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The canons (principles) of good taxation policy are:

 Economic (cost effective, meaning it should cost less to collect


the taxes than the tax revenue)
 Equality: This principle embodies that equity or justice should
prevail and results in progressive taxation. Higher the income,
higher the tax and vice versa. The amount of tax depends
upon the ability of the taxpayer to pay.
 Certainty (people should know how and when to pay)
 Convenience (simplicity or ease of payment for tax-payer)
 Simplicity (Procedures, rules, regulations are to be simple)
 Expediency (It should be convenient and should not give room
for criticism)
 Co-ordination (Co-ordination among different taxes and when
they are imposed by the tax authorities)
Direct Tax: These are the taxes which are not shifted.
The impact and incidence of which falls on the same
person who pay them to the government. E..g Income
Tax and Wealth Tax. It is imposed according to the
ability of person to pay.

Indirect Tax: These are the taxes in which burden of


paying tax is shifted to the people other than those
actually paying through a change in price. E..g Sales
Tax, Service tax, Customs Duty, and Excise duty.
 Assessment year: It refers to 12 months starting from 1st
day of April of a particular year and ending on 31st day of
every March of the next year. The current assessment year
starts from 1st April 2017 and ends on 31st March 2018.
 Previous Year: Refers to twelve months immediately
preceding the particular assessment year. For assessment
year 2017-18, the previous year will be 2016-17, starting from
1st April 2016 and ends on 31st March 2017.
 Finance Act: Every year the Union Finance Minister
presents the Finance bill in the Parliament on 1st February.
The bill once passed becomes the Finance Act. The income
tax slab rates will become applicable from the very first day
of the next financial year
Assessee 2(7): Assessee refers to the following persons
as per Income Tax Act, 1961.
 Any person who is liable to pay tax
 Any person who is liable to pay interest or penalty or
 A person who is deemed to be an assessee as per the
Act, or
 A person who is considered as default assessee by the
Act, or
 Any person on whom proceedings of loss is carried
out, or
 Any person who is entitled for refund of tax
Types of Assessee
 Ordinary Assessee: One who has to pay any tax, penalty, and
interest to the income tax authorities, or is eligible for any
refund.
 Deemed Assessee/Representative assessee: Responsible
for income of other person. Ex. Minor’s- Guardian; Non-
resident’s- Agent; Deceased person with will- Executor;
Deceased person without will- Legal heir or eldest of the
family.
 Assessee in default: A person who fails to fulfill his duty or
obligation. For e.g an employer failed to deduct TDS (Tax
deducted at Source) from employee salary.

Person: Person includes the following
(i) An Individual: It refers to a natural human being
whether male or female, minor or major.
(ii) A Hindu undivided family: It is a relationship created
due to operation of Hindu Law. The manager of HUF is
called “Karta” and its members are called ‘Coparceners’.
(iii) A Company: It is an artificial person registered under
Indian Companies Act 1956 or any other law.
(iv) A Firm: It is an entity which comes into existence as a
result of partnership agreement between persons to share
profits of the business carried on by all or any one of
them.
Person (Contd)

(v) An association of persons or a body of individuals, whether


incorporated or not: Co-operative societies, MARKFED (Marketing
Federation) and NAFED (National Agricultural Cooperative Marketing
Federation of India Ltd) etc. are the examples of such persons. When
persons combine together to carry on a joint enterprise and they do not
constitute partnership under the ambit of law, they assemble as an
association of persons.

(vi) A local authority: Municipality, Panchayat, Cantonment Board, Port


Trust etc. are called local authorities.

