PART - A
INCOME-TAX
CHAPTER - II
BASIS OF CHARGE
(1) Subject to the provisions of this Code, every person shall be liable to pay incometax
in respect of his total income for the financial year.
(2) The liability to pay income-tax, referred to in sub-section (1), shall be the amount
of income tax calculated at the rate specified in the First Schedule and in the
manner provided therein.
(3) However, if a person is a company, the liability to pay income-tax referred to in
sub-section (1) shall be the higher of the following amounts:-
(a) the amount of the liability calculated under sub-section (2); and
(b) the amount calculated at the rate specified in Paragraph A of the Second
Schedule and in the manner provided therein.
(4) The liability to pay income-tax shall be discharged by payment of pre-paid taxes
in accordance with the provisions of this Code.
(5) Without prejudice to the foregoing and subject to the provisions of this Code,
every person may be charged in respect of his liability to pay income-tax referred
to in sub-section (1).
(6) The income-tax charged under the foregoing provisions shall be collected after
allowing credit for pre-paid taxes, if any, in accordance with the provisions of this
Code.
(7) The liability to pay income-tax, or the chargeability thereof, under the foregoing
provisions, for any financial year, shall be determined in accordance with the
provisions of this Code as they stand on the 1st day of April immediately succeding
the last day of the financial year.
3.Scope of total income :
(1) Subject to the provisions of this Code, the total income for any financial year of a
person, who is a resident, shall include all income from whatever source derived
which-
(a) accrues, or is deemed to accrue, to him in India in the year;
(b) accrues to him outside India in the year;
(c) is received, or is deemed to be received, by him, or on his behalf, in India in
the year; or
(d) is received by him, or on his behalf, outside India in the year.
(2) Subject to the provisions of this Code, the total income for any financial year of a
person, who is a non-resident, includes all income from whatever source derived
which-
(a) accrues, or is deemed to accrue, to him in India in the year; or
(b) is received, or is deemed to be received, by him, or on his behalf, in India in
the year.
(3) Any income which accrues to a resident outside India in the year, or is received
outside India in the year by, or on behalf of, such resident, shall be included in the
total income of the resident, regardless of -
(a) the income having been charged to tax outside India;or
(b) the method for granting of relief for the avoidance of double taxation under
any agreement referred to in section 258.
4.Residence in India :
(1) An individual shall be resident in India in any financial year, if he is in India-
(a) for a period, or periods, amounting in all to one hundred and eighty-two days,
or more, in that year; or
(b) for a period, or periods, amounting in all to -
(i) sixty days, or more, in that year, and
(ii) three hundred and sixty-five days, or more, within the four years
immediately preceding that year.
(2) The provisions of clause (b) of sub-section (1) shall not apply in respect of an
individual who is–
(a) a citizen of India, or a person of Indian origin, living outside India and who
visits India in that year;
(b) a citizen of India and who leaves India in that year as a member of the crew of
an Indian ship; or
(c) a citizen of India and who leaves India in that year for the purposes of
employment outside India.
(3) A company shall be resident in India in any financial year, if-
(a) it is an Indian company; or
(b) its place of control and management, at any time in the year, is situated wholly,
or partly, in India.
(4) However, every other person shall be resident in India in any financial year, if the
place of control and management of its affairs, at any time in the year, is situated
wholly, or partly, in India.
5.Income deemed to accrue in India :
(1) The income shall be deemed to accrue in India, if it accrues, whether directly or
indirectly, through or from:-
(a) a business connection in India;
(b) a property in India;
(c) an asset or source of income in India; or
(d) the transfer, directly or indirectly, of a capital asset situate in India.
(2) Without prejudice to the generality of the provisions of sub-section (1), the
following income shall be deemed to accrue in India: -
(a) income from employment, if it is for–
(i) service rendered in India;
(ii) service rendered outside India by a citizen of India and the income is
receivable from the Government; or
(iii) the rest period, or leave period, which precedes, or succeeds, the period
of service rendered in India and forms part of the service contract of
employment;
(b) dividend received outside India from an Indian company;
(c) interest accrued from the Government or any resident;
(d) interest accrued from any non-resident, if the interest is in respect of any debt
incurred and the debt is used for the purposes of-
(i) a business carried on by the non-resident in India; or
(ii) earning any income from any source in India;
(e) royalty accrued from the Government or any resident;
(f) royalty accrued from a non-resident, if the royalty is for the purposes of -
(i) a business carried on by the non-resident in India; or
(ii) earning any income from any source in India;
(g) fees for technical services accrued from the Government or any resident;
(h) fees for technical services accrued from any non-resident, in respect of services
utilised for the purposes of,-
(i) a business carried on by the non-resident in India; or
(ii) earning any income from any source in India;
(i) transportation charges accrued from the Government or any resident;
(j) transportation charges accrued from any non-resident, if the transportation
charges are in respect of the carriage to, or from, a place in India.
