DIRECT TAX LAWS

AY 2021-2022

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mean, without written permission of author and publishers.
 CONTENTS

Chapter 1 Introduction

Chapter 2 Residential Status

Chapter 3 Scope of Total Income

Chapter 4 Salary

Chapter 5 Income from House Property

Chapter 6 Profits & Gains Business or Profession

Chapter 7 Capital Gains

Chapter 8 Income from Other Sources

Chapter 9 Taxability of Gifts

Chapter 10 Clubbing of Income

Chapter 11 Set Off of Losses

Chapter 12 Deductions u/s 80C to 80U

Chapter 13 Exemptions

Chapter 14 Advance Tax & Interest

Chapter 15 TDS

Chapter 16 DTAA

Chapter 17 Firm

Chapter 18 Company & MAT

Chapter 19 AMT

Chapter 20 Dividend

Chapter 21 Return of Income

Chapter 22 Assessment Procedure

Chapter 23 Appeals

Chapter 24 Non Resident

Chapter 25 Advance Ruling

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Chapter 26 Transfer Pricing

Chapter 27 Settlement Commission

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 NOTES
KNOWLEDGE ACADEMY INTRODUCTION

DEFINITIONS

CHAPTER 1

INTRODUCTION
What is Tax?
 Taxes are considered to be the “cost of living in a society”.
 Taxes are levied by the Governments to meet the common welfare
expenditure of the society.

TYPES OF TAXES

DIRECT INDIRECT
TAXES TAXES
GOODS AND
INCOME TAX SERVICES TAX
(GST)

TAX ON
UNDISCLOSED
CUSTOMS DUTY
FOREIGN INCOME
AND ASSETS

DIRECT TAXES
If tax is levied directly on the income or wealth of a person ,then, it is a direct tax.

INDIRECT TAXES
* If tax is levied on the price of a good or service, then, it is an indirect tax
* The person paying the tax passes on the incidence to another person.
 Why are taxes levied?
They constitute the basic source of revenue to the Government. for
meeting the expenses of Government like defence, provision of education,
health-care, infrastructure facilities like roads, dams etc.

Power to levy taxes

 Constitution of India gives the power to levy and collect taxes,
whether direct or indirect, to the Central and State
Government.
 The Parliament and State Legislatures are
empowered to make laws on the matters
enumerated in the Seventh Schedule by virtue of
Article 246 of the Constitution of India.
 Seventh Schedule to Article 246 contains three lists
which enumerate the matters under which the
Parliament and the State Legislatures have the authority
to make laws for the purpose of levy of taxes.

UNION LISTS STATE LISTS CONCURRENT LIST

Overview of Income-tax law in India

COMPONENTS OF INCOME TAX LAW

INCOME TAX ANNUAL INCOME TAX

ACT FINANCE ACT RULES

DECISIONS
CIRCULARS/
LEGAL OF
NOTIFICATIONS
COURTS

Income-tax Act, 1961

The levy of income-tax in India is governed by the Income-tax Act, 1961. In this book, we
shall briefly refer to this as the Act.

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  The levy of income-tax in India is governed by the Income-tax
Act, 1961.

 It contains sections 1 to 298 and XIV schedules.

The Finance Act

* Every year, the Finance Minister of the Government of India introduces
the Finance Bill in the Parliament’s Budget Session

* . When the Finance Bill is passed by both the houses of the Parliament and
gets the assent of the President, it becomes the Finance Act.

The First Schedule to the Finance Act

Four Parts

PART II
PART I
RATE FOR TDS FOR C.F.Y
TAX RATE FOR C.A.Y

PART III PART IV

TDS for Salaries and Adv. Tax Rules for computing Net
Computation Agriculture Income

Income-tax Rules, 1962

The administration of direct taxes is looked after by the
Central Board of Direct Taxes (CBDT).
 The CBDT is empowered to make rules for carrying
out the purposes of the Act.
 For the proper administration of the Income-tax Act,
1961, the CBDT frames rules from time to time. These
rules are collectively called Income-tax Rules,
1962.
 It is important to keep in mind that along with the

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 Income-tax Act, 1961, these rules should also be
studied.

Circulars and Notification

Circulars
Issued for certain specific problems and clarify doubts.
Issued for officers.(binding on them and not on Assessee).