(vii) Every artificial juridical person, not falling within any of the
preceding sub-clauses: A public corporation established under special Act
of legislature and a body having juristic personality of its own is known to be
Artificial Juridical Persons. Eg Universities, Reserve Bank of India.
Determine under which category of Person they fall into:
1. Dr.Muniraju , a lecturer in the Bangalore University
2. IBS Hyderabad University
3. Sri. Ganesh, Director in BHEL
4. SAIL
5. Mr. Ramesh, a sole proprietor of a Kirana Shop
6. GHMC
7. Mokila Gram Panchayat
8. Reliance Industries Ltd
9. Life Insurance Corporation of India
10.Co-operative society
11.Laxman & Sons
12.A joint family of Sri Lakshmaiah, his wife and two sons
13.Axis Bank Ltd
14.Ram and Laxman, who are the legal heirs of Dasarath
1. Muniraju – Individual
2. IBS Hyderabad University – Artificial Juridical person
3. Sri Ganesh, Director – Individual
4. SAIL – Company
5. Mr. Ramesh, a sole proprietor of a Kirana Shop – Individual
6. GHMC – Local authority
7. Mokila Gram Panchayat - Local authority
8. Reliance Industries Ltd – Company
9. Life Insurance Corporation of India – Company
10.Co-operative society – Association of persons
11.Laxman & Sons Chartered Accountants firm – Partnership firm
12.A joint family of Sri Lakshmaiah, his wife and two sons – (HUF)
13.Axis Bank Ltd – Company
14.Ram and Laxman, who are the legal heirs of Dasarath carrying on handloom
business - HUF
Income: The Act does not define the term “Income”. It just specifies
certain things that can be included under the concept of Income.
 Profits and Gains
 Dividend
 Voluntary contribution to any trust created wholly or partly for
charitable purposes
 Value of any benefit or perquisites either in cash or kind
 Profit in lieu of salary
 Any allowances given to assessee
 Any special allowance or benefits
 Any sum paid as obligation by the company
 Any Capital gains chargeable u/s 45
 Any winnings from lotteries, crossword puzzles, races, card games and
other games of any sort
 Sum received by the employee as contribution to any provident fund or
superannuation fund or any fund set-up under the ESI Act.
 Any sum received under key main insurance policy.
Features of Income
 Income must be from a definite source
 Legal as well as illegal income is taxed
 It can be in the form of money as well as in kind
 Income earned may be temporary or permanent
 Pin money received by housewife is not considered as an
income
 Any amount received due to devaluation of currency is
taxable income
 Any loss is also included under the concept of income
 In case of dispute regarding title of income, the beneficiary
is taxed
 Income may be lump sum or in installment
 Revaluation of assets and excesses if any cannot be
considered as income.
GROSS TOTAL INCOME
 Income from Salary xxx
 Income from House property xxx
 Income from Business or Profession xxx
 Income from Capital gains xxx
 Income from Other sources xxx
_____________
GROSS TOTAL INCOME xxx
_____________
Less: Deduction u/s 80 xxx

____________
TOTAL/NET INCOME xxx

_____________
 Salary: Existence of employer-employee; salary must be
real and non-fictitious.
Includes wages, annuity, pension, gratuity, fees, commission,
perks, profits, advance on salary & annual accretion.
 Income from House property:
Property not used by the owner for purpose of his business or
profession, the profits of which are chargeable to tax.
 Profits or gains from Business or Profession: Any trade,
commerce or manufacture.
 Capital Gains
 Income from Other Sources:
 Dividends
 Winnings from lotteries
 Interest on securities
 Income from machinery, plant or furniture on hire
 Sum received under a keyman insurance policy, bonus
AGRICULTURAL INCOME: It is fully exempted from tax
u/s 10(1)
 Any rent or revenue derived from land which is
situated in India and is used for agricultural purposes
 Any income derived from such land used for
agricultural operations. It includes 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.
 Any income from a farm house
 Any income derived from saplings or seedlings grown
in a nursery.
 Residential Status of Individual
 Resident- Who satisfies one of the basic condition
 Ordinary Resident- Who satisfies any one of the basic
condition and both the additional conditions
 Not ordinary resident- Who satisfies any one of the basic
conditions but does not satisfy one or none of the
additional conditions
 Non-resident- Who does not satisfy basic condition
itself
BASIC CONDITIONS ADDITIONAL
CONDITIONS
1. A stay of 182 days or more 1. He should be resident in
during the current previous India at least 2 out of 10
year years immediately preceding
the current previous year
1. A stay of 60 days or more in 1. A stay of 730 days or more
the current previous year and during the 7 years
a total stay of 365 days or immediately preceding the
more in the 4 years current previous year
immediately preceding the
current previous year
EXCEPTION
 The period of 60 days or more in (b) (i) is extended to
182 days or more in the case of:
 i. An Indian citizen, leaving overseas for employment
or as a crew of an Indian ship
 ii. An Indian citizen or person of Indian origin, outside
India, visiting India during the previous year.
SCOPE OF TOTAL INCOME ON THE BASIS OF RESIDENTIAL
STATUS:

