbanisation of that area
and other relevant considerations, specify in this behalf by notification in the Official
Gazette.
Explanation 1.—For the removal of doubts, it is hereby declared that revenue derived from land
shall not include and shall be deemed never to have included any income arising from the
transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this
section.
Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any
building or land referred to in sub-clause (c) arising from the use of such building or land for any
purpose (including letting for residential purpose or for the purpose of any business or
profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be
agricultural income.
Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings
grown in a nursery shall be deemed to be agricultural income.
AGRICULTURE INCOME
As per Income Tax Act income earned from any of the under given three sources meant
Agricultural Income;
(i)Any rent received from land which is used for agricultural purpose: Assessees do not
have to pay tax on rent or revenue from agricultural land. Such land should, of course, be
assessed to land revenue in the country or be subject to a local rate. Further, there must be a
direct link between the agricultural land and the receipt of income by way of rent or other
revenue (for instance, a landlord could receive revenue from a tenant).
(ii)Any income derived from such land by agricultural operations including processing of
agricultural produce, raised or received as rent in kind so as to render it fit for the market, or sale
of such produce.
(iii)Income attributable to a farm house subject to the condition that building is situated on or
in the immediate vicinity of the land and is used as a dwelling house, store house etc. Income
from such farm houses is considered agricultural income. The definition of `farm houses’ covers
buildings owned and occupied by both cultivators of agricultural land and assessees who receive
rent or revenue from agricultural land. The sole purpose of such farmhouses should be for use as
dwellings for the cultivators or use as store houses. Normally, the annual value of a building is
taxable as `income from house property’. However, in the case of a farm house, the annual value
would be deemed agricultural income and would, thus, be exempt from tax.
(iv) Income earned from carrying nursery operations is also considered as agricultural income
and hence exempt from income tax.[v]
In order to consider an income as agricultural income certain points have to be kept in
mind:
(i) There must me a land.
(ii) The land is being used for agricultural operations:- Agricultural operation means that efforts
have been induced for the crop to sprout out of the land. The ambit of agricultural income also
covers income from agricultural operations, which includes processing of agricultural produce to
make it fit for sale. Like the people who receive passive agricultural income in the form of rent
or revenue, the people who actually carry out agricultural operations are also eligible for tax-free
agricultural income.
(iii) Land cultivation is must:- Some measure of cultivation is necessary for land to have been
used for agricultural purposes. The ambit of agriculture covers all land produce like grain, fruits,
tea, coffee, spices, commercial crops, plantations, groves, and grasslands. However, the breeding
of livestock, aqua culture, dairy farming, and poultry farming on agricultural land cannot be
construed as agricultural operations.
(iv) If any rent is being received from the land then in order to assess that rental income as
agricultural income there must be agricultural activities on the land.
(v) In order to assess income of farm house as agricultural income the farm house building must
be situated on the land itself only and is used as a store house/dwelling house.
(vi) Ownership is not essential. In the case of rent or revenue, it is essential that the Assessee
have an interest in the land (as an owner or mortgagee) to be eligible for tax-free income.
However, in the case of agricultural operations it isn’t necessary that the person conducting the
operations be the owner of the land. He could be just a tenant or a sub-tenant. In other words, all
tillers of land are agriculturists and enjoy exemption from tax. In some cases, further processes
may be necessary to make a marketable commodity out of agricultural produce. The sales
proceeds in such cases are considered agricultural income even though the producer’s final
objective is to sell his products.
. laminated card.
9 Problem solve
a. Format showing salary
Mr. A who is a CA and his Gross Salary is Rs.80,450, which includes:
Basic= 50000 + HRA=20000 + Travel allowance=1000 + Child's educational allowance=200 +
Medical allowance=1250 + other allowance=8000
The deductions allowed will be Travel allowance=1000 + Child's educational allowance=200 +
Medical allowance=1250 provided that Mr. A submits medical bills worth Rs.1250. Mr. A has a
house of his own so the HRA is not deducted. So his total exemption will be Rs.2,450.
The taxable annual gross income will be Rs. (80,450-2,450) x 12 which is Rs.9,36,000.
If Mr. A declares loss on House Property for the interest he is paying for the loan taken to buy
his house worth Rs.1,00,000. The Gross total income will be Rs.8,36,000 (9,36,000-1,00,000).
Mr. A declares Rs.1,00,000 as investment under Section 80C and Rs.25,000 under Section 80D,
the total taxable income will be Rs.7,11,000 (8,36,000-1,25,000). This is the net taxable income.
And Mr. A's income tax rate would be:
For the first Rs,2,00,000 it is nil, for the next Rs.5,00,000 it will be 10% that is Rs.50,000. And
on the balance of Rs,11,000, the tax rate is 20% amounting to Rs.2,200.
Mr. A's total annual tax is Rs.53,766 (Rs.52,200 plus the educational cess and higher education
cess that is charged at 3% which is Rs.1,566). The monthly tax that is levied on him will be
Rs.4,480.50/-.
Computation of Tax
In the books of accounts the Computation of Tax will look like:
Particulars Amount Amount
+ Annuity XXX
+ Bonus XXX
+ Commission XXX
+ Perquisites
XXX (XXX) XXX
Amount exempted
+ other allowances
XXX (XXX) XXX
Amount exempted
+ VRS/ Retrenchment compensation XXX (XXX) XXX
Amount exempted
+ Gratuity received
XXX (XXX) XXX
Exempted gratuity
+ Leave encashment
XXX (XXX) XXX
Exempted leave encashment
+ Pension
XXX (XXX) XXX
Amount exempted
+ employers contribution (in excess of 12% salary of employee) XXX
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Statutory Deduction: 30% of the NAV is allowed as a deduction towards repairs, rent
collection, etc. irrespective of the actual expenditure incurred. This deduction is not allowed if
the Annual Value is nil.
Interest on borrowed capital: is allowed as a deduction on accrual basis if the money was
borrowed to buy/construct the house. Deduction is allowed on whichever is lesser between
Rs.1,50,000 or the actual interest amount (in case the construction was completed within 3
years of taking the loan, on or after 1-April-1999.) In other cases, it’s between Rs.30,000, and
the actual interest, whichever is less.
Owner/deemed owner: Income from house property is taxable to the owner of the property.
The owner is the person who is entitled to receive income from property. This means that
income is chargeable to the person who receives financial benefit from the property, even if the
property is not registered to him, i.e. deemed owner. A deemed owner is an owner by
implication and not necessarily documented registration.
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