Residential Status in India
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Questions and Answers

What is the maximum period for hotel accommodation to be non-taxable as a perquisite?

  • 30 days
  • 5 days
  • 10 days
  • 15 days (correct)

    • What is the taxable condition for free meals provided to employees?

  • If the cost of the meal exceeds ₹ 50 (correct)
  • If the employee opts out of the default regime
  • If the meals are provided during working hours
  • If the meals are provided in a hotel

    • What is the treatment of cash gifts given to employees?

  • Taxable only if specified
  • Exempt regardless of amount
  • Fully taxable (correct)
  • Exempt up to ₹ 5,000 per annum

    • When can an employer exclude perquisite value for interest-free loans given to employees?

    <p>For loans up to ₹ 20,000</p> Signup and view all the answers

    What portion of the perquisite value is applicable for employer's assets used by employees?

    <p>10% of actual cost</p> Signup and view all the answers

    Under which condition does the perquisite value of travelling facilities become taxable?

    <p>If the journey is for personal reasons</p> Signup and view all the answers

    What is the perquisite calculation for a concessional loan given by an employer?

    <p>Sum of monthly outstanding balance x (SBI Rate – ER Rate) x 1/12</p> Signup and view all the answers

    What is the perquisite value of gifts in kind received by an employee?

    <p>Exempt up to ₹ 5,000 per annum</p> Signup and view all the answers

    What is one of the conditions for an individual to be considered a resident in India?

    <p>He stays in India for 182 days or more during the relevant previous year.</p> Signup and view all the answers

    Which of the following exceptions allows an individual not to count certain days when calculating their stay in India?

    <p>A citizen leaving India as a crew member of an Indian ship.</p> Signup and view all the answers

    To be considered a resident and ordinarily resident, which two conditions must be satisfied?

    <p>Resident in any 2 out of the last 10 previous years and total stay in India of 730 days.</p> Signup and view all the answers

    Which of the following defines a deemed resident according to Section 6(1A)?

    <p>An Indian citizen whose total income exceeds 15 Lakh and is a non-taxpayer in any country.</p> Signup and view all the answers

    What is necessary for an HUF to be deemed a resident in India?

    <p>Control and management of affairs must be situated wholly or partly in India.</p> Signup and view all the answers

    What determines the residential status of a partnership firm or AOP in India?

    <p>Control and management must be wholly or partially in India.</p> Signup and view all the answers

    Which type of company is always considered a resident in India?

    <p>Indian companies.</p> Signup and view all the answers

    What must an individual do to satisfy the stay criteria for being a resident for tax purposes?

    <p>Stay in India for 60 days during the relevant previous year and 365 days during the preceding four years.</p> Signup and view all the answers

    Which condition does NOT allow a car used for official purposes to be considered a perquisite?

    <p>Car is used 100% for official use</p> Signup and view all the answers

    Which of the following is a requirement for a property to be charged under Income from House Property?

    <p>The property must not be used for business or profession of the assessee</p> Signup and view all the answers

    What is the impact of municipal taxes on the Gross Annual Value (GAV)?

    <p>It is deducted from the GAV if paid by the owner</p> Signup and view all the answers

    How is the Gross Annual Value (GAV) determined if actual rent received is lower than expected rent due to vacancy?

    <p>GAV is the actual rent received</p> Signup and view all the answers

    Which of the following statements is true regarding Net Annual Value (NAV)?

    <p>NAV is calculated after deducting standard deduction and interest on capital borrowed from GAV</p> Signup and view all the answers

    What happens to the NAV of House Property held as SIT if it is not let out for two years after the completion certificate is issued?

    <p>NAV is considered as 0 for two years</p> Signup and view all the answers

    Which method is NOT used to calculate the Gross Annual Value (GAV)?

    <p>Projected future rental income based on market trends</p> Signup and view all the answers

    If a property is lying vacant for a certain period, what is the first step in calculating income from that property?

    <p>Calculate Expected Rent for the entire year</p> Signup and view all the answers

    What is the standard deduction allowed for recovery of unrealized rent or arrears of rent received?

