1) Residential status of an INDIVIDUAL

Ans: Residential status for each previous year - Residential status of an assessee is
to be determined in respect of each previous year as it may vary from previous
year to previous year.

Different residential status for different assessment years - An assessee may

enjoy different residential status for different assessment years. For instance, an
individual who has been regularly assessed as resident and ordinarily resident has to be
treated as non-resident in a particular assessment year if he satisfies none ofthe conditions
of section 6(1).
Resident in India and abroad - It is not necessary that a person, who is
“resident” in India, cannot become “resident” in any other country for the same
assessment year. A person may be resident in two (or more) countries at the same time. It
is, therefore, not necessary that a person who is resident in India will be non-resident in
all other countries for the same assessment year.

Types of residential status

 Resident and Ordinarily Resident

 Resident and Not Ordinarily Resident
 Non-Resident
Who is a resident of India?

An individual shall be considered a Resident of India if he fulfills any one of the

following conditions:

Condition 1

 He should be in India for 182 days or more during the previous year

OR

Condition 2

 He should be in India for 60 days or more during the during the previous year AND
 He should be in India for 365 days or more in 4 years immediately preceding the relevant
previous year.

Exceptions

1. An Indian Citizen leaves India during the previous year as a crew member of a ship or for
the purpose of employment outside India.
2. An Indian Citizen or a Person of Indian Origin visits India during the previous year
 Then he shall be a Resident of India only if he is in India for 182 days or more.

Who is considered an ordinarily Resident Indian?

A resident shall be an Ordinarily Resident Indian if he satisfies the following conditions:

 He is a resident of India in at least 2 out of the 10 years immediately preceding the

relevant previous year. AND
 He has been in India for a period of 730 days (2x365) or more in 7 years immediately
preceding the relevant previous year.

Residential status of an assessee is important in determining the scope of income on which

income tax has to be paid in India. Broadly, an assessee may be resident or non-resident in India
in a given previous year.

Under Section 6(1), an individual is said to be resident in India in any previous year if he
satisfies any one of the following basic conditions:

(a)    He is in India in the previous year for a period of at least 182 days or,

(b)   He is in India for a period of at least 60 days during the relevant previous year and at
least 365 days during the four years preceding that previous year.

In case an Indian citizen leaves India for employment abroad in any year for the purpose of
employment (or where an individual, who is a citizen of India, leaves India as a member of the
crew of an Indian ship), or where an Indian citizen or a person of Indian Origin, who has settled
abroad, comes on a visit to India in the previous year, shall not attract clause (b) of the basic
conditions Therefore, such individuals may stay in India upto 181 days in a given previous year
without becoming resident in India for that previous year. An individual who does not satisfy
either of the above basic conditions is non-resident for that previous year.

2) Residential Status of a COMPANY

Residential Status of a Company [Section 6(3)]
When is a company said to be resident in India?
A Company is said to be a resident in India in any previous year if:

 it is an Indian company, or
 during the relevant previous year, the control and management of its affairs is situated
wholly in India.

When is a company said to be Non-resident in India?

A Company will be a non-Resident in any previous year if:

 it is not an Indian company; and

  the control and management of its affairs is situated wholly or partially outside India.

A 'firm' or 'an  association  of  persons',  is  generally 'resident'. The only exception is a firm
whose control and management during the year is wholly from outside India.

For companies, income is taxed at a flat rate of 30% for Indian companies, with a 10%
surcharge applied on the tax paid by companies with gross turnover over Rs. 1 crore (10
million). Foreign companies pay 40%. An education cess of 3% (on both the tax and the
surcharge) are payable, yielding effective tax rates of 33.99% for domestic companies and
41.2% for foreign companies.

From 2005-06, electronic filing of company returns is mandatory.

A Company is said to be resident in India during any relevant previous year if:-

i. It is an Indian Company;or
ii. The control and management of its affairs is situated wholly in India. In case of Resident
Companies, the total income liable to tax includes [section 5(1)]:-
 Any income which is received or is deemed to be received in India in the relevant
previous year by or on behalf of such company
 Any income which accrues or arises or is deemed to accrue or arise in India
during the relevant previous year
 Any income which accrues or arises outside India during the relevant previous
year.

