Income Tax: Residential Status & Income Heads

• This मैराथन is valid for May 25, September 25, and Jan 26 students and involves detailed revision with examples
• The notes are available on the PW app under the Utkarsh Batch (free of cost)
• Detailed practice sessions for DT and IDT is coming soon, comprising RTP, PYQ, and MTP questions
• The goal is to achieve a score of 70+ to 80+

Income Tax मैराथन Part 1

• It includes revised Residential Status
• It includes the five Heads of Income (Salary, PGBP, HP, Capital Gain, Other Sources)

Residential Status

• It determines the scope of income
• It impacts applicable slab rates
• It grants tax advantages
• Citizenship differs from residential status
• Status is determined annually, changes every year

Residential Status of Individual

• Requires meeting at least one of two basic conditions
• If basic conditions are met, additional conditions determine ordinary or not ordinary resident status
• First basic condition involves staying in India for 182 days or more in the relevant previous year
• It is not required to be continuous
• Arrival and departure dates are both counted as days in India
• The second basic condition involves two parts
  • Staying in India for 60 days or more in the relevant previous year
• Staying in India for 365 days or more in the preceding four years

Additional Conditions

• First additional condition: Being a resident in India in at least two out of the ten years prior to the relevant previous year
  • Having satisfied the basic conditions in those years
• Second additional condition: Staying in India for 730 days or more in the preceding seven years
• Satisfying both conditions results in resident and ordinary resident status (ROR)
• Not satisfying both conditions results in not ordinary resident status (RNOR)

Special Category 1

• Applies to Indian citizens leaving India for employment or as crew members on Indian ships
• Only the first basic condition applies:
  • Staying in India for 182 days or more in the relevant previous year, you are declared a resident
• If the first condition is not met, the individual is directly declared a non-resident (NR)
• For crew members, the Continuous Discharge Certificate (CDC) determines the days spent outside India Date of joining & signing off are both considered outside
• The date of joining & signing off is proof you are not in India

Special Category 2

• Applies to Persons of Indian Origin (PIO) or Indian citizens visiting India
• Step 1: If the individual stays in India for 182 days or more in the relevant previous year, normal rules apply:
  • Check if you are resident + additional conditions check
• Step 2: If the stay is less than 182 days, special rules apply: 120 days stay in relevant previous year and fulfill 3 conditions to be RNOR
• Condition 1: stay of 120 days or more in the relevant previous year
• Condition 2: stay of 365 days or more in the preceding four years
• Condition 3: Indian income exceeding ₹15 lakh If any of the above is not satisfied, the individual is a non-resident (NR)
• It should be noted that it should EXCEED and not EQUAL

Definition of Person of Indian Origin (PIO)

• The individual, their parents, or their grandparents were born in undivided India
• Undivided India refers to the territory before August 14, 1947
• India before partition

Indian Income Calculation for Special Category 2

• Includes foreign business income with control in India
• Includes foreign professional income with setup in India

Deemed Resident

• Special category: A citizen of India is deemed a resident if they meet certain conditions
• Condition 1: They are an Indian citizen
• Condition 2: Their Indian income exceeds ₹15 lakh (including foreign business income controlled from India or foreign professional income with setup in India)
• Condition 3: They are not liable to tax in any other country due to their domicile or residence
• If these conditions are met, the individual is considered an RNOR regardless of their stay in India
• Deemed resident status applies only to Indian citizens, not PIOs

HUF Residential Status

• Depends on the location of control and management
• If control is entirely or partly in India, the HUF is resident
• If control is entirely outside India, the HUF is a non-resident
• Control means top-level management decisions
• Ordinary/Not Ordinary Resident status depends on whether the Karta meets additional conditions
• The additional conditions are if your Karta satisfies resident + additinal conditions
• Both should be satisfied

Firm AOP BOI Local Authority Artificial Juridical Person's Residential Status

• Depends on location of control and management
• In India or Outside India, it is either Resident or Non-Resident

Company Residential Status

• Indian Company: Always a resident, regardless of control location, etc
• Foreign Company: Depends on Place of Effective Management (POEM) majority of top-level management decisions are made from