    <p>30%</p> Signup and view all the answers

    In what manner is accumulated interest allowed for a loan during the pre-construction period?

    <p>In 5 installments after completion of construction</p> Signup and view all the answers

    What is the maximum deduction allowed for self-occupied house property if the loan is taken on or after April 1, 1999 and the construction is completed within 5 years?

    <p>Rs. 2 Lakh</p> Signup and view all the answers

    Which of the following is NOT allowed as a deduction when calculating interest on capital borrowed?

    <p>Brokerage/commission for arrangement of loans</p> Signup and view all the answers

    How is income calculated for co-owned properties that are let out?

    <p>Individually for each co-owner based on ownership rights</p> Signup and view all the answers

    What is the treatment of interest if the loan is taken from abroad?

    <p>Interest is deductible only if TDS is deducted</p> Signup and view all the answers

    In a co-owned property that is self-occupied, how is the interest on capital borrowed deducted?

    <p>Deduction is based on the ownership ratio</p> Signup and view all the answers

    What happens when a house property is transferred to a spouse?

    <p>The transferor spouse continues as the deemed owner</p> Signup and view all the answers

    What is the capital gains tax classification when a unit is sold after holding it for more than 36 months?

    <p>Long term capital gain</p> Signup and view all the answers

    In a slump sale, how is the fair value consideration (FVC) determined?

    <p>The higher value between the sales consideration received or fair market value of the capital asset transferred</p> Signup and view all the answers

    What must be ignored when determining capital gains in a slump sale?

    <p>Any revaluation of specific assets</p> Signup and view all the answers

    What is the cost of acquisition (COA) for a business goodwill under specific depreciation claims?

    <p>Purchase price minus total depreciation allowed</p> Signup and view all the answers

    What happens to a depreciation block when all assets of that block are transferred?

    <p>It ceases to exist and no further depreciation is allowed</p> Signup and view all the answers

    What is the implication when the sale price of a depreciable asset exceeds the block value?

    <p>Short term capital gain arises under section 50</p> Signup and view all the answers

    Which of the following is NOT considered a cost of acquisition for self-generated assets?

    <p>Purchase agreement documentation</p> Signup and view all the answers

    What cannot be claimed as the cost of acquisition for a revalued asset in a capital gains situation?

    <p>The revalued price as on the date of sale</p> Signup and view all the answers

    Study Notes

    Residential Status of Individuals

    • An individual is considered a resident in India if they meet either of these conditions:
      • Staying in India for 182 days or more during the relevant previous year (RPY)
      • Staying in India for 60 days or more in the RPY and for 365 days or more in the four years preceding the RPY
    • The period of stay doesn't need to be continuous. Both the departure and arrival dates are considered.
    • Exceptions to the basic condition: The 182-day rule is not considered for Indian citizens who leave India for employment or as a crew member of an Indian ship.
      • In the case of a crew member of a foreign-going ship, the Date of Joining and Date of Signing Off as per the continuous discharge certificate shall be considered as outside India.
    • Indian income includes foreign business income controlled in India or foreign professional income with a setup in India.

    Deemed Resident

    • An individual is considered a non-ordinary resident (NOR) if they meet all of the following conditions:
      • They are an Indian citizen.
      • Their total income (excluding income from foreign sources, but including foreign business income controlled in India) exceeds ₹15 Lakh.
      • They are not paying tax in any country due to their domicile, residence, or similar factors.

    Residential Status of HUF

    • An HUF is considered resident in India if the control and management (C&M) of its affairs are wholly or partly situated in India. Otherwise, it is considered non-resident.
    • An HUF is considered a resident and ordinarily resident (ROR) if the Karta (manager) meets both of these additional conditions:
      • They are a resident in any two out of the last 10 previous years.
      • Their total stay in India in the last seven years is 730 days or more.

    Residential Status of Partnership Firm or BOI or AOP

    • A partnership firm, body of individuals (BOI), or association of persons (AOP) is considered resident if the C&M is wholly or partly situated in India. Otherwise, they are considered non-resident.

