| overview |
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taxes in india are of two types, direct tax and indirect tax.
direct tax, like income tax, wealth tax, etc. is those whose burden falls directly on the taxpayer.
the burden of indirect taxes, like service tax, vat, etc. can be passed on to a third party.
the total income of an individual is determined on the basis of his residential status in india. |
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| who is a ‘resident’ for tax purposes? (section 6) |
| (a)individual: |
| 1) an individual is considered as a 'resident' if he is |
| a) |
in india for 182 days or more in a previous year |
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or |
| b) |
in india for 365 days or more in 4 years immediately preceding a previous year and 60 days or more in a previous year |
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| exception: |
| a citizen who leaves india in any year for employment or as a member of the crew of an indian ship or who is abroad and comes on a visit to india, in the previous year, is treated as a resident in that year, if he has been n india for 182 days or more. the second condition in b) above is not functional in such cases. |
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| 2) an individual is considered as 'not ordinarily resident' if neighbor |
| a) |
a non-resident for 9 out of 10 previous years in the immediately preceding previous years |
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or |
| b) |
has been in india for a period of 729 days or less in the seven preceding previous years. |
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| 3) an individual is considered as 'non-resident' if he does not satisfy either of the conditions mentioned in 1) above. |
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| (b)huf/firm/aop: |
| huf/firm/aop is said to be 'resident' in any previous year if it is wholly or partially controlled or managed from india; i.e., it would be a 'non-resident' if control or management is wholly outside india. |
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| (c)company: |
| company is said to be 'resident' in india in previous year if
it is an indian company |
| or |
| management and control is situated wholly in india |
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| taxability of income (section 5): |
| type of income |
tax incidence in case of |
| resident |
resident but not
ordinary resident |
non- resident |
income received or deemed to be received in india, wherever accrued |
taxable |
taxable |
taxable |
income accrued or arisen or deemed to be accrued or arisen in india, wherever received |
taxable |
taxable |
taxable |
income received and accrued outside india from a business/ profession in india |
taxable |
taxable |
exempt |
income received and accrued outside india from a business/ profession outside india |
taxable |
exempt |
exempt |
income earned and received outside india, subsequently remitted to india (at the time of remittance) |
exempt |
exempt |
exempt |
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| computation of income- tax |
income-tax is charged on the total income of a previous year at the rates prescribed for the assessment year. 'assessment year' means the period of 12 months commencing on april 1, every year. 'previous year' is the financial year immediately preceding the assessment year.
a 'resident' tax payer is charged to income-tax on his global income, subject to a double taxation relief in respect of foreign incomes taxed abroad. in the case of a 'non¬resident', income-tax is charged only on incomes received, accruing or arising in india or which are deemed to be received, accrued or arisen in india.
for the purpose of computing total income and charging tax thereon, income from various sources is classified under the following heads: |
| a) |
salaries |
| b) |
income from house property |
| c) |
profits and gains of business or profession |
| d) |
capital gains |
| e) |
income from other sources |
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| these five heads of income are mutually exclusive. if any income falls under one head, it cannot be considered under any other head. income under each head has to be computed as per the provisions under that head. then, subject to provisions of set off of losses between the heads of income, the income under various heads has to be added to arrive at a gross total income. from this gross total income, deductions under chapter via are to be allowed to arrive at the total income. |
| on this total income tax is calculated at the rates specified in the relevant finance act or the rates given in the income tax act itself [as in the case of long term capital gains]. from this tax, rebates and reliefs, if any, allowable under chapter viii are allowed to arrive at the total tax payable by the assessee. the above procedure is summarized below: |
gross total income |
= |
a + b + c + d + e |
total income |
= |
gross total income — deductions under chapter via |
total tax payable |
= |
tax on total income — rebates and reliefs under chapter viii
source: income tax department |
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