Scope of Total Income

• Concerns which income is taxable based on residential status
• Depends on where income accrues/arises, is received, or is deemed to do so

Determining Indian Income

• Income is Indian if it accrues/arises or is received in India
• Accrual/arising refers to the source of income
• Receipt refers to the first receipt of income
• If either accrual/arising or receipt occurs in India, it is Indian income
• If both occur outside India, it's foreign income

Scope of Taxation Based on Residential Status

• All income is taxed irrespective of status
• Resident and Ordinarily Resident (ROR): Indian and foreign income are taxed
• Non-resident (NR): Only Indian income is taxed
• Resident but Not Ordinarily Resident (RNOR): Generally, foreign income is not taxed EXCEPT:
  • Foreign business income with control in India
  • Foreign professional income with setup in India

Section 9 - Deemed Accrual of Income in India

• Certain incomes always considered Indian
• Business connection in India
• Exemption: purchasing goods in India for export
• However, India sales via agents/distributors count as a business connection
• Property/asset/source of income in India
• Income always taxable regardless you are ROR, NR
• Services rendered in
• Salarie earned in India
• Assets are in India
• Government of India paying salary to Indian Citizen for services rendered outside India
• Interest on loan paid by Government of India - always deemed to accrue in India
• Royalty or technical fees - Always deemed to accrue in India.
• Deemed to accure in India
• Has to be used for business or profession in India

Income under the Head Salaries- Important Concepts

• Key concepts relating to Salaries, such as Employer-Employee relationship
• Full time/Part Time Employment Forgoing of Salary,
• Surrender of Salary,
• Salary Paid tax-free
• Place of Accrual of Salary

Employer-Employee Relationship

• Income taxable under the head ""Salaries"" hinges on existence of an employer-employee relationship
• It's determined by the contract's nature (Contract of vs for service):
  • Contract of Service: Employer-employee relation exists, payment is salary.
  • Contract for Service: Professional relationship, payment is fees (taxable under PGBP).

Distinctions in Service Contracts

• Contract of service emphasizes order and instruction from the employer, with the employee's work closely controlled by their direction.
• Under contract of service, you are an employee
• Contract for service emphasizes the professional relationship

Implications of Employment Types

• Full-time vs part-time status irrelevant if there is an employer-employee relationship
• All earnings taxable under Salaries.

Forgoing vs Surender of Salary

• Forego is different from Surrendered of Salary. Forgoing or 'waving' the salary is viewed as an application of income (taxable), after service has been rendered.
• Surrender of Salary to the Central Government (under voluntary, surrender Act ) is exempt from tax.

Salary Paid Tax-Free

• Where an employer pays the employee's tax alongside their salary
• The tax paid by the employer is a perquisite for the employee
• Added to the employee's salary for tax calculation.
• The employee receives a credit for tax paid by the employer, being responsible for any remaining tax liability
• Puts the responsiblity of outstanding taxes on the employee

Place of Accrual of Salary

• Salary accrues where services are rendered
• Except where an Indian citizen is serving the Government of India outside of India (deemed to accrue in India) Income is taxable where it is accrued

Basis of Charge (Section 15)

• Defines the conditions under which salary is taxed, emphasizing either the due basis or receipt basis, whichever comes earlier.
• If salary is taxed on a due basis but not yet received, it won't be taxed again upon it's first receipt.
• The same principle applies in reverse, avoiding double taxation on salary

Arrear of Salary

• If you receive increase from previous years (retroactive payment), you' ll be paying the amount on a receipt basis.
• You'll have tax relief via section 89

Allowances

• Fixed monetary payments to meet specific expenses
• Differes on tax implications
• Fully taxable alowances
• Fully exempt allowanances
• Partially exempt allowances

Fully Taxable Allowances

• Serveant allowances
• Dearess Relief Relief
• Entertainment Allowances
• Not based on if you spent the money or not, always taxable
• Meal allowances
• Telephone allowances
• Medical allowances
• City compensatory alllowances High cost of living allowances Overseas allowances
• The rest are just for reading puposes

Fully Exempted Allowances

• All allowances for High court and supreme court judges
• UNO allowances
• Citizens giving services outisde of the Gov, but get Allowance