A Company is said to be non-resident during any relevant previous year if:-

i. It is not an Indian company,and

ii. The control and management of its affairs is situated wholly/partially outside India. In
case of Non-Resident Companies, the total income liable to tax includes[section 5(2)]:-
 Any income which is received or is deemed to be received in India during the
relevant previous year by or on behalf of such company
 Any income which accrues or arises or is deemed to accrue or arise to it in India
during the relevant previous year.

3) Procedure of determining/deciding Residential Status of Individual

Ans: The following norms one has to keep in mind while deciding the residential status
of an assessee:

1. Different taxable entities - All taxable entities are divided in the following
categories for the purpose of determining residential status:

a. An individual;
b. A Hindu undivided family;
c. A firm or an association of persons;
 d. A joint stock company; and
e. Every other person.

2. Different residential status - An assessee is either: (a) resident in India, or (b)

non-resident in India.

However, a resident individual or a Hindu undivided family has to be (a) resident

and ordinarily resident, or (b) resident but not ordinarily resident. Therefore, an
individual and a Hindu undivided family can either be:

a. resident and ordinarily resident in India; or

b. resident but not ordinarily resident in India; or
c. non-resident in India

All other assessees (viz., a firm, an association of persons, a joint stock company
and every other person) can either be:
a. resident in India; or
b. non-resident in India.

As per section 6, an individual may be (a) resident and ordinarily resident in

India, (b) resident but not ordinarily resident in India, or (c) non-resident in India.

As per section 6(1), in order to find out whether an individual is “resident and
ordinarily resident” in India, one has to proceed as follows—

Step 1 First find out whether such individual is “resident” in India.

Step 2 If such individual is “resident” in India, then find out whether he is

“ordinarily resident” in India. However, if such individual is a “nonresident”
in India, then no further investigation is necessary.

BASIC CONDITIONS TO TEST AS TO WHEN AN INDIVIDUAL IS

RESIDENT IN INDIA –
Under section 6(1) an individual is said to be resident in India in any previous year, if he
satisfies at least one of the following basic conditions—
Basic condition (a) He is in India in the previous year for a period
of 182 days or more

Basic condition (b) He is in India for a period of 60 days or more

during the previous
year and 365 days or more during 4 years
immediately preceding
the previous year
In the following two cases, an individual needs to be present in India for a
minimum of 182 days or more in order to become resident in India:

1. An Indian citizen who leaves India during the previous year for the
purpose of taking employment outside India or an Indian citizen leaving
India during the previous year as a member of the crew of an Indian ship.

2. An Indian citizen or a person of Indian origin who comes on visit to India

during the previous year (a person is said to be of Indian origin if either he
or any of his parents or any of his grand parents was born in undivided India).

ADDITIONAL CONDITIONS TO TEST AS TO WHEN A RESIDENT

INDIVIDUAL IS ORDINARILY RESIDENT IN INDIA –
Under section 6(6), a resident individual is treated as “resident and ordinarily resident” in India if
he satisfies the following two additional conditions —
Additional condition (i) He has been resident in India in at least 2 out
of 10 previous years [according to basic
condition noted above] immediately preceding
the relevant previous year.

Additional condition (ii) He has been in India for a period of 730 days
or more during 7 years immediately preceeding
the relevant previous year.

In brief it can be said that an individual becomes resident and ordinarily resident
in India if he satisfies at least one of the basic conditions [i.e., (a) or (b)] and the
two additional conditions [i.e., (i) and (ii)].

It will be worthwhile to note the following propositions:

1. It is not essential that the stay should be at the same place. It is equally not
necessary that the stay should be continuous. Similarly, the place of stay or the
purpose of stay is not material.

