The Incidence of tax is charged on the basis of residential status of an assessee and not by his citizenship.Â The residential status of HUF, Firms and AOPs are determined on the basis of control and management of the business affairs. In case of individuals, their stay inIndiais the basic criteria.
Incidence of tax – Resident / Ordinarily Resident of India:
According to the current test of residence, an individual becomes a resident, if he:
a) Is inIndiafor 182 days or more during the previous year; or
b) Has been inIndiafor at least 365 days within the preceding four years and for at least 60 days in the relevant previous year.
In case where a person leaves for employment or where an Indian Citizen who is abroad comes toIndiafor a visit, the period of stay would be 182 days instead of 60 days in the previous year as per pointÂ b above.
In any other situation, he will be treated as Non â€“ Resident.
A person is defined as ordinarily resident inIndia, if
a) He has been a resident in nine out of the ten previous years, or
b) He has been inIndiafor at least 730 days during the preceding seven years.
Chargeability of Income:
In the case of a resident, global income is taxable. In other words, total income includes all incomes earned by the taxpayer irrespective of the fact from where the income has generated.
In the case of an ordinarily resident, all incomes which had accrued, arise, received or deemed to have so accrued, arose or received inIndiaÂ duringÂ the previous year will be taxable. In case of incomes which accrued or arose to him outsideIndia, will be taxable only if it is derived from a business controlled in, or a profession set up inIndia.
In the case of a non-resident, only the income accrued, arise received or deemed to have so accrued, arose or received inIndiaÂ duringÂ the previous year will be taxable.
Certain categories of incomes are deemed to be received in India even though they may actually accrue or arise outside India like income from any property, asset or source of income in India, capital gain on transfer of a capital asset situated in India, dividend paid by Indian company, royalty or fees for technicalÂ services paid by GOI (Government ofIndia) etc.
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