    Residential Status Of Company

    • An Indian company is always considered resident.
    • Perquisites are not taxable if both of these conditions are met:
      • Hotel accommodation is for a period not exceeding 15 days in total.
      • The employee has been transferred from one place to another.

    Fringe Benefits Under Section 17(2)(viii)

    • Interest-free or concessional loans:
      • Perquisite = Sum of Monthly Outstanding balance x (SBI Rate – ER Rate) x 1/12
      • Exceptions:
        • No perquisite is computed if the aggregate amount of all such loans during a particular year is up to ₹20,000.
        • If the employer has given a loan for the treatment of a specified disease given under rule 3A, there is no perquisite value.
    • Free food or refreshment:
      • Free refreshments, tea or non-alcoholic beverages/snacks during working hours are exempt.
      • Free meals are taxable as follows:
        • Perquisite = (Cost of Meal – Amount Recovered).
        • However, perquisite up to ₹50 per meal is exempt [If Assessee Opts Out From Default Regime].
    • Facility of travelling, touring, accommodation (holiday home) etc.
      • Perquisite value is the actual expenditure incurred by the employer, reduced by the amount recovered from the employee.
      • If an employee is on an official tour and any member of their household has accompanied them, the perquisite value is the amount spent on the family member.
      • If an official tour is extended for a personal purpose, the expenditure for the extended part of the tour is taxable.
    • Gifts to the employees:
      • Cash gift = Fully Taxable
      • Kind Gift = Exempt Up to Rs 5000 p.a.
    • Credit card facility:
      • Perquisite Value = Amount spent for personal use of the employee.
    • Club facilities:
      • Perquisite Value = Amount spent for personal use of the employee.
    • Use of employer’s assets by the employees:
      • Asset Perquisite Laptop / Computer NIL Other 10% p.a.of actual cost of such asset (or hire charges paid by ER) Less: amount recovered from EE
    • Note: If a car is used for 100% official use, then it shall not be considered as a perquisite.

    Income Under House Property (Section 22)

    • Basis Of Charge:
      • Property must consist of any building or land appurtenant thereto.
      • The assessee must be the owner or deemed owner.
      • The house property must be used for any purpose except the business or profession of the assessee.
    • Note: The annual value of house property held as short-term investment (SIT) is taxable under this head. However, as per Section 23(5), the net annual value (NAV) of HP held as SIT shall be Nil for two years from the end of the FY in which the completion certificate is issued, if it is not let out for this period.
    • Computation of Income Under House Property:
      • Particulars Rs. Gross Annual Value (GAV) - Less: Municipal Tax (MT) Paid By Owner - Net Annual Value (NAV) - Less: Standard Deduction u/s 24(a) - Less: Interest On Capital Borrowed u/s 24(b) - Income U/H House Property -
      • Calculation Of GAV (Section 23)
        • Fair Rent -
        • Municipal Value -
        • Standard Rent -
        • Expected Rent (Higher of 1 or 2 but restricted to 3) -
        • Actual rent Received or Receivable -
        • GAV (Higher of 4 or 5)
    • Note: Municipal Taxes
      • Deducted from GAV if paid by the owner during the previous year.
      • Deductible in the PY of payment, even if they relate to past years.
      • Income Of House Lying Vacant For Some Period:
        • Calculate Expected Rent (ER) for the whole year.
        • Calculate Actual Rent (AR) for the let-out period.
        • Compare Expected Rent and AR:
          • Situation 1: If AR > ER, then, GAV = AR.
          • Situation 2: If AR < ER due to vacancy, then GAV = AR.
      • Tax liability in respect of arrears of rent / Recovery of Unrealised Rent (Section 25A)
        • The recovery of unrealized rent or arrears of rent received shall be taxable in the year of receipt after a standard deduction of 30%.

    Statutory Deduction (Section 24(a))

    • The assessee is allowed a notional expenditure equal to 30% of NAV.

