Question 1 (b)
Income under each residential status (as set, 1961 Act, AY 2017-18)
6 marks
- Time to write
- About 12 minutes
From an older CBCS paper
Question
Question 1 (b) · 6 marksDuring the financial year 2016-17 Anurag earns the income listed below:
| 1. Interest paid by an Indian company, which is received in London | 20,000 |
|---|---|
| 2. Pension from a former employer in India, which is received in USA | 8,000 |
| 3. Profit earned from a business in Paris that is controlled in India, half of such profits having been received in India | 40,000 |
| 4. Income from agriculture in Bhutan, which is remitted to India | 10,000 |
| 5. Income from property in England, received there | 8,000 |
| 6. Past foreign untaxed income that was brought to India | 20,000 |
Calculate his income for the assessment year 2017-18 in case he is:
Resident and Ordinarily Resident in India
Not Ordinarily Resident within India
Non-Resident. 6
Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2017-18 (previous year 2016-17), with the dates as printed. The list of incomes has no heading; the amounts are in rupees. The question asks for the income under each of the three residential statuses.
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
Read from the question
- CalculateHead by head: each income under its head, exempt items marked exempt, then the deductions and the tax.
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 Basis of charge for each status (section 5) 1 mark 2 min
- 2 Treatment of items 1 to 3 2 marks 3 min
- 3 Treatment of items 4 to 6 1½ marks 3 min
- 4 Income in the three cases 1½ marks 2 min
- Check: arithmetic, units (₹, %), final answer underlined 1 min
Try it first. About 12 minutes for 6 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.
- The amounts are the incomes already computed under their heads; item 5 is the income from the English property, not its gross rent.
- The farming in Bhutan (item 4) is not controlled from India; the question does not say (the result if it is, and the result if item 5 is gross rent, are given at the end).
- The pension of item 2 is for his past service in India with that employer.
- The Indian company has not used the borrowing on which it pays the interest (item 1) for a business or profession it carries on outside India or to earn income from a source outside India (the exception in section 9(1)(v)(b)).
- The Bhutan income of item 4 is first received in Bhutan and only later sent to India.
The result if any of assumptions 2 to 5 is otherwise is given at the end.
- Resident and ordinarily resident: income received or deemed received in India, income accruing or arising (or deemed to) in India, and income accruing or arising outside India (section 5(1)).
- Not ordinarily resident: as above, but income accruing or arising outside India is left out unless it is derived from a business controlled in India or a profession set up in India (section 5(1)(c), proviso).
- Non-resident: only income received or deemed received in India, and income accruing or arising (or deemed to) in India (section 5(2)).
- Two points apply to every status. Foreign income is not treated as received in India merely because it is taken into account in a balance sheet prepared in India (section 5, Explanation 1); and income already included because it accrued or arose (or is deemed to) is not included a second time when it is received in India (section 5, Explanation 2).
| Item | Where it accrues and where it is received | Taxed for |
|---|---|---|
| 1. Interest from an Indian company, received in London, ₹20,000 | Interest payable by a resident is deemed to accrue in India (section 9(1)(v)(b)), wherever it is received, unless it is paid on a debt used for a business or profession of the payer outside India or for a source of income outside India (assumption 4) | All three |
| 2. Pension from a former employer in India, received in USA, ₹8,000 | Pension is salary (section 17(1)(ii)); paid for service rendered in India, it is earned in India (section 9(1)(ii), Explanation) | All three |
| 3. Paris business, half received in India, ₹20,000 | Received in India | All three |
| 3. Paris business, half received outside India, ₹20,000 | Accrues and is received outside India, but the business is controlled in India (section 5(1)(c), proviso) | Both resident cases |
| 4. Agriculture in Bhutan, remitted to India, ₹10,000 | Not agricultural income as section 2(1A) defines it (the land is not in India), so section 10(1) does not exempt it. It is earned and received abroad; sending it to India later is a remittance, not a receipt in India | Ordinarily resident only |
| 5. Property in England, received there, ₹8,000 | Accrues and is received outside India | Ordinarily resident only |
| 6. Past untaxed foreign income brought to India, ₹20,000 | Not income of the previous year 2016-17; bringing old savings into India is a remittance, not income | None |
Income for assessment year 2017-18
| Particulars | Resident and ordinarily resident (Rs.) | Not ordinarily resident (Rs.) | Non-resident (Rs.) |
|---|---|---|---|
| 1. Interest from an Indian company | 20,000 | 20,000 | 20,000 |
| 2. Pension from a former employer in India | 8,000 | 8,000 | 8,000 |
| 3. Paris business: half received in India | 20,000 | 20,000 | 20,000 |
| 3. Paris business: half received outside India | 20,000 | 20,000 | — |
| 4. Agricultural income from Bhutan | 10,000 | — | — |
| 5. Income from property in England | 8,000 | — | — |
| 6. Past untaxed income brought to India | — | — | — |
| Gross total income | 86,000 | 68,000 | 48,000 |
If the facts assumed are otherwise
If the Bhutan farming is controlled from India, it is also taxed in the not ordinarily resident case: gross total income ₹86,000, ₹78,000 and ₹48,000. If ₹8,000 is the gross rent of the English property, the ordinarily resident case takes only the income after the 30% deduction of section 24(a), ₹5,600 (no local taxes are given): ₹83,600, ₹68,000 and ₹48,000. If the Bhutan income is first received in India (assumption 5), it is income received in India and is taxed for every status: ₹86,000, ₹78,000 and ₹58,000. If the pension is for service rendered outside India (assumption 3), it is not earned in India (section 9(1)(ii), Explanation) and, received in the USA, is taxed only in the ordinarily resident case: ₹86,000, ₹60,000 and ₹40,000; this holds unless the former employer is the Government and he is a citizen of India, when section 9(1)(iii) deems it to arise in India and the main figures stand. If the borrowing was used for a business of the company outside India or for income from a source outside India (assumption 4), the interest is not deemed to accrue in India and, received in London, is taxed only in the ordinarily resident case: ₹86,000, ₹48,000 and ₹28,000.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Basis of charge for each status (section 5) | 1 |
| 2 | Treatment of items 1 to 3 | 2 |
| 3 | Treatment of items 4 to 6 | 1.5 |
| 4 | Income in the three cases | 1.5 |
| Total | 6 |
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