2. Where a person is in India only for a part of a day, the calculation of physical
presence in India in respect of such broken period should be made on an hourly
basis. A total of 24 hours of stay spread over a number of days is to be counted as
being equivalent to the stay of one day.

If, however, data is not available to calculate the period of stay of an individual in
India in terms of hours, then the day on which he enters India as well as the day
on which he leaves India shall be taken into account as stay of the individual in
India.
 4) Procedure of determining/deciding Residential Status of Company
Ans: RESIDENTIAL STATUS OF A HINDU UNDIVIDED FAMILY
As per section 6(2), a Hindu undivided family (like an individual) is either
resident in India or non-resident in India. A resident Hindu undivided family is
either ordinarily resident or not ordinarily resident.

HUF- Resident or Non-Resident

A Hindu undivided family is said to be resident in India if control and
management of its affairs is wholly or partly situated in India. A Hindu undivided
family is non-resident in India if control and management of its affairs is wholly
situated outside India.
Control and management means de facto control and management and not merely the
right to control or manage. Control and management is situated at a place where the head,
the seat and the directing power are situated.

HUF- When ordinarily resident in India

A resident Hindu undivided family is an ordinarily resident in India if the karta or
manager of the family (including successive kartas) satisfies the following two
additional conditions as laid down by section 6(6)(b):
Additional condition (i) Karta has been resident in India in at least 2 out
of 10 previous years immediately preceding the
relevant
previous year

Additional condition (ii) Karta has been present in India for a period of
730 days or more during 7 years immediately
preceding the previous
year

If the karta or manager of a resident Hindu undivided family does not satisfy the
two additional conditions, the family is treated as resident but not ordinarily
resident in India.

RESIDENTIAL STATUS OF FIRM AND ASSOCIATION OF PERSONS

As per section 6(2), a partnership firm and an association of persons are said to be
resident in India if control and management of their affairs are wholly or partly
situated within India during the relevant previous year. They are, however, treated
as non-resident in India if control and management of their affairs are situated
wholly outside India.

RESIDENTIAL STATUS OF A COMPANY

As per section 6(3), an Indian company is always resident in India. A foreign
company is resident in India only if, during the previous year, control and
management of its affairs is situated wholly in India. However, a foreign company
is treated as non-resident if, during the previous year, control and management of
its affairs is either wholly or partly situated out of India.

Individual and Hindu undivided family

Resident and Resident but not Non-resident

ordinarily resident Ordinarily in India
in India resident in India
Indian income Taxable in India Taxable in India Taxable inIndia

Foreign income
- If it is business Taxable in India Taxable in India Not taxable in
income and business India
is controlled wholly
or partly fromIndia
- If it is income from Taxable in India Taxable in India Not taxable in
profession which is India
set up in India
- If it is business Taxable in India Not taxable in Not taxable in
income and business India India
is controlled from
outside India
- If it is income from Taxable in India Not taxable in Not taxable in
profession which is India India
set up outside India
- Any other foreign Taxable in India Not taxable in Not taxable in
income (like salary, India India
rent, interest, etc.)

Any other taxpayer (like company, firm, co-operative society, association of persons, body of
individual, etc

Resident in India Non-resident in India

Indian income Taxable in India Taxable in India
Foreign income Taxable in India Not taxable in India

5) Explain Section 80 IA related to company. Give 3 numerical examples of relevant

sections
Ans: 80-IA. Deductions in respect of profits and gains from industrial undertakings or
enterprises engaged in infrastructure development, etc.
(1) Where the gross total income of an assessee includes any profits and gains derived
by an undertaking or an enterprise from any business referred to in sub-section (4)
(such business being hereinafter referred to as the eligible business), there shall, in
accordance with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction of an amount equal to
hundred per cent of profits and gains derived from such business for ten
consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be
claimed by him for any ten consecutive assessment years out of fifteen years
beginning from the year in which the undertaking or the enterprise develops and
begins to operate any infrastructure facility or starts providing telecommunication
service or develops an industrial park or develops or develops and operates or
maintains and operates a special economic zone referred to in clause (iii) of sub-
section (4) or generates power or commences transmission or distribution of
power:

(3) This section applies to an undertaking referred to in clause (iv) of sub-section (4)
which fulfils all the following conditions, namely:-

(i) it is not formed by splitting up, or the reconstruction, of a business already in

existence:

Provided that this condition shall not apply in respect of an industrial undertaking
which is formed as a result of re-establishment, re-construction or revival by the
assessee of the business of any such industrial undertaking as is referred to in
section 33B, in the circumstances and within the period specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant

previously used for any purpose.

