Section 5 Which Defines The "Scope of Income" Section 6 Which Defines The "The Residential Status" of The Person

INTRODUCTION
The “scope of income” i.e. what is to be included in income

depends upon.
A] Who earns the income? I.e. whether a resident in or a non-

resident.
B] When the income arises, i.e. whether in the previous year or

not.
C] Where the income arises i.e. whether India or outside India.

Thus, scope of income depends upon the residential status as
well as the place and year of accrual. The “who when and where of
income” is explained in details in.
Section 5 which defines the “scope of income”

Section 6 which defines the “the residential status” of the
person.
A person is classified ,on the basis of legal status, into
individual, Hindu undivided family, firm, association of person,
body of individuals or artificial person. This has already been
explained.
A person may be further classified on the basis of
residential status into
A] A resident of India
B] A non-resident of India.
A resident or HUF`s can be further classified into

A] Ordinarily resident or not ordinarily resident. it should be noted
that:
1. Residential status is to be determined for every previous year as

it may change from year to year. It depends upon the number of
days a person is in India during the concerned previous year.
2. Residential status is different from citizenship. An individual

may be the citizen of Britain but a resident in India. similarly an
Indian citizen may be non-resident in India.
Basic condition
Normally, an individual is said to be resident in India, in any
previous year , if he satisfy any one of the followings two basic
condition-
1. He should be in India, 182 days or more during relevant

previous year.
OR
2. He should be in India for 60 days or more during
relevant previous year.
And
3. He is India for 365 days or more during the 4 previous
years immediately preceding the relevant previous year.
Normally, an individual is a residential In India if he was in

India either for 182 days during the year or 60 days during the
year and atleast 365 days during the last 4 year. An individual
who satisfy either of the above two basic condition is a resident.
an individual who satisfy neither of the two condition is called a
non-resident.
Exceptions
Following are the two exceptions to the rule of stay in India for
a period of 60 days in second condition above.
A] a citizen of India or an Indian member or a crew of an

Indian ship, who leaves India in the previous year for the
purpose of employment, becomes a resident only if he stays In
India for 182 days or more during previous year. “employment”
above includes a salaried job as well as self employment. A
person leaving India for his own business or profession is also
covered. Under the doctrine of floating island. An Indian ship
will be treated as a floating island of India , even when away
from India. This doctrine of floating island does not apply to an
Indian citizen who is member of crew of an Indian ship.
B] a citizen of India or a person of India origin who stays

abroad comes to India during previous year for the purpose of
visit will be treated as resident in India. If total period of stay in
India is 182 days or more. In other words the second basic
condition of section 6(1) is not applicable.
If in the above case if total period of stay in India is less
than 182 days then assesses become non-resident in India and
his foreign income is not taxable.
In order to become person of Indian origin, the assesee himself

or his parents or his grand parents (maternal or paternal) where
born in undivided India.
Undivided India means India before independence which
includes India, Bangladesh, and Pakistan.
RESIDENT AND ORDINARLY RESIDENT
A resident individual may be either an ordinarily resident or a

not ordinarily resident. every individual who has stayed in India
for the specified number of days in particular year is a ‘resident’
in India for the previous year. But a resident individual would
also be an ordinary resident in India if he has been a resident in
India for a large number of years in the past.
Legal provision
In order to become resident and ordinarily resident in India, a
resident person must satisfy two additional condition given under
section 6(6) (a).
Conditions
1.he should be resident in india at least 2 out of 10 previous year

immediately preceding relevant previous year.
AND
2.he should be India for 730 days or more during 7 previous year
immediately preceding relevant previous year 2009-2010.
If any one or both the additional condition are

not satisfy then the person becomes resident but not ordinarily
resident In India.
SCOPE OF TOTAL INCOME
INTODUCTION
The following points should be noted in regards to scope of

income.
1.while section 4 makes the total income of the previous year

chargeable to tax, section 5 determines the extent and the scope of
income which items are excluded while computing tax liability.
2 .the scope of income depends on the residential status of the

person. As seen above there are three broard categories of persons:
A] Resident and ordinarily resident.
B] Non resident.
C] Resident but not ordinarily resident.
Section 5 lays down what types of income would be taxable in the

case of assessee belongs to each of these categories.
TAXABILITY OF INCOME
No Nature of income OR R but NRI

NOR
1 Income received in india Taxable Taxable Taxable
2 Income accrue or arise in India. Taxable Taxable Taxable
3 Income deemed to be received In Taxable Taxable Taxable

India.
4 Income accrued and received Taxable Taxable Not
outside in India. taxable
(from business or profession
controlled from India)
5 Income accrued and received Taxable Not Not
outside India taxable taxable
6 Past untaxed profit/income brought Not Not Not
to India during p.y taxable taxable taxable
RECEIPT AND ACCRUAL OF INCOME
Income which is received in India or which accrues or arises In

India is taxable in all cases. The followings points will help you to
understand the concepts of ‘receipt’ and ‘accrual’:
1. Receipt and remittance:

Receipt of income means the first
occasion when the money comes under the control or possession of
the receivers after the first occasion of receipt, if any money is sent
to another place it is a more remittance of money and not receipt of
income.
2. Cash and kind:

Income may be received in cash or any kind for
e.g a doctor may receive a car in lieu of fees from a rich patient,
this would be receipt of income in kind and taxable. When income
is received In kind amount of equal to be the fair market value of
the item in the date of receipt.

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INTRODUCTION

The “scope of income” i.e. what is to be included in income

A] Who earns the income? I.e. whether a resident in or a non-

B] When the income arises, i.e. whether in the previous year or

C] Where the income arises i.e. whether India or outside India.

Section 5 which defines the “scope of income”

A resident or HUF`s can be further classified into

1. Residential status is to be determined for every previous year as

2. Residential status is different from citizenship. An individual

1. He should be in India, 182 days or more during relevant

Normally, an individual is a residential In India if he was in

A] a citizen of India or an Indian member or a crew of an

B] a citizen of India or a person of India origin who stays

In order to become person of Indian origin, the assesee himself

A resident individual may be either an ordinarily resident or a

1.he should be resident in india at least 2 out of 10 previous year

If any one or both the additional condition are

The following points should be noted in regards to scope of

1.while section 4 makes the total income of the previous year

2 .the scope of income depends on the residential status of the

Section 5 lays down what types of income would be taxable in the

No Nature of income OR R but NRI

2 Income accrue or arise in India. Taxable Taxable Taxable

3 Income deemed to be received In Taxable Taxable Taxable

Income which is received in India or which accrues or arises In

1. Receipt and remittance:

2. Cash and kind:

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