Where tax incidence arises in case of ROR RNOR NRI


Income received in India (Whether accrued in or outside
India) YES YES YES
Income deemed to be received in India (Whether YES YES YES
accrued in or outside India).
Income accruing or arising in India (Whether received in YES YES YES
India or outside India)
Income deemed to accrue or arise in India (Whether YES YES YES
received in India or outside India)
Income received and accrued outside India from a YES YES NO
business controlled or a profession set up in India
Income received and accrued outside India from a YES NO NO
business controlled from
outside India or a profession set up outside India
Income earned and received outside India but NO NO NO
later on remitted to India
(whether tax incidence arises at the time of
remittance?)
Tax rates (Individuals below the age of 60 years) for Financial Year 2017-18

Net Income (in Rs.) % of Tax Education Secondary and


Cess Higher
Education Cess
Up to 250,000/- Nil Nil Nil
2,50,000/- to 5,00,000/- 5% of amount by which 2% of 1% of income
the taxable income income tax tax
exceeds Rs. 250,000/-
5,00,000/- to 12,500 + 20% of the 2% of 1% of income
10,00,000/- amount by which the income tax tax
taxable income exceeds
Rs. 5,00,000/-
10,00,000/- and above 1,12,500 + 30% of the 2% of 1% of income
total income beyond income tax tax
10,00,000
PROBLEM 1:
Mr. A a foreign citizen leaves India for the first time in
the last 20 years on November 25, 2014. During the
calendar year 2015, he comes to India on September 1,
and stays for a period of 20 days. During the calendar
year 2016 he does not visit India at all but comes to India
on January 15, 2017. Determine his residential status for
the assessment year 2017-18.
PROBLEM 2:
Mr. Rao, a senior scientist goes to Nigeria on a job
approved by the Central government for a period of 3
years on 15th September 2016. He has never been out
of India before.
Determine his residential status for the previous year
2016-17.
PROBLEM 3:
Mr. Singh, an Indian citizen went to USA on 10th October 2008
and returned to India after two years stay there. Again on 10th
August 2012, he went to Iran but returned on 10th May 2016. He
made another attempt to go abroad and finally succeeded to go
to Canada. He left Delhi for Canada on 10th February 2017.
Find out his residential status for the assessment year 2016-17
and 2017-18.
Mr.Akash has income as under:

1. He has income from a business in Germany amounting to Rs.300000 and half


of it was received in India.
2. He has interest income of Rs.100000 from UK Development Bond and entire
interest income was credited to a bank account in UK. Subsequently, the
amount was transferred in India.
3. He has a business in Bombay and entire income of RS.300000 was received in
UK.
4. He has one house property in Ghaziabad and income of Rs.500000 was
received in UK
5. He has received salary income of Rs. 500000 in India and half of the services
were rendered in UK and half in India.

Compute his income presuming that he is ROR, RNOR and NR.


Solution

ROR RNOR NR

1. Income received in India 150000 150000 150000


Income accruing/arising abroad and -- ---
received abroad 150000

1. Income accruing/arising abroad and 100000 --- ---


received abroad

1. Income accruing/arising in India 300000 300000 300000

1. Income accruing/arising in India 500000 500000 500000

1. Income received in India 500000 500000 500000

TOTAL 1700000 1450000 1450000