Question 1 (a)

Residential status of a foreign citizen of Indian origin, and his taxable income

12 marks

Time to write
About 24 minutes
Topic
Residential status and scope of income
Notes
Crux notes

Question

Question 1 (a) · 12 marks

Mr. Ranjan was born in India in 1983, and his father was also born in India, in 1953; his grandparents were born in the USA. Ranjan lived in India until 18.03.2023; on 18.03.2023 he left India for the first time, going to the USA, and took its citizenship. During the tax year 2026-27 he was in India on a visit for 90 days. For the tax year 2026-27 his income was as follows:

1) Interest on German Development bonds, 40% of it received in IndiaRs. 180000
2) Dividend received in USA from a British CompanyRs. 272000
3) Cash gift on his birthday from a friend, received in IndiaRs. 100000
4) Rent received from a property in DelhiRs. 300000
5) Income from profession (set up in Delhi) earned in USA, received in GermanyRs. 150000
6) Royalty (received in London) from a foreign company; the royalty relates to the foreign company's project in IndiaRs. 250000

Determine his residential status, and his taxable income:

  1. On the details given above.

  2. Had he left India on 01/04/2023, with his income unchanged. (12)

Paper note: Set under the Income-tax Act, 1961 for assessment year 2024-25 (previous year 2023-24); answered under the Income-tax Act, 2025 for tax year 2026-27, so the year term moves forward by 3 years and every date in the question moves forward by the same 3 years, so that intervals, holding periods and ages are as printed. Every figure and name is as printed.

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

24 minfor 12 marks

Read from the question

  • taxable incomeHead by head: each income under its head, exempt items marked exempt, then the deductions and the tax.

Write it in this order

  1. Read the data; note exactly what is asked 2 min
  2. 1 Person of Indian origin; the 182-day test for a visitor 3 marks 5 min
  3. 2 Case (ii) and why the status is unchanged 2 marks 3 min
  4. 3 Treatment of each item for a non-resident 5 marks 9 min
  5. 4 Taxable income 2 marks 3 min
  6. Check: arithmetic, units (₹, %), final answer underlined 2 min

Try it first. About 24 minutes for 12 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Assumptions

  1. The rent from the Delhi property is its annual value; no municipal tax is paid.
  2. Mr. Ranjan has no visits to India other than those stated.

Is he a person of Indian origin? (section 2(78))

A person of Indian origin is an individual who, or either of whose parents or any of whose grandparents, was born in undivided India. Mr. Ranjan and his father were both born in India, so he is a person of Indian origin, though he is now a citizen of the USA.

Case (i): residential status for tax year 2026-27

  1. He was in India for 90 days, less than 182, so he is not resident under section 6(2)(a).
  2. The 60-day test of section 6(2)(b) does not apply to a person of Indian origin who, being outside India, comes on a visit (section 6(4)); for him the test becomes 182 days. It becomes 120 days only if his income other than from foreign sources exceeds ₹15 lakh (section 6(5)): his Indian income is ₹1,00,000 (gift) + ₹2,10,000 (house property) + ₹2,50,000 (royalty) + ₹1,50,000 (profession set up in Delhi) = ₹7,10,000, below ₹15 lakh.
  3. The deemed resident rule of section 6(7) applies only to a citizen of India, which he no longer is.

He is a non-resident.

Case (ii): left India on 01/04/2023

He would then have been in India for the whole of 2022-23 (365 days) and one day of 2023-24, so 365 days or more in the four years before the tax year. But, as in case (i), the 60-day test does not apply to a person of Indian origin on a visit, and 90 days is below 182. He is again a non-resident, and his taxable income is the same.

Taxable income for tax year 2026-27 (both cases)

A non-resident is taxed only on income received in India, or accruing or deemed to accrue in India (section 5(2)).

ParticularsTotalTaxable
1) Interest on German Development bonds: 40% received in India (₹1,80,000 × 40%)1,80,00072,000
2) Dividend from a British company received in the USA (accrues and is received outside India)2,72,000—
3) Cash gift from a friend received in India (exceeds ₹50,000, section 92(2)(m)(i))1,00,0001,00,000
4) Income from house property in Delhi: ₹3,00,000 less 30% (₹90,000) (section 22(1)(a))3,00,0002,10,000
5) Income from profession set up in Delhi, earned in the USA and received in Germany1,50,000—
6) Royalty for the foreign company's project in India, deemed to accrue in India (section 9(6)(a)(iii))2,50,0002,50,000
Taxable income6,32,000

Notes on the items

  1. The profession set up in India matters only for a person who is not ordinarily resident; a non-resident is not taxed on income that accrues and is received outside India, wherever the profession is set up.
  2. The royalty is received in London, but it is paid by a non-resident for rights used in its business in India, so it is deemed to accrue in India and taxed even in a non-resident's hands.
  3. A gift from a friend is taxable when the aggregate received in the year exceeds ₹50,000; the whole ₹1,00,000 is taxed.

Where the 12 marks sit

#ComponentMarks
1Person of Indian origin; the 182-day test for a visitor; the ₹15 lakh test3
2Case (ii) and why the status is unchanged2
3Treatment of each item for a non-resident5
4Taxable income2
Total12
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