Official Allowances

• Partly exempt, partly taxable, the general rule is:
• The lesser of the amount received & expensed for purposes is exempt. Divided into two catergories - RAHUT, DTC RAHUT - Research, Academic, Helper, Uniform, Transport ONLY EXEMPT UNDER THE OLD REGIME, no ememption is allowed for RAHUT DTC - Daily, Traveling, Conveyance. Ememptions for both New and Old Tax regimes

Allowences for Personal Nature

• The same general rule for official allowences applies, using set limits
• The actual expense incurred here does not matter
• Education - 100 per month, PER CHILD
• Hostel Allowances - 300 month, PER CHILD
• Remember that if you recieive these as a lump sum, you can divide and make adjustments acordingly across the allowances

Transport Allownaces

• Fully Taxable with no ememptions
• EXCEPTION - Blind/ Handicapped emplyees get assistance though 3200 a mo ememption
• The above exemption does apply for both old and new regimes

Outstaion Allowances

• Provided to employees in transportaion (drivers, pilots etc etc.)

• Least of the following happens Recieved Amount * 70% Or 10,000

• EXEMPT from tax

Undergound Allownaces

• Used for MINE Workers
• Emempt upto 800 a month
• Follows the same as above example as others

Tribal Areas Allowances

• Upto 200, Exempt

ALL Alownaces for Preonal Nature

• Emempt under Old Tax Regime ONLY, execpt allowences for disability

HRA

• ONLY exempt under old tax regime.
• Has ites own set of rules and calculations, cannot take place under 115BAC and so on.

HRA Exemptions

• Least of the following is exemmpt Rent paid - 10% salary ;;;
• Actual Received
• In Metro [Delhi , Mumbia , etc ) 50% , rest 40%

HRA Salarly

• Basic - DA, Commissions
• For adjustments, if ANY Componenets changed , you can calculate accordingly
• HRA 4 things depend on Location, Rent Price , HRA RECIEEVED< SALARY

Deduction under section 16 to Grross Salary

1. • standard decduction
2. • emtertainers allowance
3. • profesion tax

• ONLY under old tax regime
• if Profesional tax is payed via someone else, it would fall under perquite for employee

Retirement Benefits

• Greutuity - Always a government emp

Grey Tuitity

a) Goverment Emp, so fullly exempt of any kind b) Other Employee POGA covered ( payment of greatuity act) Lease of these

• 20 Lac GRE paid (amount is not correct) 15-26 x Last Salary x comp completed years.
• Remember more than 6 months - is full year. - ALWAYS APPLY FULL DA< RETIRE or NOT
• No need for da retiring always included - c) NOT COVERED> -same deal only change half * AVg 10/months
• Also here - part not 6 months not considered.
• Also Important life time benefit up2 20L
• All that needs to be remembered

1. FULLY TAXABLE , GOVER< NOT -. 2 - POGA - and 3 different calc 3 - Nonpoga- avg and all other rules.

PENSION

• ANNOITED.
• FULL, TAXABLE.
• COMMUTED.
• LUmp Sum. Exempt 10 10 A - but for NGE - some other process for taxation a) graituitty. - 1-3 - total b) no gra - total - 1-2 how to find total ?

LIec Encashment

Emption 10 (10AA) only Old Reg, only NGE Gov - EXEMPT full. NGE- following all same thing. max 25Lac. a) leave.in credit- availabe - used - all that

retrenchmet is self study 10 10 b voluntarily. too

Provident funcs - Both regimens Employee -> ATC benefit er-> not at all Int-> always, if < specified If >, then taxable- but limited to certain rate withdraw -> all exempt

RUPF- ER,NOT TAXED> TAXED AL VITH EE< noo int-> with hold.

• IMPORTANT PART - a - ER contribution all added to profit in lieu of Salary b - ee contr no- cause its already deducted in any means of getting deduction

what if er contr not used ? limit is 25000

Perqsite:

FREER and Contradictoal Accomdotiant.

All government - Lienc fees other - how you going to consider ?