Notifications
Issued by CG/CBDT to give effect to the provision of the Act.
Or to make or amend rule for the purpose of the Act.
Case Laws
CASE LAWS
Decisions given by court.

1. Levy of Income-tax
Income-tax is a tax levied on the total income of the previous year of every person
(Section 4).
The procedure for computation of total income of an
individual for the purpose of levy of income-tax –

Step 1 – Determination of residential status

RESIDENTIAL STATUS UNDER THE INCOME TAX ACT, 1961

RESIDENT NON-RESIDENT

RESIDENT AND ORDINARILYRESIDENT RESIDENT BUT NOT ORDINARILY RESIDENT

Step 2 – Classification of income under different heads

HEADS OF INCOME

INCOME FROM PROFITS AND GAINS

SALARIES FROM BUSINESS OR CAPITAL INCOME FROM OTHER
HOUSE PROPERTY GAINS
PROFESSION SOURCES

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Step 3– Computation of income under each head
 Income is to be computed in accordance with the provisions
governing a particular head of income.
 Exemptions: There are certain incomes which are wholly exempt from
income-tax e.g. agricultural income.
 Also, some incomes are partially exempt from income-tax e.g. House Rent
Allowance, Education Allowance
 Deductions: There are deductions and allowances prescribed under each head of
income. For example, while calculating income from house property, municipal
taxes and interest on loan are allowed as deduction.

Step 4 – Clubbing of income of spouse, minor child etc.

Some taxpayers in the higher income bracket have a tendency to divert
some portion of their income to their spouse, minor child etc. to minimize
their tax burden.
In order to prevent such tax avoidance, clubbing provisions have been incorporated in
the Act, under which income arising to certain persons (like spouse, minor child etc.)
Step 5 – Set-off or carry forward and set-off of losses
An assessee may have different sources of income under the same head of income.

He may have profit from one source and loss from the other. For instance, an assessee
may have profit from his textile business and loss from his printing business.

This loss can be set-off against the profits of textile business to arrive at the
net income chargeable under the head “Profits and gains of business or
profession”.

Step 6 – Computation of Gross Total Income

The final figures of income or loss under each head of income, after allowing
the deductions, allowances and other adjustments, are then aggregated,
after giving effect to the provisions for clubbing of income and set-off and
carry forward of losses, to arrive at the gross total income.

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Step 7 – Deductions from Gross Total Income :
Deduction based on certain payments: LIP, Health Insurance, Donation To charitable Institution etc.
Deduction based on certain incomes : Interest on Savings Bank Account, Royalty Income etc.

Step 8 – Total income

COMPUTATION OF TOTAL INCOME

Determine the residential status

Classify income under five heads

Income from house Profitsandgains from Capital Income from other

Salaries
property business or profession gains sources

Compute income under each head applying the charging &

deeming provisions and providing for permissible deductions/
exemptions there under.

Apply clubbing provisions

Set-off/carry forward and

set-off of losses as per the provisions of the Act

Compute Gross Total Income (GTI)

Less: Deductions from GTI

Total Income (TI)

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 Step 9 – Application of the rates of tax on the total income
Note: There are 2 tax regimes for individuals – Old scheme and New Scheme.

For individuals, HUF etc. there is a slab rate and basic exemption limit. At present, the basic
exemption limit is ` 2,50,000 for individuals.
Total income is more than ` 2,50,000 but less than` 5,00,000 have to pay tax on
their total income in excess of ` 2,50,000 @5%. However, resident individuals in this
slab enjoy full rebate of tax under section 87A.
Total income between ` 5,00,000 and ` 10,00,000 attracts tax @ 20%. The highest rate is
30%, which is attracted in respect of income in excess of ` 10,00,000
For certain special Income (like Long Term Capital Gains, Lottery Income,
Specified Short Term Capital Gains etc.), slab rates are not applicable.

Step 10 - Surcharge / Rebate under section 87A

Surcharge: Surcharge is an additional tax payable over and above the
income- tax. Surcharge is levied as a percentage of income-tax. In case
where the total income of an individual/HUF/AOP/BOI/Artificial Juridical
Person

Total Income of individual/ HUF/ AOP/ BOI/ Surcharge

Artificial Juridical Person

>` 50 lakhs ≤ ` 1 crore 10% of income-tax

>` 1 crore ≤ ` 2 crore 15% of income-tax

>` 2 crore ≤ ` 5 crore 25% of income-tax

> ` 5 crore 37% of income-tax

Rebate under section 87A: Tax relief to the individual who are in the 5% tax slab
section 87A provides a rebate from the tax whose total income does not exceed `
5,00,000. . The rebate shall be equal to the or an amount of 12,500, whichever is less.

