Residential Status of the person in India

The Income Tax liability of a person is determined on the basis of his residential status. Under section 6 of Income Tax Act the rules to determine the residential status have been given. There are two classes of determinaries — Indian Residents and Non Resident Indians (NRIs). Other persons/HUF can be classified into residents and not ordinarily residents. It is necessary to determine the extent of income for every assessment year.

Residents and ordinarily residents

A person, who has been living in India in that year for 182 or more days, or stayed for 60 days or more in that year & 365 days or more in 4 proceedings years. [For Indian crew members & persons of Indian origin 182 days in place of 60 days] is considered as Resident in India. He has to pay income tax on his gross income whether it is earned in India or in abroad.

A person, who was resident in India for 2 years out of 10 previous years or 730 days or more during 7 years immediately the relevant previous year, is considered as an ordinarily resident. Also a Person, who lived in India for 365 days or more during the financial year, is considered as ordinarily resident in India.

Non-Residents

A person, who lived in India for less than 182 days, is considered as Non-Resident. He has to pay income tax on the income earned/collected in India. Non-Resident Indian husband/wife of FEMA is considered as the Person of Indian Origin  who has rights equal to Non-Resident Indian.

Not Ordinarily Resident

Any person/Hindu undivided family (H.U.F.) who is non-resident Indian for 2 years during 10 years or live in India for 729 days or less during 7 years immediately preceding the relevant previous year whether continuously or not is called not Ordinarily Resident in India.

Importance of PAN – Permanent Account Number

PAN or Permanent Account Number is a 10 digit code issued by the Income Tax department to every assessee. For specified transactions every person has to quote his or her permanent account number ( PAN ) compulsorily according to a new rule 114. Under new series Permanent Account Number or PAN is an all India unique number of 10 digits which remains unchanged even in case of change of your address, station or your assessing officer.

To widen the tax net the requirements to obtain and quote PAN has been amplified. For filing Income Tax returns 1/6 scheme has been abolished from 1st April 2006. Only those persons are required to file Income Tax returns whose income exceeds the maximum limit of taxable income.

To get a Permanent Account Number ( PAN ), According to section 139A the assesses have to make an application in form NO 49A in duplicate.

Why PAN (Permanent Account Number) is Necessary.

Every person earning total amount more than taxable limit should obtain a PAN.

A person should obtain a PAN if he is liable to file a return of income under section 139 (4A).

By employer, who is required to file a return of fringe benefits u/s 115WD.

A businessman or a professional should obtain a PAN, if his total sales/turnover or gross receipts are more than Rs.5 lakhs.

According to rule for the following transactions every person has to quote his PAN in all the documents:

When any immovable property valued Rs.5 lakhs or more is sold or purchased.

For the registration of a motor vehicle if required, during sale or purchase on demand of registration officer.

To open a bank account.

To apply for telephone/cellular phone connection.

To pay the bills of hotel and restaurants amounting more than Rs.25, 000 at a time.

For time Deposit account with banks or post offices more than Rs.50, 000.

To pay in cash for foreign travel amounting Rs.25, 000 or more at a time.

A deposit more than Rs.50, 000 in one day in any bank.

To purchase bank drafts, pay orders/bankers cheque on cash payment of more than

Rs.50, 000/- in one day.

For sale or purchase of securities on contract valued more than Rs.1 lakh according to section 2(h) of Securities Contracts (Regulating) Act, 1956.

On declaration under Form No. 60/61 any one can open a bank account or make any deposits in the bank or enter into other above mentioned transactions without having a PAN.

Quoting a wrong PAN (Permanent Account Number) will bring you a penalty of Rs. 10,000/- u/s 272B (2)

Government to Implement Direct Tax Code for 2011

Government of India proposed relief for individuals, companies that pay minimum alternate tax. (MAT to be computed on the basis of book profits) and entities using the provisions of the double taxation avoidance agreements in the revised draft of the Direct Taxes Code.

The New Income Tax Code where the new slab of 10 % tax upto 10 lakhs income is not an attractive proposal.

To understand about Direct Tax code, India wants to modernize its direct tax laws, mainly its income tax act which is nearly fifty years old.  So government wants a modern tax code in step with the needs of an economy which is the third largest economy in ASIA. The budget has estimated about USD 92 Billion in direct Tax receipts for the year that ends in March 2011.

According to new tax code the Tax Slabs are

Tax for income between Rs 2 Lakhs to Rs 5 Lakhs – 10 %.

Tax for income between Rs 5 lakhs to Rs 10 Lakhs – 20 %

Tax for income over Rs 10 Lakhs – 30 %

Under new Tax Code:

1. HRA is taxable.

2. Interest paid on Housing loan is not exempted.

3. Medical reimbursement, LTA are taxable.

4. EPF, Leave encashment and gratuity when u retire are taxable

5. Difference between long-term and short-term capital gains eliminated.

6. Buying or selling of securities by FIIs to be charged capital gains.

7. FIIs not to be subjected to TDS will pay advance tax

According to new proposed tax code there will be more burden on some foreign institutional investors (FIIs), as the revised draft said any income arising through sale and purchase of securities will be taxed under capital gains. At present, it is treated as Business income of a foreign company and exempted from tax.

In a bid to check tax avoidance, the government of India also proposed to tax profits of overseas subsidiaries of Indian companies – whether distributed or not by way of dividend in India. In addition, it has addressed some of the concerns on foreign companies that are not residents of India.

Non-profit organizations can draw some comfort as income from public religious activities will be exempt from tax if they fulfill certain conditions.

Due to this new Direct Tax Code choices are that U will pay more tax when u earn and u will pay tax again when u retire.One of the key aims of the new tax code is to provide a system which takes into account increased cross border mergers and acquisitions by Indian corporates over the last few years. The new code is also expected to streamline tax rates and administration for foreign institutional investors, for whom India is a top destination

The limit for tax exemption for salaried people is Rs 2 Lakhs, where as for senior citizens the limit is upto 2.5 lakhs. Corporate tax has been kept at 30 %.

The government plans to implement DTC from April 2011.

India Finance Minister Pranab Mukherjee presents his annual budget on Friday for the year 2010-2011. Pranab has got the chance to present the budget after a long pause. The last time he presented the budget was at the time of Indira Gandhi.

Following are the highlights of the budget 2010-2011 being presented by Pranab Mukherjee in the Parliament.

Finance Minister says Economy now in far better position than a year ago Need to review stimulus and public spending Challenge to return to 9% growth, then double-digit Final FY10 GDP figure may be higher than estimate of 7.2%

Finance Minister says that we need to move towards fiscal consolidation

Fiscal deficit seen at 6.9 % of GDP in 2009/10

Fiscal deficit seen at 5.5 % of GDP in 2010/11 (Reuters poll 5.6 pct)

Fiscal deficit seen at 4.8 % of GDP in 2011/12, 4.1 % in 2012/13

Total expenditure in 2010/11 11.87 trillion rupees (USD 256.75 billion)
2009/10 revised estimate for tax collection 7.47 trillion rupees (USD 161.58 billion)

Roadmap within six months to cut public debt

Government will be in a position to implement direct tax code from April 2011

Aims to introduce GST in April 2011

Since December have been signs food prices pressures transmitting to non-food items.

Government to simplify FDI policy

New Personal income tax slabs for the year 2010 -2011

Finance Minister Pranab Mukherjee also raised personal income tax slabs. Details are as follows:

Taxable income (in Rs) Rate (%)
Up to 160,000 – Nil
160,001 – 500,000 -10 %
500,001 – 800,000 – 20 %
800,001 upwards – 30 %