Amcount.com - Relation between residential status & entincidence of tax, Indian Income, Foreign Income, other foreign income, receipt of income, remittance of income, cash Vs Kids, penalties, double taxation avoidance, citizenship, A person’s Residential Status is the sole deciding factor that the Income earned subject to chargeability under Five heads of Income is taxable in India or not

Relationship between residential status and Incidence of Tax

Relationship between residential status and Incidence of Tax (Section 5) :-

You must be guessing as to why it should matter that whether any Person is a Non resident, Resident, Resident & Ordinarily Resident or Resident & Not Ordinarily Resident.
The answer for your query lies in the fact that a person’s Residential Status is the sole deciding factor that the Income earned subject to chargeability under Five heads of Income is taxable in India or not. The below diagrammed table will provide distinct clarity on Income Chargeability on the basis of one’s Residential Status:-

TABLE A:

INDIVIDUAL AND HINDU UNDIVIDED FAMILY
Type of Income	ROR	RNOR	Non Resident
Indian Income	Taxable in India	Taxable in India	Taxable in India
Foreign Income
If it is Business Income business is control wholly or partly from India	Taxable in India	Taxable in India	Not Taxable in India
It is from Income from Profession which is setup in India	Taxable in India	Taxable in India	Not Taxable in India
If it is Business Income & business is controlled wholly or partly from India	Taxable in India	Not Taxable in India	Not Taxable in India
If it is Business Income & business is controlled from outside India	Taxable in India	Not Taxable in India	Not Taxable in India
It is from Income from Profession which is setup outside India	Taxable in India	Not Taxable in India	Not Taxable in India
Any other Foreign Income	Taxable in India	Not Taxable in India	Not Taxable in India

TABLE B:

ANY OTHER FORM OF PERSON
Type of Income	Resident	Non Resident
Indian Income	Taxable in India	Taxable in India
Foreign Income	Taxable in India	Not Taxable in India

RECEIPT OF INCOME vs. REMITTANCE OF INCOME:

As per the Act all Income received in India is taxable irrespective of residential status of a person, but a clear difference infact exists between receipt & remittance of income, the former if received in India becomes taxable in India and latter if received outside India, but remitted to India afterwards, becomes non taxable in India.

Still Confused?? Take a look at this Example:

Mr. A, an Indian Citizen received $40000 in out of Fixed Deposits made by him in Bank of America, USA. Which he later remitted to India at an exchange rate of 1$= Rs. 50/- (i.e., 20,00,000/- INR), Is his Income taxable in India or USA?

The Answer is that his Income is not taxable in India but is taxable in USA. The reason behind this is the Income out of Interest aroused & was received in USA by the assessee, only later it was remitted to India. Herein the law clearly states that only receipts in India are taxable and not remittances made after any receipt of such Income outside India.

CASH vs. KIND:

It is not necessary that an Income should be actually received in Cash form only, even if the Income is received in Kind form it is taxable in India, e.g., Mr. A received a Maruti Car on winning Kaun Banega Badshaah? contest. In this case tax calculated at applicable rates on cost of Maruti car as on the date of receipt or accrual, whichever is earlier will have to be paid to Govt. in cash.

PLEASE NOTE :

Residential Status determination is very crucial being the First Step in the Assessment of Income, hence calculations should be made strictly as per the prescribed rules only.

Residential Status has to be determined for each previous year as per the assessment of income of each previous year.

Assessment of wrong Residential Status may lead to wrong assessment of Income and may attract various Penalties as stated in Section 271 of the Income Tax Act’ 1961.

A person may be resident in more than one country for any previous year. The chargeability of tax may be subject to Double Taxation Avoidance Treaty if exists between the two countries.

Citizenship and Residential status of a person are separate concepts, since former has a direct reference to the Constitution of India, while latter has reference to Indian Income Tax Act only.

For the purpose of determining Residential Status of a Firm or a HUF, the Residential Status of Partner of the firm or the members of the HUF is immaterial except in cases where the residence of the Partners or the Family members affects its control & management.