Level of Total Income Surcharge Rebate u/s 87A

≤ ` 5,00,000 Not applicable Income-tax on total
income or
` 12,500, whichever is
less
> ` 5,00,000 ≤ ` 50,00,000 Not applicable Not applicable
> ` 50,00,000 ≤ ` 1,00,00,000 10% of income-tax Not applicable
> ` 1,00,00,000 ≤ ` 2,00,00,000 15% of income-tax Not applicable
> ` 2,00,00,000 ≤ ` 5,00,00,000 25% of income-tax Not applicable
> ` 5,00,00,000 37% of income-tax Not applicable

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 Step 11 – Health and education cess on income-tax
Health and education cess on income-tax @4% of income-tax plus surcharge, if
applicable
Step 12 – Advance tax and tax deducted at source

Although the tax liability of an assessee is determined only at the end of the year, tax is
required to be paid in advance in four installments on the basis of estimated income.

Income i.e., on or before 15th June, 15th September, 15th December and 15th March

However, residents opting for presumptive taxation scheme can pay advance tax in one
installment on or before 15th March instead of four installments.

Step 13: Tax Payable/Tax Refundable

After adjusting the advance tax and tax deducted at source, the assessee would arrive at the
amount of net tax payable or refundable.

2. IMPORTANT DEFINITIONS
Assessee [Section 2(7)]
Assessee has been defined in Section 2(7) of the Act
according to which assessee means a person by whom
any tax or any other sum of money (i.e. interest, penalty
etc.) is payable under the Act.
Assessment [Section 2(8)]
This is the procedure by which the income of an assessee is determined by
the Assessing Officer
Person [Section 2(31)]
The term ‘person’ is important from another point of view also viz., the charge
of income-tax is on every ‘person’.

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 Individual
Artificial
juridical HUF
person

Person
Local
Company
Authority

AOP/BOI Firm

Income [Section 2(24)

Definition of Income
At present, the following items of receipts are specifically included in
income:—

(1) Profits and gains.

(2) Dividends.
(3) The value of any perquisite or profit in lieu of salary
(4) Any special allowance or benefit, other than the perquisite included
above, specifically granted to the assessee to meet expenses wholly,
necessarily and exclusively for the performance of the duties of an
office
(5) Any capital gains chargeable under section45.
(6) Any allowance granted to the assessee to meet his personal expenses at
the place where the duties of his office or employment of profit are
ordinarily performed by him
(2) Concept of Income under the Income-tax Act, 1961
 Casual receipt: Income, in general, means a periodic monetary
return which accrues or is expected to accrue regularly from definite
sources.
 However, under the Income-tax Act, 1961, even certain casual receipts

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 which do not arise regularly are treated as income for tax purposes
 e.g. Winnings from lotteries, crossword puzzles.

(3) Concept of revenue and capital receipts

Capital Receipts vis-a-vis Revenue Receipts: Tests to be applied

Profits arising from transactions which are entered into in the course of the business
regularly carried on by the assessee, or
are incidental to, or associated with the business of theassessee would berevenue
receipts chargeabletotax.

Profit arising from sale of shares and securities If the shares were acquired as
an investor or with a view to acquiring a controlling interest or for obtaining a managing or
selling agency or a directorship, the profit or loss on their sale would be of a capital nature.
BUT

if the shares were acquired in the ordinary course of business as a dealer in shares, it would
constitute his stock-in-trade. If the shares were acquired with speculative motive, the
profit or loss (although of a revenue nature)

3. PREVIOUS YEAR AND ASSESSMENT YEAR

PreviousYear Assessment Year

2020-2021 2021-2022
Assessment year
. The year in which income is earned is the previous year and such income is taxable in the
immediately following year which is the assessment year.
Previous year
It means the financial year immediately preceding the
assessment year. As mentioned earlier, the income earned
during the previous year is taxable in the assessment
year.
EXAMPLE:

1. A company secreatary sets up his profession on 1st July, 2020.

Determine the previous year for the assessment year 2021-22.
Ans. The previous year will be from 1.7.2020 to 31.3.2021