If onwed employe- - a - based on city and % of salary b - taken by Rent < also rember per annum on cost

• how to allicate each time and calculate things
• if Tax Payed under salary- consider as add and caculte

Section 33 - Deductions:

Following may be made

• 1. REpaits and INsrurance 2 - Rent, for equipment
• Al these are usually 37< but not too imp

SECTION -32 THE BIG BOY ( DEPRECIATIONS_9

• Ownen ship mandatory ( not in title, but use)
• All those that are to be used under the above conditions, under the section
• You MUST make the cacula, not optional. cacualte it ,

DEPRECIATION ALLOWED ONLY WHEN PUT TO GOOD USE

3 methods Wdva block - for tangibles, not INTANG

how to work ? opening WDV> additions, ptu , nonptu = no dept. dedut sales

then apply dept. NO DEPT ON NON>PTPU

• Also the rule applied where if soled entire block -> STC and STCL ( not L< Long terms..)

WHAT , If assets not good but sales > well sales = 0 and still stc gl

depr rate- what, and method - mostly WDA residental premis -> 5 comm 10 int 25.

Addition DEPT ( manfucaters)

20%> get immediately, and first yaer as wel If less thnan 180. Split of 10<>10 All ships exemp.

Actual csot- - if 3 has any sub then u got. INTEREST. UPTO PUSH YOU NEED OT REMENber. Also , the interms need to be accounted before. PT use.

• • MOST EXAMS IMPORTANT.

PRIVATE BUULIDNGG TO PRBATE> NOSTINAAL DEPT.

Hotel accomodation from outisde- is 24percent of salaries

LTC< some. exemptions for all

Other perqsities

• Education - is very detailed - refer this a lot !

1 - employ - NO 2- FAMILY_> FULLYTAX 3 childrens ed-> MAX -2 PER per 100

432 - if you can follow. then fine, or 3 the tax..

• Also Rember in 1.70 - for less for all if so , just take that and minus, no need for 300<
• Remember all personal allowance > not perqauste as old regime

USE OF.

• ER ASSET" - 10%
• SELLING PRICE_dep - more to study.

MEDICAL FAI> EMPLOYEE Hospital NO> GOVERNEMT< no>>.. apved

• IF out of indian > then 8,

LTC> is 2 times on one year /

Depreciations important For motors - 22percent at the beginging< more imprtatant.

• More to self study

IF >7.5, IN SUP ANNUNIT> fund then.

• all above are. 25 perrcent tax. if they are excess value, on any account.

SECTION S<

• you cant accept a caash payment =10k

#HEAD OTHER SECT>

ALL INC TAX heree;

35

###Section 45 - Capital Gain:

Need : transfer >.capital assets

• consisiderations not important if A= is for sale then > profit
• if no = then other case apply (483 for some parts )

Transfers

RELICH. Ex> Giving and giving up.

• What is - transfer ( secition 247).
• transfer of - capital assests..

Exceptions :

• all that applies under section 47 is not taxal
• Also the points were mention. - is good if alls in 3 years,

Transferer date, the most value point And with whom

Capital Asset (Not)

1. -Stock in Trade ( PGbsp)
2. Personal moved effect ( Watch , car, = But Jewellery , Aretic- sculp- drawing pain> ANY kind of. 3 - agrilclut land - 4- gold b bond ( if they are) for ( not all) as well

#SHORT TERM

• List is still good.
• long - every other assets that is here for u "" IF" B4 July all old rules, for LTGC' But after - ( 22.july - not indexed ) < then use 11513 "" 20percent or 12,5
• Important * is just for Tax and nothing =. NOT> caculatingg.

#Other souuces

NO > -36 but, with a proper good to get all things done<> for.

31. what and where > #A all things that , it wont go

40 B

Payment of Salary or Interest to Partner

• Interest to Parther ALowed: IF Deed> & if if they are not then - they need to fall for - 35> ADD 58K< from

6. if the the time you. paym , the then.. ALL -

• • SECTION is > A must

If. er-> then >

6; RENT_L

Lesser than one- with those facts. +

Section,

1. what is to follow or not at all ?

3- A. the part is important. because > people are the main focus

Also , please note.

This notes are to cover and recap stuff ONLY, please follow and go to videos - and follow. the text.