Direct Indirect Tax

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Basics of Direct Taxes(Income Tax Act) and Indirect Taxes(VAT, CST, Excise duty, Service Tax etc.,)

The Persons who are taxed are called “Assessees”.
Assessees or “Person” under the Income Tax Act, 1961(as amended Yearly under the respective Finance Acts) are as follows:- 1) Individual
2) Hindu Undivided Family(HUF)
3) Firm or Association of Persons(AOP)
4) Joint Stock Company
5) Every other person

Whether an Assessee is liable to be taxed and if so, on what income etc., depends on the residential status of the Assessee.

An Assessee is taxed in the Assessment Year on Income in the Previous Year. The term “Assessment Year”(A.Y) means the period of 12 months commencing on the first day of April every year. Thus, the A.Y always begins on Ist April and ends on 31 March every year. This period is also known as the Financial Year.

Previous Year(P.Y) is the year in which income is earned. Income tax is charged on the total income of the previous year and the income earned during the previous year is assessed to tax at the rates and as per the provisions applicable for the A.Y relevant to the P.Y. In other words, the income chargeable to tax in the A.Y is the one actually earned in the Previous year.

Residential status of an Assessee as an “Individual”:-
An Individual can be either (1) a resident in India or (2) non-resident in India

However, an “Individual” or a “H.U.F can be of two further Sub-categories under the main category “Resident in India”, namely:-

a) Resident and Ordinarily Resident and
b) Resident but not Ordinarily Resident

Basic conditions to make an Individual, a “Resident in India” are as follows:-

A) Stay in India for a period of 182 days or more during the Previous Year

OR

B) (i) He is in India(stay in India)in the Previous Year for a period of 60days or more
AND
(ii) He is in India for a period or periods of 365 days or more during 4 years immediately preceding the Previous year.

The period of 60 days in B(i) above is EXTENDED to 182 days or more in case of
a) An Indian citizen, leaving overseas for employment or a crew of an Indian ship or b) An Indian citizen or a PERSON OF INDIAN ORIGIN(PIO), outside India, visiting India
during the Previous Year.
Who is a PIO?
An Individual is deemed to be of Indian origin if he or either of his parents or any of his grand parents were born in Undivided India.

Who is “Resident and Ordinarily resident?

A “Resident Individual” is classified as “Resident and Ordinarily Resident” if
(i) he has been resident in India for 2 or more years out of 10 Years preceding the P.Y

AND

(ii) has been in India for 730 days or more out of 7 years preceding the P.Y

Resident but “Not Ordinarily Resident”:-

An Individual who satisfies at least one of the basic conditions for being a resident, but DOES NOT satisfy the two additional conditions above, is treated as “ A resident but not ordinarily resident” in India.

Basic conditions to make a H.U.F a “resident in India”:-

A H.U.F is said to be “ Resident in India”, if the “CONTROL AND MANAGEMENT” of it affairs is Wholly or partly Situated in India. A HUF is a “Non Resident” in India, if the Control and Management of its affairs is wholly situated Outside India.

A “Resident” HUF is “Ordinarily Resident” in India, if KARTA or Manager of the HUF(including successive Kartas) satisfies both the additional conditions which make an individual “a Resident and an ordinarily resident”.

A person is a ‘Resident and Ordinarily Resident’ or ‘Resident and Not ordinarily resident’ is RELEVENT to the extent that a ‘Resident and Not ordinarily resident’ is NOT TAXED on such foreign incomes as accrue or arise from business controlled outside India or a profession set up outside India or in other words, in case of a Resident but not ordinarily resident, income which accrues or arises outside India is not taxable...
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