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TAX

DIRECT TAX

INDIRECT TAX

Direct Tax: Directly felt by the Assessee . e.g Income Tax


Indirect Tax: It is paid by the customer for the services or goods
purchased for self or some body else. E.g Service Tax, VAT, Sales
Tax

Key points: Assessee


Income

Assessee

Assessee means a person by whom income tax or any other


sum of money is payable under the Act. It includes every
person in respect of whom any proceeding under the Act has
been taken for the assessment of his income or loss or the
amount of refund due to him.
It also includes a person who is assessable in respect of
income or loss of another person or who is deemed to be an
assessee, or an assessee in default under any provision of
the Act.

Key Point:

Person

PERSON
The term person includes:
a. An individual
b. A Hindu undivided family
c. A company
d. A firm
e. An association of persons or a body of individuals, whether
incorporated or not
f. A local authority and
g. Every artificial juridical person not falling within any of the
preceding categories.

ASSESSMENT YEAR

Assessment year means the period starting


from April 1 and ending on March 31 of the
next year.
For Understanding- Assessment year 2013-14
which will commence on April 1, 2013, will
end on March 31, 2014.
Income of previous year of an assessee is
taxed during the next following assessment
year at the rates prescribed by the relevant
Finance Act .

Previous Year

Previous year is the financial year


immediately preceding the assessment
year.
Income earned in a year is taxable in the
next year.
The year in which income is earned is
known as previous year and the next
year in which income is taxable is known
as assessment year

Exceptions to previous year


In case of following situations, the income earned in the previous
year is assessed in the same financial year.
1. Income of non-residents from shipping
2. Income of persons leaving India either permanently or for a
long period of time
3. Income of bodies formed for short duration
4. Income of a person trying to alienate his assets with a view
to avoiding payment of tax and
5. Income of a discontinued business

INCOME

The definition of the term income in


section 2(24) is inclusive and not
exhaustive.
Therefore,
the
term
income not only includes those things
that are included in section 2(24) but also
includes those things that the term
signifies according to its general and
natural meaning.

GROSS TOTAL INCOME


As per section 14, the income of a person is
computed under the following five heads:
1. Salaries.
2. Income from house property.
3. Profits and gains of business or profession.
4. Capital gains.
5. Income from other sources.

HOW TO CHARGE TAX ON INCOME


The procedure for charging tax on income needs familiarity with
the following
1 Income-tax is an annual tax on income.
2 Income of previous year is chargeable to tax in the next
following assessment year at the tax rates applicable for the
assessment year.
3 Tax rates are fixed by the Finance Act and not by the Incometax Act. For instance, the Finance Act, 2013, fixes tax rates for the
assessment year 2013-14.
4 Tax is charged on every person.
5 Tax is levied on the total income of every assessee computed
in accordance with the provisions of the Act.

Case Study on Incidence of Tax


NG earns the following income during the financial year 2012-2013
1. Interest from an Indian Company received in London

120000

2. Pension from former employer in India received in USA

180000

3. Profits earned from a business in Paris which is controlled in


India, Half of the profits being received in India

200000

4. Income from agriculture in Bhutan and remitted to India

125000

5. Income from property in England received there

400000

6. Past foreign income brought to India

10000

Compute his Income for A.Y. 2013-14 if he is :


I. Resident and Ordinarily Resident in India
II. Not Ordinarily Resident in India
III. Non Resident in India

Particulars of Income

Whether Taxable
Resident
Resident Non Resident
and
but
not 2 Yes
ordinarily ordinarily 3 No
4 Yes
3 Yes
1 No
2 No

1. Income received or deemed to be received in


India whether earned in India or elsewhere
2. Income which accrues or arises or is deemed to
accrue or arise in India during the previous
year, whether received in India or elsewhere.
3. Income which accrues or arises outside India
and received outside India from a business
controlled from India.
4. Income which accrues or arises outside India
and received outside India in the Previous year
from any other source.
5. Income which accrues or arises outside India
and Received outside India during the years
preceding the previous year and remitted to
India during the previous year.

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes

No

No

No

No

No

Particulars of Income

Whether Taxable

Resident
Resident Non
and
but
not Resident
ordinarily ordinarily

Income received in India


50% of Profits of Business in Paris

Income deemed to accrue or arise in India


Interest from Indian Company
Pension from Employer in India

100000

100000

100000

120000
180000

120000
180000

120000
180000

100000

100000

No

125000
400000

No
No

No
No

Income earned and received outside India


from a business controlled from India.
50% of Profits of Business in Paris

Income which accrues or arises outside


India From any other source.
Income from Agriculture in Bhutan
Income from Property in England

Case
During the year 2012-13, NG a foreign citizen,
stays in India for 69 days. Determine his
residential status for the AY 2013-14 on the
basis of the following information:
1. During 2009-10, he was present in India for
365 days
2. During 2006-7 and 2005-06, he is in Japan for
359 and 348 days respectively.
3. Mrs. NG is resident in India for AY 2013-14.

Resident but Not ordinarily

Case
Mr NG has been in India since 1987 and left
for Russia on 5th June 2011 on a teaching
assignment. He came back to India on 5th
February 2013 to resume his duties with the
previous employer. What shall be his
residential status for the previous year ending
31st March 2013?

Non Resident

Case 3
Mr. NG came to India for the first time on 30th
June 2006. he stayed here continuously for 3
years and left for Singapore on 30th June 2009.
He returned to India on 1st April 2010 and
remained in India till 31st July 2011 when he
went back to Japan. He again came to India on
31st December 2012 to take up a job with
DCM. What is his residential status for the PY
ending 31st March, 2013?

PY

No. Of Days

Residential Status

2006-07

275

Resident

2007-08

366

Resident

2008-09

365

Resident

2009-2010

91

Resident

2010-2011

365

Resident

2011-2012

122

Resident

2012-2013

92

Resident

Mr NG fulfills the additional conditions as well


So he is Resident and Ordinarily resident in PY

Nitin Goel
Assistant Professor
Management Department
RDIAS

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