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 Previous year for undisclosed sources of income
.
Amount
borrowed or
repaid on
hundi [Section
69D]
Cash
Credits Unexplained
[Section expenditure
68] [Section69C]

Undisclosed
sources of
income
Investment etc.
Unexplained notfully
Investments disclosed
[Section 69] [Section 69B]

Unexplained
money
[Section 69A]

a) Cash Credits(S.68): amount credited in books with no explanation

b) Unexplained Investments(S.69): Investments not recorded in the books of accounts
c) Unexplained Money(S.69A): Money, bullion, jewellery not recorded in books of
accounts
d) Amount of Investments not fully disclosed in books of accounts(S.69B): amount
spent is higher as compared to amount shown in books
e) Unexplained Expenditure(S.69C): no explanation for an expenditure
f) . Amount borrowed /repaid on Hundi: amount taken or repaid other than by cheque
or demand draft. (only once charged as income)

Certain cases when income of a previous year will be assessed in the

previous year itself
1. Shipping Business of NR – 7.5% is deemed income
2. Persons leaving India with no intention to return.
3. AOP/BOI created for a particular event
4. Persons likely to transfer property to avoid tax
5. Discontinued Business.

CHARGE OF INCOME TAX

i. Tax as per the Annual Finance Act
ii. Charge on every person mentioned in Sec.2(31)
iii. Tax on total income earned during the previous year
iv. Tax as per the provisions of the act.

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The slab rates applicable for A.Y. 2021-22 are as follows:
1. Individual/ Hindu Undivided Family (HUF)/ Association of Persons
(AOP)/ Body of Individuals (BOI)/ Artificial Juridical Person
 Individual (Resident or Resident but not Ordinarily Resident or non-
resident), who is of the age of less than 60 years on the last day of the
relevant previous year & for HUF:

Up to Rs. 2,50,000 Nil

Rs. 2,50,001 to Rs. 5,00,000 5%

Rs. 5,00,001 to Rs. 7,50,000 20%

Rs. 7,50,001 to Rs. 10,00,000 20%

Rs. 10,00,001 to Rs. 12,50,000 30%

Rs. 12,50,001 to Rs. 15,00,000 30%

Above Rs. 15,00,000 30%

 who is of the age of 60 years or more but less than 80 years at

any time during the previous year:

Up to Rs. 2,50,000 Nil

Rs. 2,50,001 to Rs. 3,00,000 Nil

Rs. 3,00,001 to Rs. 5,00,000 5%

Rs. 5,00,001 to Rs. 7,50,000 20%

Rs. 7,50,001 to Rs. 10,00,000 20%

Rs. 10,00,001 to Rs. 12,50,000 30%

Rs. 12,50,001 to Rs. 15,00,000 30%

Above Rs. 15,00,000 30%

 who is of the age of 80 years or more at any time during the

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 previous year:

Up to Rs. 2,50,000 Nil

Rs. 2,50,001 to Rs. 5,00,000 Nil

Rs. 5,00,001 to Rs. 7,50,000 20%

Rs. 7,50,001 to Rs. 10,00,000 20%

Rs. 10,00,001 to Rs. 12,50,000 30%

Rs. 12,50,001 to Rs. 15,00,000 30%

Above Rs. 15,00,000 30%

Surcharge:
a) 10% of Income tax where total income exceeds Rs.50 lakh
b) 15% of Income tax where total income exceeds Rs.1 crore
c) 25% of Income tax where total income exceeds Rs.2 crore
d) 37% of Income tax where total income exceeds Rs.5 crore

Education cess: 4% of income tax plus surcharge

2. local authority is Income taxable at 30%.

Surcharge: 12% of Income tax where total income exceeds Rs. 1 crore
Education cess: 4% of tax plus surcharge

3. Tax Rate For Partnership Firm:

A partnership firm (including LLP) is taxable at 30%.

Surcharge: 12% of Income tax where total income exceeds Rs. 1 crore
Education cess: 4% of Income tax plus surcharge

4. Tax Slab Rate for Domestic Company:

A domestic company is taxable at 30%. However, the tax rate is 25% if turnover or
gross receipt of the company does not exceed Rs. 400 crore in the previous year.