Explanation 1.-For the purposes of clause (ii), any machinery or plant which was
used outside India by any person other than the assessee shall not be regarded as
machinery or plant previously used for any purpose, if the following conditions
are fulfilled, namely:-

(a) such machinery or plant was not, at any time previous to the date of the
installation by the assessee, used in India;

(b) such machinery or plant is imported into India from any country
outside India; and

(c) no deduction on account of depreciation in respect of such machinery

or plant has been allowed or is allowable under the provisions of this Act
in computing the total income of any person for any period prior to the
date of the installation of machinery or plant by the assessee.
 (4) This section applies to-

(i) any enterprise carrying on the business any infrastructure facility which fulfils
all the following conditions, namely:-

(a) it is owned by a company registered in India or by a consortium of

such companies;

(b) it has entered into an agreement with the Central Government or a

State Government or a local authority or any other statutory body for (i)
developing or (ii) operating and maintaining or (iii) developing, operating
and maintaining a new infrastructure facility;

(c) it has started or starts operating and maintaining the

INFRASTRUCTURE FACILITY on or after the 1st day of April, 1995:

For the purposes of this clause, "infrastructure facility" means,-

(a) a road including toll road, a bridge or a rail system;

(b) a highway project including housing or other activities being an

integral part of the highway project; and

(c) a water supply project, water treatment system, irrigation project,

sanitation and sewerage system or solid waste management system;

(d) a port, airport, inland waterway or inland port;

6) What is Minimum Alternate Tax? Which are the sectors of business covered by
MAT?
Ans: Minimum AlternateTax - Sec 115JB

The concept of Minimum Alternate Tax (MAT) was introduced in the direct tax system
to make sure that companies having large profits and declaring substantial dividends to
shareholders but who were not contributing to the Govt by way of corporate tax, by
taking advantage of the various incentives and exemptions provided in the Income-tax
Act, pay a fixed percentage of book profit as minimum alternate tax.
Section 115JB, inserted by the Finance Act, 2000 has cast a responsibility on the
chartered accountant to certify that the book profit has been computed in accordance with
the provisions of the Income-tax Act. He has also to certify the income-tax payable by the
company

Normally, a comapny is liable to pay tax on the income computed in accordance with the
provisions of the income tax Act, but the profit and loss account of the company is
prepared as per provisions of the Companies Act. There were large number of companies
who had book profits as per their profit and loss account but were not paying any tax
 because income computed as per provisions of the income tax act was either nil or
negative or insignificant. In such case, although the companies were showing book
profits and declaring dividends to the shareholders, they were not paying any income tax.
These companies are popularly known as Zero Tax companies. Inorder to bring such
companies under the income tax act net, section 115JA was introduced w.e.f assessment
year 1997-98.

According to this section, if the taxable income of a company computed under this Act,
in respect of previous year 1996-97 and onwards is less than 30 % of its book profits, the
total income of such company is chargeable to tax for the relevant previous year shall be
deemed to an amount equal to 30 % of such book profits.

Why was MAT introduced?

The concept of Minimum Alternate Tax (MAT) was introduced in the direct tax system
to make sure that companies having large profits and declaring substantial dividends to
shareholders but not paying tax to the Govt by taking advantage of the various incentives
and exemptions provided in the Income-tax Act, pay a fixed percentage of book profit as
minimum alternate tax. Though there has been a consistent demand from companies from
various sectors for its removal, the Government continues with this tax. Looking at the
proposed provisions of DTC, it appears that the Government is very clear that it wants to
continue with MAT.