(3) For the purposes of clause (a) of sub-section (1), in the case of a business of which
all the operations are not carried out in India, the income of the business deemed
to accrue in India shall be only such part of the income as is reasonably attributable
to those operations carried out in India.
(4) The income deemed to accrue in India under sub-section (1) shall, in the case of a
non-resident, not include the following :-
(a) any income accruing through, or from, operations which are confined to the
purchase of goods in India for the purposes of export out of India;
(b) interest accrued from a resident, in respect of any debt incurred and used for
the purposes of,-
(i) a business carried on by the resident outside India; or
(ii) earning any income from any source outside India;
(c) royalty accrued from a resident for the purposes of,-
(i) a business carried on by the resident outside India; or
(ii) earning any income from any source outside India;
(d) royalty consisting of lump sum consideration accrued from a resident for the
transfer of any rights (including the granting of a licence) in respect of computer
software supplied by a non-resident manufacturer, along with a computer or
computer-based equipment, under any scheme approved under the Policy on
Computer Software Export, Software Development and Training, 1986 of the
Government of India.
(e) fees for technical services, accrued from a resident, in respect of services
utilised for the purposes of,-
(i) a business carried on by the resident outside India; or
(ii) earning any income from any source outside India;
(f) transportation charges for the carriage by aircraft or ship, accrued from any
resident, if the transportation charges are in respect of the carriage from a
place outside India to another place outside India.
(5) The provisions of sub-section (2) shall be applicable regardless of the fact that,-
(a) the payment is made outside India;
(b) the services are rendered outside India; or
(c) the income has otherwise not accrued in India.
6.Income deemed to be received in the financial year :
The following income shall be deemed to be received in the financial year:-
(a) any contribution made by the employer, in the financial year, to the account of
an employee with any permitted savings intermediary referred to in sub-section
(2) of section 66.
(b) any contribution made by the employer to any fund, other than an approved
fund, or the interest thereon.
Total income to include income of any other person
7. (1) The total income of any person shall include the following income of any other
person:-
(a) any income transferred, whether revocable or not, to any other person without
transferring the asset from which the income accrues;
(b) any income accruing from an asset transferred to any trust, if the transfer is
revocable during the life time of the beneficiary of the trust; and
(c) any income accruing from an asset transferred to any other person, not being
a trust, if the transfer is revocable during the lifetime of such other person.
(2) For the purpose of this section,-
(a) a transfer shall be deemed to be revocable if -
(i) it contains any provision for the re-transfer, directly or indirectly, of the
whole or any part of the income or assets to the transferor; or
(ii) it, in any way, gives the transferor a right to re-assume power, directly or
indirectly, over the whole or any part of the income or assets;
(b) a transfer shall include any settlement, trust, covenant, agreement or
arrangement.
8.Total income to include income of spouse, minor child, etc. ;
(1) The total income of any individual shall include,-
(a) all income which accrues, directly or indirectly,-
(i) to the spouse, by way of salary, commission, fees or any other form of
remuneration, from a concern in which the individual has a substantial
interest other than any income solely attributable to the application of the
technical or professional knowledge and experience of the spouse;
(ii) from assets transferred, directly or indirectly, to the spouse by the
individual, otherwise than for adequate consideration, or in connection
with an agreement to live apart;and
(iii) from assets transferred, directly or indirectly, to any other person by the
individual otherwise than for adequate consideration, to the extent to which
the income from such assets is for the immediate or deferred benefit of
the spouse;
(b) all income which accrues to a minor child (other than a minor child being a
person with disability or person with severe disability) of the individual, other
than income which accrues to the child on account of any-
(i) manual work done by the child; or
(ii) activity involving application of the skill, talent or specialised knowledge
and experience of the child;
(c) all income derived from any converted property or part thereof;
(d) all income derived from any converted property which is received by the
spouse or minor child upon partition of the Hindu undivided family of which
the individual is a member.
(2) The income referred to in sub-clause (i) of clause (a) of sub-section (1) shall,
regardless of anything contained therein, be included in the total income of the
spouse whose total income (excluding the income referred to in that sub-clause) is
higher.
(3) The Board may precribe the method for determining the income referred to in
sub-clause (ii) of clause (a) of sub-section (1).
(4) The income referred to in clause (b) of sub-section (1) shall be included in the
total income of–
(a) the parent who is the guardian of the minor child, if the other parent is not a
guardian; or
(b) the parent whose total income (excluding the income referred to in that clause)
is higher, if both the parents are guardians of the child;
9.Income not included in the total income :
The total income for a financial year of any person shall not include any of the income
enumerated in the Sixth Schedule.
10.Persons not liable to income-tax :
The persons specified in the Seventh Schedule shall not be liable to income-tax under
section 3 of this Code.