If turnover or gross receipt of the company does not exceed Rs. 400 crore in the
25%
previous year 2018-19

If company opted section 115BA (Note 1) 25%

If company opted for section 115BAA (Note 2) 22%

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 If company opted for section 115BAB (Note 3) 15%

Any other domestic company 30%

Income Tax Slab for Co-operative Society

Up to Rs. 10,000 10%

Rs. 10,001 to Rs. 20,000 20%

Above Rs. 20,000 30%

ILLUS 1 Compute the tax liability of Mr. D (aged 37), having total income of
` 5,01,00,000 for the Assessment Year 2021-22. Assume that his total income
comprises of salary income, Income from house property and interest on fixed
deposit. Ignore cess

Computation of tax liability of Mr. D for the A.Y. 2021-22

(A) Tax payable including surcharge on total income of `

5,01,00,000
` 2,50,000 – ` 5,00,000 @ 5% ` 12,500
` 5,00,000 – ` 10,00,000 @ 20% ` 1,00,000
` 10,00,000 – ` 5,01,00,000@30% ` 1,47,30,000
Total ` 1,48,42,500
Add: Surcharge @ 37% ` 54,91,725
2,03,34,225 20334225

(B) Tax Payable on total income of ` 5 crore

[` 12,500 plus
` 1,00,000 plus ` 1,47,00,000) plus surcharge@25%]
18515625
` 1,85,15,625

(C) Excess tax payable (A)-(B) 18,18,600

(D) Marginal Relief (` 18,18,600 – ` 1,00,000, being the amount
of income in excess of ` 5,00,00,000) ` 17,18,600

Tax payable (A) - (D) ` 1,86,15,625

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Page 18
KNOWLEDGE ACADEMY RESIDENTIAL STATUS

RESIDENTIAL STATUS OF AN INDIVIDUAL [SECTION 6(1)]

Resident in India: An individual is resident in India if he satisfies any one of the

basicconditions.

BASIC CONDITIONS
Individual is in India for 182 days or more during the previous year
Individual is in India for 60 days or more during the previous year AND for 365 days
or more during 4 years immediately preceding the previous year.
Notes:
Residential status is to be determined for every previous year separately.
There is no condition that individual should stay regularly or at one place in India.
If exact time of arrival or departure is not known then the day of arrival and day of
departure shall be taken as complete days.

Following are the exceptions to second basic condition. In other words, in following
cases an individual is resident if he is India for 182 days or more during previous year
An Indian citizen who leaves India during the previous year for employment outside
India.
An Indian citizen who leaves India during the previous year as a member of the crew of an
Indian ship.
An Indian citizen or person of Indian origin who visits India during the previous year.
Note: A person is deemed to be of Indian origin if he or any of his parents or grand-
parents were born in undivided India.

Non Resident: If an individual satisfies none of the basic conditions.

Further, if a Resident individual satisfy both of additional conditions then he is resident &
ordinarily resident. However, if he does not satisfy both of additional conditions or satisfy
only one additional condition then he is resident but not ordinarily resident.
ADDITIONAL CONDITIONS

He has been resident in India in at least 2 out of 10 previous years immediately

preceding the relevant previous year.
He has been in India for 730 days or more during 7 years immediately preceding the
relevant previous year.

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 KNOWLEDGE ACADEMY RESIDENTIAL STATUS

RESIDENTIAL STATUS OF A HUF [SECTION 6(2)]

Resident in India: A HUF is resident if control and management of its affairs is wholly or
partly situated in India during relevant previous year.
(Control and management is situated at that place where decisions relating to the affairs of the
HUF are taken.)
Non Resident in India: If control and management of its affairs is wholly situated outside
India during relevant previous year

Further, if KARTA of a resident HUF satisfy both of additional conditions then HUF is
resident & ordinarily resident. However, if he does not satisfy both of additional conditions or
satisfy only one additional condition then HUF is resident but not ordinarily resident.

Amendments w.r.t Finance Act 2020

Sr. Old Provision New Provision
No.
1) A person will be resident if he satisfy any A person will be resident if he satisfy any
one of the following two conditions – one of the following two conditions –
1. If he is in India for 182 days or more 1. If he is in India for 182 days or more
during the previous year OR during the previous year OR
2. If he is in India for 60 days or more in 2. If he is in India for 60 days or more in
previous year and 365 days or more previous year and 365 days or more
during 4 previous years preceding to that during 4 previous years preceding to that
year. year.
Explanation 1 clause (b) – Explanation 1 clause (b) –
A person being a citizen of India, or a A person being a citizen of India, or a
person of Indian origin who, being outside person of Indian origin who, being
India comes on a visit to India in any outside India comes on a visit to India in
previous year, then in his case 60 days in any previous year, then in his case 182
above provision needs to be read as 182 days in above provision needs to be
days. read as 120 days.
Further the application of explanation 1
clause (b) is restricted only to that Indian
citizen or a person of Indian origin whose
total income, other than income from
foreign sources, exceeds Rs. 15 lakhs
during the previous year.

