Direct Tax Law 2010 (Solved)


As per Section 5 of the Income Tax Act 1961, incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income.
 In order to understand the relationship between residential status and tax liability, one must understand the meaning of “Indian income” and “Foreign income”. An Indian income is one which satisfies any of the following conditions:
a.       If income is received (or deemed to be received) in India during the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) in India during the previous year, or
b.      if income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year, or
c.       if income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or arise) in India during the previous year.
 Similarly, Foreign income is one which satisfies both the following conditions:
a.       Income is not received (or not deemed to be received) in India; and
b.      income does not accrue or arise (or does not deemed to accrue or arise) in India.
Indian income is always taxable in India irrespective of the residential status of the taxpayer.
Foreign income of an individual and HUF from a business controlled or profession setup in India will be taxable in the hands of resident and ordinarily resident and resident but not ordinarily resident but not in the hands of a non-resident. However, Foreign income from a business controlled or profession setup outside India will be taxable only in the hands of resident and ordinarily resident and not in the hands of a resident but not ordinarily resident or a non-resident person.
Foreign income of any other taxpayer (Company, Firm, AOP, BOI etc.) will be taxable if the taxpayer is resident in India and will not be taxable in case the taxpayer is non-resident in India. 
Tax incidence of different taxpayers is as follows—
Particulars
ROR
RNOR
NR
Income received in India
Income deemed to be received in India
Income accruing or arising in India
Income deemed to accrue or arise in India
Income received/ accrued outside India from a business in India
Income received/ accrued outside India from a business controlled outside India
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No

Yes
Yes
Yes
Yes
No
No

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