Non Applicability

The provisions of MAT contained in section 115JB would not apply to the following
incomes accruing or arising on or after 1st April 2005 –

1. Income from any business carried on by an entrepreneur in a SEZ (10AA);

2. Income from the services rendered by an entrepreneur from a unit in a SEZ (10AA);
3. Income of a Developer from the development of a SEZ. (80IAB)

Rate of MAT
It is provided that in case of company (domestic or foreign) , if the income-tax payable on the
total income computed under the Income-tax Act, is less than 18% of its book profit, such
book profit shall be deemed to be the total income of the assessee and the tax payable by the
assessee on such total income shall be the amount of income-tax at the rate of 18% (add
surcharge, if applicable, i.e. 7.5% for domestic companies and 2.5% for foreign companies,
where the total income exceeds Rs.1 crore) and Education cess @2% and secondary and
higher education cess@1% shall be added on the aggregate of income-tax and surcharge.
MAT Credit entitlement (Section 115 JAA)

1. This section provides that where tax is paid in any assessment year in relation to the
deemed income under section 115JB(1), the excess of tax so paid over and above the tax
payable under the other provisions of the Income-tax Act, will be allowed as tax credit in
the subsequent years.
2. The tax credit is, therefore, the difference between the tax paid under section 115JB (1)
and the tax payable on the total income computed in accordance with the other provisions
of the Act.
3. The tax credit shall be allowed to be set off in a year in which tax becomes payable on
the total income computed in accordance with provisions of the Act other than section
115JB.
4. This tax credit is allowed to be carried forward for ten assessment years succeeding the
assessment year in which the credit became allowable.
5. Such credit is allowed to be set off against the tax payable on the total income in an
assessment year in which the tax is computed in accordance with the provisions of the
Act, other than 115JB, to the extent of excess of such tax payable over the tax payable on
book profits in that year.

Effect of the new provision

The provisions of taxing Companies by MAT under Direct Tax Code shall have the
following effect:

Positive:-

1. Efficiency with which fund is utilized will improve.

2. The tax collection will go up.

Adverse:-

1. This will create industrial disparity as capital intensive industries viz Iron & Steel,
Cement etc have to pay more than the labour intensive viz software industry. Thus it will
reduce investments in Infrastructure and will dissuade investments.
2. By not allowing credit of tax paid by way of minimum alternate tax, this tax is in the
nature of wealth tax and not on income at all;
3. This type of tax will clearly be an additional burden to loss making companies and will
make their survival more difficult;
4. In case of long gestation projects, this tax type of tax will further increase the cost of
projects and might even make the projects unviable.
5. It will result in double taxation as group financing is common, viz holding company
having stake in there subsidiaries and granting them loan as well, and so both holding &
subsidiaries have to pay tax on their gross assets. This will affect the financing of less
reputed companies as they are not able to procure finance directly.

7) What will be the impact of MAT on Telecom operators?

Ans:
 Telecommunications has emerged as one of the key sectors responsible for India’s
resurgenteconomic growth. The sector was relatively untouched by the economic slump
that beleaguered India in the FY09 and the early part of FY10.

 The telecom policy objectives focus on network expansion, rural telephony, roll-out of 3-
G services, enhanced broadband coverage, R&D, domestic manufacturing of telecom
equipment and a supportive environment for the competitive growth of the sector.

 Rural and Semi-urban India are the next target for most telecom companies since urban
India has been largely tapped. ARPUs are expected to decrease further as rural subscriber
base increases but volumes are expected to slightly compensate for the fall in ARPUs.

 FY10 witnessed the launching of services by the new operators in collaboration with their
foreign partners who have technical expertise as well as financial strength. The sector has
seen a fall in margins for most of the existing players due to intense competition. The
success of these operators would be determined by the spectrum allocation policy of the
Government of India (GoI).

 The outstanding issues before the GoI include additional spectrum allocation for 2G,
fresh spectrum allocation for 3G and WiMax, multiple levies on the sector, increase in
rural connectivity and mobile number portability.

