Is your Income Indian enough?
A look at what constitutes as Income
on Indian soil and what is not from the perspective of the IT department. The
IT department defines certain incomes as Accruing or Arising in India. This is
the basis of calculating your income and income tax. Let’s know more…
Residential Matters: There arises a question of who/what is a Resident of India
and who/what is not a resident of India. The IT department has defined these
entities.
An Individual is defined as a
resident in India in the previous year if he/she satisfies one of the following
conditions:
- He/she has spent a total of 182 or more days in India
in the assessment year.
- If he/she has spent a total of 60 days or more in the
assessment year and has spent a total of 365 days in the previous
four years. For example in case the assessment year is 2008-09, then if
you have spent >60 days in India between 1st April 2008 and
31st March 2009 and a total of >365 days during 1st
April 2004-31st March 2008.
- For anyone who is in the merchant navy (but, on an
Indian Ship) or has gone out of the country for employment, the above
clause will become 182 days in the assessment year and 365 days in
preceding four years.
The IT department also states very
clearly that if a person is deemed resident for one source of income, then, he
will be counted as resident for all incomes in that particular year.
A person is said to be not
ordinarily resident in India if that person satisfies any one of the following
criteria
- Has been a non-resident in India in nine out of ten
years preceding the year of assessment.
- Has spent less than 792 days combined during a period
of 7 years prior to the assessment year.
Now that we have suitably understood
who is defined as a Resident Indian for the purposes of Income tax, let’s look
at which of their income is deemed Indian.
The following are considered to be
income accrued in India. Any income which is gained from or through any
business connection in India. This could be directly or indirectly. Incomes
which are received from a property which is situated inside Indian borders.
Through or from any source based in India and from the sale of a capital asset
inside India.
Thus what the IT department says is
that if they can clearly define that the source of the income is in India then
the Income too is accrued in India.
To put the above discussion into
more clearer terms:
- Any salary paid in India is deemed to have accrued in
India. Even any charges which are collected as payable for a service
rendered in India is regarded as income earned in India.
- If a government employee or citizen of India is
reimbursed by the Government for rendering any service outside India then
it is deemed as accrued in India.
- Any dividend which is paid by an Indian company outside
India to a resident as defined earlier will be considered as an income
earned in India.
- Interest payable by the government is considered as
accrued in India. This would apply for all kinds of government securities
and saving instruments like bonds.
- Any interest received from a resident except if that
person has borrowed money from you to pursue business activities outside
India. The logic behind this could be that this would ensure positive cash
flow into India.
- If the interest is paid by a non-resident to you then
it will be added to your income except if that person has used the money
borrowed from you to use for business activities in India. The logic
behind this would be to boost investments in India.
- The same concepts of point D, E and F are applicable
for any income generated from Royalties or copyrights.
- For any income from fees for technical services
provided the IT department uses the yardsticks as mentioned in points D, E
and F.
Although at a cursory glance some of
the ideas discussed above might sound to be the stuff that our
Auditor/Financial Planner should be concerned with and not us, it is imperative
that we understand the philosophy behind them so that we are more in control of
our income tax assessments. With the increasing benefits of technology the tax
man is becoming more and more competent in keeping track of your activities
vis-à-vis your income tax implications. Thus it is highly advisable that we are
very clearly aware of all the rules and regulation and ensure 100% compliance.
After all its our hard earned money that will work hard for the Indian economy.
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