In our previous article[1], the concept of deemed residency under Section 6 of ITA[2] has been discussed in detail. In this part, various issues related to determination of residential status of an individual are aimed for discussion. As per Section 6(1) of ITA an individual shall be treated as resident:

1. If he is in India for a period of 182 days or more during previous year or
2. If he is in India for a period of 365 days within 4 years immediately preceding previous years and 60 days or more during the previous year.

A person being an individual is treated as resident in India if any of the conditions i.e., (a) or (b) above is satisfied. Otherwise, such person is treated as non-resident. Further, Explanation 1 to Section 6(1) states that in case of an individual:

1. being a citizen of India who leaves in India in any previous year as a member of crew member of an Indian ship or for the purposes of employment outside India, the period of stay for that year specified above as 60 days is to be replaced with 182 days.
2. being a citizen of India or person of Indian origin, who is staying outside India, comes to India on a visit to India in any previous year
3. the period of stay specified above as 60 days is to be replaced with 182 days.
4. In the case of such person having total income, other than income from foreign sourced income, exceeding INR 15 lakhs, the period of stay specified above as 60 days is to be replaced with 120 days.

A plain reading of Section 6 seems to be easy to understand. However, each and every aspect of Section 6 needs to be analyzed carefully, as many practical difficulties would arise while interpreting the provisions.

Let us proceed to analyze various aspects of provisions of Section 6.

Read more: Various Issues of Residency under Section 6

One of the mysteries of the 21^st Century is the taxation of rental income under the IT Act[1]. The classification of such rental income is quite challenging and garnering a unanimous view among tax practitioners itself is impossible, forget about the authorities and courts. In this article, we try to analyse the various judgements on the issue and provide our conclusions about the classification.

Before proceeding to analyse the various judgments, a quick look at the scheme of IT Act is essential. Section 4 of the IT Act deals with charge of income tax on total income earned by the assessee in the previous year. The tax on the total income of the previous year has to be classified under the heads of income as provided in Section 14 of Act and accordingly the liability has to be computed. Each head of income is different from other head and has different entitlements, restrictions and prohibitions in the total scheme of the act. Hence, classifying an income under the appropriate head is important because of different tax consequences. For example, an income which is classified under IFHP[2] is eligible only for a standard deduction of expenditure as against actuals, however, the same income, which if classified under PGBP[3], does not have any restriction for claiming the expenditure. Hence, it is important to classify the income under appropriate head to avoid any future litigations on the said count.

Read more: Rental Income – IFHP vs PGBP vs IFOS - A Challenging Tax Puzzle

In this edition, we bring you, one of the most complicated classifications under the income tax laws, that is, classification of lease income. Whether the same would be classified under income from house property or profits and gains from business or profession or income from other sources is a complicated issue and we tried to discuss on the same with the help of a case study.

The next article is on the various issues under the residency under Section 6 of Income Tax Act. We have covered the most asked issues, whether the day of arrival is counted for purposes of computation of days present in India for determining the residential status and similar items.  

I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same.

Key Topics:

DIRECT TAX

• LEASE INCOME - IFHP VS PGBP VS IFOS
• VARIOUS ISSUES OF RESIDENCY UNDER SECTION 6

Re-Opening of Assessment – Challenge before Delhi High Court

As the legislature has permitted re-assessment to be made only in accordance with the substituted provisions, it can only be done in this manner, or not at all - Delhi High Court.

Background:

During the outbreak of COVID-19 pandemic, in order to provide sufficient time to comply with various provisions under the Income Tax Act, 1961 (‘ITA’) and other laws, Central Government (‘CG’) has enacted Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (‘TOLA, 20’)

Read more: SBS I 19th Edition