Budget Proposals

1. Full exemption from basic customs duty and CVD to components for manufacture of
battery chargers.

2. Components of Hands-free headphones of mobile handsets including cellular phones

are also fully exempt from customs duty and CVD.

3. The validity of the exemption from special additional duty on mobile phones is being
extended till March 31, 2011.

4. The Minimum Alternate Tax (MAT) has been increased from 15% in 2009-10 to
18% in 2010-11.
Duty Structure
(%) Existing Proposed
CUSTOMS DUTY
 Convergence Products 5 5
 Raw materials for use in the IT/electronic Nil Nil
hardware
 Project Imports 5 5
  Components for battery chargers and hands- 4 Nil
free headphones
EXCISE DUTY
 Wireless Data Cards Nil Nil
National Calamity Contingent Duty
 Cellular Mobile Phones 1 1
CENVAT 14 14
MAT 15 18

Budget Impact – Industry

1. The exemption from basic customs duty and CVD to components for manufacture of battery
chargers and hands-free headphones of mobile handsets will make the mobile phones cheaper
which in turn will have a positive impact on their demand.

2. The increase in MAT from 15% in 2009-10 to 18% in 2010-11 may adversely impact the
telecom service providers as they may have to pay higher taxes.

8) SN on various Deductions available for an individual in 09-10 (Assessment year 10-

11)
Ans:
Indian Income Tax deductions, Tax exemption limits
Financial year 2009/2010
Income Tax Deductions Maximum deduction allowed
Explaination Remarks
Income Tax deduction - Section 80C Maximum tax deduction or tax exemption
Provident Funds, Life Insurance premia, limit:
ELSS, Bank deposits (>5 yr.), tution fees, Rs. 1,00,000
principal part of EMI on housing loan, etc.
Income Tax deduction - Section 80D Maximum tax deduction or tax exemption
Premium in health insurance of you, your limit:
spouse, children or dependent parents Rs. 15000 (tax exemption limit for senior
citizen is Rs. 20000)
Income Tax deduction - Section 80DD Maximum tax deduction or tax exemption
Medical treatment (including insurance) of limit:
disabled dependent Rs. 50000. (Rs. 75000 if disability is severe,
e.g. >80%)
Income Tax deduction - Section 80E Maximum tax deduction or tax exemption
Interest paid on educational loan taken for limit:
higher education of you, your spouse or NO LIMIT
children.
 Income Tax deduction - Section 80GG Maximum tax deduction or tax exemption
House rent in excess of 10% of income, if limit:
no HRA is received. Rs. 2000 per month or 25% of your gross
salary, whichever less
Income Tax deduction - Section 24 Maximum tax deduction or tax exemption
Interest paid on housing loan limit:
Rs. 1,50,000
Income Tax deduction - Section 80G Maximum tax deduction or tax exemption
Donations limit:
100% of donation amount for special
funds(see below), 50% of donation amount
for all other donations.

9) Write Proposed income tax slabsfor an individual – male, female, senior citizen
Ans:

Income Tax Slab for F.Y. 2009-10, A.Y.2010-11

For Male below 65 Years
Up to Rs. 1,60,000 NIL
Rs. 1,60,001 to Rs. 3,00,000 10%
Rs. 3,00,001 to Rs. 5,00,000 20%
Rs. 5,00,001 and Above 30%
For Women Taxpayers
Up to Rs. 1,90,000 Nil
Rs. 1,90,001 to Rs. 3,00,000 10%
Rs. 3,00,001 to Rs. 5,00,000 20%
Rs. 5,00,001 and above 30%
For Senior Citizens
Up to Rs. 2,40,000 Nil
Rs. 2,40,000 to Rs. 3,00,000 10%
Rs. 3,00,001 to Rs. 5,00,000 20%
Rs. 5,00,001 and above 30%

10) Assume there is a perfect price elasticity and all other market variables are stable what
will be the impact on mobile headphone sales due to change in proposed excise tax