For other Citizens(income less than

15L)
The days will be 182days.

2) Earlier a person can be a resident of India According to new clause (1A) in section 6,
only if he satisfies any of two conditions an India citizen shall be deemed to be the
discussed above in OLD PROVISION, resident if he is not liable to tax in any
AMENDMENT 1 above. other country or territory by reason of his

Page 21
 domicile or residence or any other criteria
of similar nature.
Further the application of New clause (1A)
in section 6 is restricted only to that Indian
citizen or a person of Indian origin whose
total income, other than income from
foreign sources, exceeds Rs. 15 lakhs
during the previous year.
3) As per Section 6, a resident individual or The Finance Act retained the existing two
a Hindu Undivided Family (HUF) is situations and further added two more
deemed as Not Ordinarily Resident in situations to categorize a person as
India, if he satisfies any of the following RBNOR, which are: –
conditions: a) An Indian Citizen or a person of Indian
a) Individual or Karta of HUF has been a origin whose total income (other than
non-resident in India for at least 9 years income from foreign sources) exceeds Rs.
out of 10 years preceding the previous 15 lakhs during the previous year and who
year; OR has been in India for a period of 120 days
b) Individual or Karta of HUF has been in or more but less than 182 days; OR
India for 729 days or less during the period b) An Indian Citizen who is deemed to be
of 7 years preceding the previous year. resident in India as per new Section 6(1A).
Explanation – For the purpose of this section, the expression “Income from
foreign sources” means income which accrues or arises outside India (except income
derived from a business controlled in or a profession set up in India).
Indian Income – Having total income, other than the income from foreign
sources, exceeding fifteen lakh rupees during the previous year.

RESIDENTIAL STATUS OF COMPANY [SECTION 6(3)]

A company is said to be resident in India in any previous year, if:

i.It is an Indian company; or
ii. Its place of effective management, in that year, is in India.
“Place of effective management" means a place where key management and commercial
decisions that are necessary for the conduct of the business of an entity as a whole are, in
substance made.
The POEM is required to be determined each year since the residential status is
required to be ascertained each year.

 Conditions when POEM in India is not applicable to a Company:

o Company is engaged in active business outside India; and
o Majority of Board Meeting are held Outside India.

 Active Business Outside India:
A Company is said to be active business outside India if its passive income is not
more than 50% of the total income of such Company and:
Assets in India are < 50% of the total assets
(Assets will be taken as average of opening and closing);
♦ Employees in India < 50% of the total employees

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(No. of employees will be taken as average of opening and closing);
♦ Payroll Expenses in India < 50% of the total payroll expenses.

Passive Income means Income in relation to transactions of purchase and sale with
Associated Enterprises (AEs) or Income generated from Royalty, Dividend, Interest, Rental
or Capital Gains.

RESIDENTIAL STATUS OF FIRM & EVERY OTHER PERSON

Resident in India: If control and management of its affairs is wholly or partly situated in
India during relevant previous year.
Non Resident in India: If control and management of its affairs is wholly situated outside
India during relevant previous year.

KNOWLEDGE ACADEMY ( NO.1 FOR CS) Page 2.2

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KNOWLEDGE ACADEMY SCOPE OF TOTAL INCOME

INCIDENCE OF TAX OR SCOPE OF TOTAL INCOME [SECTION 5]

ROR assessee is assessable to tax in respect of income which

I .is received or deemed to be received in India by him or on his
behalf. ii. accrues or arises or deemed to accrue or arise to him in India.
iii .accrues or arises to him outside India.

RNOR assessee is assessable to tax in respect of income which

is received or deemed to be received in India by him or on his behalf,
accrues or arises or deemed to accrue or arise to him in India.
accrues or arises to him or received outside India from a business controlled or
profession set up in India.

Non Resident assessee is assessable to tax in respect of income which

is received or deemed to be received in India by him or on his behalf.
accrues or arises or deemed to accrue or arise to him in India.

