Charge of income tax

Section-4 of the act provides for the charge of tax to be determined by central government.
As by the virtue of article 265 of the constitution provides the tax is to be not collected except
under the authority of the law. So, section 4 gives the power to central govt. to levy taxes on
the assesse. This section is the backbone of the law of income-tax insofar as it serves as the
most operative provision of the Act. The tax liability of a person arises from this section.
Essentials of section 4-
• Tax shall be charged at the rates prescribed for the year by the Annual Finance Act;
• The charge is on every person specified under section 2(31); definition of person
• Tax is chargeable on the total income earned during the previous year and not the
assessment year. (There are certain exceptions provided by sections 172, 174, 174A, 175 and
176);
• Tax shall be levied in accordance with and subject to the various provisions contained in the
Act.
Let us understand by example-
EX-1. A operates a management firm. For the year 2017-18, he earned Rs.800000. he is
liable to pay taxes in accordance with the rate prescribed in the finance act, 2018. Because
2017-18 is the previous year and 2019-20 is the assessment year.
EX-2. If the income of the previous year 2002-03 [assessment year 2003-04] has not been
assessed to in the financial year 2003-04, but is being assessed in the financial year 2006-07,
nevertheless tax is charged at the rates prescribed by the Finance Act, 2003.
Caselaw
The Act, as it stands amended as on 1st April of any financial year, is applied to the
assessment of that year. Thus, any amendment made after 1st April of that financial year, is
not applied in the assessment for that year, even if the assessment is made after the
amendment becomes effective {Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60
ITR 262 (SC)}
Thus, with respect to the income of the previous year 2005-06, assessment is made in
accordance with the law as it stands on 1st April, 2006. Any amendment coming into effect
subsequent to this date is wholly irrelevant in assessing the income for the previous year
2005-06.
Charge for the 2022-23 assessment year
1. Tax rates for individuals (other than senior and super senior citizens) or HUF
Total income Tax Rates
Upto RS. 2,50,000 --------------------
 Rs. 2,50,001 – Rs. 500000 5%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

2. Tax rates for senior citizens (i.e., an individual whose age is 60 years or more at any
time during the previous year but less than 80 years on the last day of the previous
year
Total income Tax Rates
Upto RS. 3,00,000 --------------------

Rs. 3,00,001 – Rs. 5,00,000 5%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,001 30%

3. Tax rates for Super senior citizens (i.e., an individual whose age is 80 years or more at
any time during the previous year)
Total income Tax Rates

Up to Rs. 5,00,000 -------

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

Residential Status
The incidence of taxes arises from the residential status of a person. Section 6 provide for
rule to determine the residential status.

Residential status of individual

Section 6 provide for the following classification of resident-
1. Resident ordinarily resident (RoR)
2. Resident not ordinarily resident (RNoR)
3. Deemed resident
4. Non resident
Who are RoR section 6(1)
Following conditions to be fulfilled
1. Lives in India for a period total amounting to 182 days or more in the relevant
previous year, or
2. Lives in India for a period of 60 days or more in the previous year and live total 365
days or more in 4 years immediately preceding the previous year.
In order to be resident of India in any previous year, any of the above condition needs to
be satisfied. It is the general rule to determine the residential status of an individual.
Exception to the general rule
• A citizen who leaves India as a crew member for the purpose of employment, rule
2 of the above mentioned will not be applicable to them. Only 182 days or more
criteria is available to them to decide upon the residential status.
• A citizen of India or person of Indian origin who for the purpose of visit to India,
comes to India in previous year if he lives for more than 120 days but less than
182 days then he is resident for that previous year and earn more than fifteen lacs
excluding income earned through foreign sources.( He is RNoR)
Who are RNoR sub- section (6)
Any of the following conditions to be fulfilled in order to be RNoR :-
• An individual who has been non resident in 9 out of 10 previous year immediately
preceding to the relevant previous year, or
• An individual lives for 729 days or less in the 7 previous years immediately preceding
to the relevant previous year.
Other person who are RNoR
• Explanation 1 (b) of section 6(b) is RNoR.
• A citizen of India who is deemed to be resident of India under cl. (1A) of section 6.
Deemed Resident
cl. 1A introduced in the finance act 2020, which say that the citizen, who is non resident in
previous year earn more than fifteen lacs (excluding income earned through foreign sources)
shall be deemed to be resident of India, if he is not liable to pay taxes in any country due to
the reason of his domicile or resident or any other similar reason.
Non resident
The person who does not fulfil any conditions of RoR, RNoR or deemed resident is said to be
Non resident.