    Interest On Capital Borrowed (Section 24(b))

    • Pre-Construction Period (from the date of the loan till the PY preceding the PY in which construction is completed): Accumulated interest is allowed in 5 installments commencing from the year in which construction is completed.
    • Current Year interest (Relevant PY): Allowed in the same previous year on a due basis.
    • Note:
      • Interest on a fresh loan taken to repay the original loan is allowed.
      • Brokerage/commission for the arrangement of a loan is NOT allowed.
      • Interest on unpaid interest is NOT allowed.
      • If the loan is taken from outside India, interest is deductible only if TDS is deducted.

    Restriction of Deduction in Case of Self Occupied House Property

    Situation Max. Deduction
    Loan for acquisition or construction of HP taken on/after 1.4.99 & such acquisition or construction is completed within five years from the end of the FY in which the loan is taken. Rs. 2 Lakh
    Other Cases Rs. 30,000
    • Note: ICB in respect of SO property is allowed only under the old regime.

    Co-owned House Property

    Co-owned Property Is Let Out Co-owned Property is Self Occupied
    1. Calculate the income of the let-out property as a single owner. 1. Calculated for each co-owner separately.
    2. Income calculated is divided between each co-owner on the basis of ownership right. 2. NAV= NIL
    3. Each co-owner is entitled to a deduction of ICB of Rs.30,000 or Rs. 2 lakh respectively (only in the case of the old regime).

    Deemed Owner (Section 27)

    • Transfer of HP to Spouse: The transferor spouse is deemed to be the owner of the HP transferred.
      • The deemed value (DV) adopted by a Valuation officer is used if the transfer doesn't exceed the SDV but exceeds the actual sale value.
      • Actual sales consideration is used if the DV is less than the actual sale value.

    Cost Of Acquisition (COA) of Self-Generated Assets

    Asset COA COI
    Brand name & Trademark associated with the business or profession Nil NA
    Tenancy rights Nil NA
    Goodwill of a business or profession Nil Nil
    Right to manufacture, produce or process any article or thing, for a consideration (Patent) Nil Nil
    Right to carry on any business or profession Nil Nil
    • Note:
      • If the asset is purchased, the purchase price is the COA. In the case of goodwill of a business or profession on which depreciation is claimed, the cost of acquisition of such goodwill will be the amount of the purchase price reduced by the total amount of depreciation (up to PY 19-20) obtained by the assessee u/s 32(1).
      • The FMV (fair market value) as of 1-4-2001 is ignored.

    Capital Gain In Case Of Slump Sale [Section 50B

    • When the whole unit is sold at a lumpsum without valuing each asset individually it is called a slump sale.
      • FVC (fair value consideration) is the higher of the following:
        • Sales consideration received OR FMV of the capital asset transferred.
      • COA (cost of acquisition) is the net worth of the unit. However, if any asset has been revalued, this revaluation is ignored.
    • If the unit is sold after being held for more than 36 months, it's considered a long-term capital gain, otherwise, it's a short-term capital gain.
    • No indexation benefit is available even in the case of a long-term capital gain.

    Capital Gain In Case Of Depreciable Asset

    • All the assets of the block are transferred: If all the assets in a block are transferred during the previous year, the block ceases to exist, and depreciation won't be allowed. This can happen in the following situations:
      • STCG under Section 50: When sale price > Block Value
      • STCL under Section 50: When sale price < Block Value
    • Part of the assets are transferred:
      • The block does not cease to exist. Depreciation shall be allowed on the remaining assets of the block at the rate prescribed in the relevant rule.
      • STCG: In this case, the difference between the Sale Price and the WDV of the assets transferred is considered capital gains tax.
      • STCL: In this case, the difference between the Sale Price and the WDV of the assets transferred is considered capital losses.
      • LTCG: Capital gains accrued on such assets held for more than 36 Months.
      • LTCL: Capital losses accrued on such assets held for more than 36 Months.

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    Description

    Explore the various criteria that determine the residential status of individuals in India, including the nuances of the 182-day rule and exceptions for certain professionals. This quiz also covers the concept of deemed residents and non-ordinary residents under Indian law. Test your understanding of these essential guidelines.

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