INCOME OR NOR NR

Income receive or deemed to be received in India YES YES YES

Income accrue/ arise or deemed to be accrued or YES YES YES

Arise in India

Income accrue/ arise outside India from business YES YES NO

controlled or profession Set up in India

Income accrue or arise outside India ( basically

Business or profession) YES NO NO

Agricultural income from Indian Land EXEMPT EXEMPT EXEMPT

Dividend from an Indian company Taxable Taxable Taxable

Past untaxed income (shall not be considered) NA NA NA

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KNOWLEDGE ACADEMY ( NO.1 FOR CS) Page

KNOWLEDGE ACADEMY SCOPE OF TOTAL INCOME

INCOME DEEMED TO ACCRUE OR ARISE IN INDIA [SECTION 9]

Income from business connection in India.

Income from any property, asset or source of income situated in India.
Income from transfer of any capital asset situated in India.
Any income from salary if it is payable for service rendered in India.
Salary by Government of India to an Indian citizen for service rendered outside India.
Dividend paid by an Indian company outside India.
Interest payable by:
Government of India
Resident in India except where interest is payable in respect of money
borrowed and used for the purpose of business or profession or earning any
income from any source outside India.
A non resident only if interest is payable for money borrowed and used for a
business or profession in India.
Royalty payable by:
Government of India
Resident in India except where it is payable for any right/ information/
property used for the purpose of a business or profession carried on outside
India or earning any income from any source outside India
A non-resident only if it payable in respect of any right/ information/ property
used for the purpose of a business or profession carried on outside India.
Fees for technical services payable by:
Government of India
Resident in India except where services are utilized for the purpose of business
or profession or earning any income from any source outside India.
A non resident only if fee is payable in respect of any service utilised for a
business or profession in India.

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KNOWLEDGE ACADEMY ( NO.1 FOR CS) Page 3.2

KNOWLEDGE ACADEMY SCOPE OF TOTAL INCOME

Example: The following information is given for previous year 2020-2021:

Particulars Rs.

(i) Income from business in India 10,000

(ii) Income from business in Nepal 10,000

(iii) Income from business in Nepal but received in India 10,000

(iv) Income from business in India but received in Nepal 10,000

(v) Income from business in Nepal received there but 50% was remitted 10,000
to India

(vi) Income from business in Nepal received there, business was 10,000
controlled from India

(vii) Income from business in Nepal but 50% was received in India, 10,000
business was controlled from India

(viii) Dividend from a domestic company 10,000

(ix) Dividend from a foreign company received in India 10,000

(x) Winning from a horse race in India 10,000

(xi) Rental income from a house situated in Nepal, received in India 10,000

(xii) Rental income from a house situated in Nepal 10,000

(xiii) Agriculture income from land in India 10,000

(xiv) Agriculture income from land in Nepal 10,000

(xv) Past untaxed income brought to India 10,000

(xvi) Royalty received in Nepal from Ram a resident in India for technical 10,000
service provided for a business carried on in Nepal

(xvii) Interest from bond of an Indian company 10,000

(xviii) Interest from bond of a company in USA 10,000

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KNOWLEDGE ACADEMY ( NO.1 FOR CS) Page 3.3
KNOWLEDGE ACADEMY SCOPE OF TOTAL INCOME
Solution

Particulars ROR NOR NR

(i) Income from business in India

(ii) Income from business in Nepal

(iii) Income from business in Nepal but received in

India

(iv) Income from business in India but received in

Nepal
Income from business in Nepal received there
(v) but
50% Was remitted to India

(vi) Income from business in Nepal received there,

business was controlled from India

(vii) Income from business in Nepal but 50% was

received in India, business was controlled from
India

(viii) Dividend from a domestic company

Dividend from a foreign company received in
(ix) India

(x) Winning from a horse race in India

(xi) Rental income from a house situated in Nepal,

received in India

(xii) Rental income from a house situated in Nepal

(xiii) Agriculture income from land in India

(xiv) Agriculture income from land in Nepal

(xv) Past untaxed income brought to India

Royalty received in Nepal from Ram a resident
(xvi) in
India for technical service provided for a
business
carried on in Nepal

(xvii) Interest from bond of an Indian company

(xviii) Interest from bond of a company in USA

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 Total Income

KNOWLEDGE ACADEMY ( NO.1 FOR CS) Page 3.4

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