Residential status of HUF, Firm or other association of person

Residential status in case of HUF: Section 6(2) read with section 6(6)
“6(2) A Hindu Undivided Family is said to be a resident in India in any previous year in
every case except where during that year the control and management of its affairs is situated
wholly outside India.
6(6) A person is said to be “not ordinarily resident” in India in any previous year if such
person is a HUF whose manager has been a non-resident in India in 9 out of 10 previous
years preceding that year, or has during the 7 previous years preceding that year been in India
for a period of, or periods amounting in all to, 729 days or less”
Analysis:
HUF is treated as “Resident” in India if the control and management of its affairs is situated
wholly or partly in India in the relevant previous year.
Thus, we can say that if in any previous year, the control and management of affairs of HUF
is situated wholly outside India, it would be “Non-Resident” in India.
If the residential status of HUF is “Resident”, it could be either ROR or RNOR. The
residential status of HUF as ROR or RNOR is determined on the basis of residential status of
Karta. Karta is the person who heads and manages the affairs of the Hindu Undivided Family
(HUF). All the important decisions in respect of affairs of HUF are generally taken by the
Karta. This is the reason residential status of HUF as ROR/RNOR depends upon residential
status of Karta. Thus,
• If the Karta is Resident and ordinarily resident (ROR): then HUF is also ROR
• If the Karta is Resident but not ordinarily resident (RNOR): then HUF is also RNOR

Residential status of Firms & AOP: Section 6(2)

“A firm or association of persons is said to be resident in India in any previous year in every
case except where during that year the control and management of its affairs is situated
wholly outside India.”
Analysis:
A firm or an AOP shall be considered as “Resident” in India if the control and management
of its affairs is situated wholly or partly in India.
However, where the control and management of affairs is situated wholly outside India, the
firm and AOP shall be “Non-resident”.
A firm or an AOP can be only resident or non-resident. It can not be ROR or RNOR
The residential status of the partners or the firm or members of AOP are not relevant in
determining the residential status of firm or AOP.
Meaning of “Control and Management”:
The term “Control and management” refers to the central control and management and not to
carrying on of day-to-day business by servants, employees or agents. It implies the
functioning of the controlling and directing power at a particular place with some degree of
permanence.
The business may be done from outside India and yet its control and management may be
wholly within India. Therefore, the control and management of the business is said to be
situated at a place where the head office and brain of the adventure is situated.
Residential status of a company section 6(3)
To determine the residential status of a company, the following two questions have to be
answered :
Ø First – Is the company an Indian company ? If the answer is yes, the company is a resident
(thus, an Indian company cannot be a non-resident). If the answer is no, proceed to question
2.
Ø Second – Is the control and management of its affairs situated wholly in India ? If the
answer is yes, the company is resident. If no, the company is non-resident.
A company, other than an Indian company, the control and management of the affairs of
which is partly situated in India and partly outside India, is a non-resident.
A company cannot be a ‘resident and ordinarily resident’ or a ‘resident but not ordinarily
resident’. A company can either be a resident or a non-resident.
‘Control and management’ means the controlling and directive power. It means actual or de
facto control and management. Mere right to control and manage does not amount to control
and management {CIT v. Nandlal Gandalal [1960] 40 ITR 1 (SC)}. It means central control
and management and not the carrying out of routine day-to-day affairs.
The place of control and management is situated at a place where the head, the seat and the
directive power is situated {San Paulo (Brazilian) Railway Co. v. Carter [1896] AC 31
(HL)}.
Burden of proving that a company is resident in India is on the Revenue {Moosa S Madha &
Azam S Madha v. CIT [1973] 89 ITR 65 (SC)}.

Residential status of any other person section 6(4)

To determine the residential status of any other person, i.e., local authority, artificial juridical
person, etc., the question that has to be answered is : Is the control and management of its
affairs situated wholly outside India ? If answer is yes, it is non-resident. If no, it is resident.
Under this category, the residential status can either be of a resident or of a non-resident. The
concept of ‘resident and ordinarily resident’ or ‘resident but not ordinarily resident’ does not
apply here.

Scope of total income

Section 5 provides the scope of total income in terms of the residential status of the assessee
because the incidence of tax on any person depends upon his residential status. The scope of
total income of an assessee depends upon the following three important considerations:
(i) the residential status of the assessee;
(ii) the place of accrual or receipt of income, whether actual or deemed; and
(iii) the point of time at which the income had accrued to or was received by or on behalf of
the assessee.
The ambit of total income of the three classes of assessees would be as follows:
(1) Resident and ordinarily resident
The total income of a resident assessee would, under section 5(1), consist of:
(i) income received or deemed to be received in India during the previous year;
(ii) income which accrues or arises or is deemed to accrue or arise in India during the
previous year; and
(iii) income which accrues or arises outside India even if it is not received or brought into
India during the previous year. In simpler terms, a resident and ordinarily resident has to pay
tax on the total income accrued or deemed to accrue, received or deemed to be received in or
outside India.
(2) Resident but not ordinarily resident
Under section 5(1), the computation of total income of resident but not ordinarily resident is
the same as in the case of resident and ordinarily resident stated above except for the fact that
the income accruing or arising to him outside India is not to be included in his total income.
However, where such income is derived from a business controlled in or profession set up in
India, then it must be included in his total income even though it accrues or arises outside
India.
(3) Non-resident
A non-resident’s total income under section 5(2) includes:
(i) income received or deemed to be received in India in the previous year; and
(ii) income which accrues or arises or is deemed to accrue or arise in India during the
previous year.
Scope of total income RoR RNoR NR

Received or deemed to be received Yes Yes Yes

in India
Accrues or arises or is deemed to be Yes Yes Yes
accrues or arises in India

Accrues or arises outside India Yes Yes, only if the No

income is
derived from
business
controlled and
profession set
up in India
Received or deemed to be received in India and income accrues or arises in India – pdf
provided with this document
deemed income accrues or arises- see page no 27-33 of the CA notes