Residential status and income tax – individual

Individual Tax Payers are either “resident in India” or “non resident in India”.But a resident Individual can be either

(i) resident and ordinarily resident in India or
(ii) resident but not ordinarily resident in India.

Resident Status

First find out if the Individual is a resident or a non resident in India.

In case such Individual is resident in India, then we will find out whether he is

(i) “ordinarily resident inIndia” or
(ii) “not ordinarily resident of India”.

An Individual is a resident in India in case

(a) “he is in India in the previous year for a period of 182 days or more” or
(b) “he is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year”.

Note: Condition (b) above is not taken into consideration in two cases given below and in these two cases, residential status of an Individual shall be determined only on the condition (a) above.

Case1 - This covers an Indian Citizen who leavesIndia during the previous year for the purpose of employment outsideIndia or an Indian citizen who leavesIndia during the previous year as a member of the crew of an Indian ship. For this purpose, the requirement is not leaving India for taking employment outside India but leaving India for the purposes of employment (the employment may be in India or outside India)

Case 2 - This covers an Indian Citizen or a person of Indian origin who comes on a visit to India during the previous year. A person is deemed to be of Indian origin if he or either of his parents or any of his grand parents (grand parents include both maternal and paternal grand parents), was born in undividedIndia.

A resident Individual is treated as “resident and ordinarily resident in India” if he satisfies additional two conditions namely -

(i) he has been resident inIndiain at least 2 out of 10 previous years immediately preceding the relevant previous year.
(ii) he has been in India for a period of 730 days or more  during 7 years immediately preceding the relevant previous year.

An individual who satisfies at least one of the basic conditions [conditions (a) or (b) given above] but does not satisfy the two additional conditions [conditions (i) and (ii) above], is treated as a resident but not ordinarily resident in India.

An Individual is a non-resident in India if he satisfies none of the basic conditions (a) or (b) above. In the case of non-resident, additional conditions (i) and (ii) above are not relevant.

Relationship between residential status and Incidence of Tax

Incidence of tax on a tax payer depends on his resident status and also on the place and time of accrual or receipt of income.

It is important to know the meaning of “Indian Income” and foreign income” to understand the relationship between residential status and tax liability.

Indian income

It includes following:

  1. If income is received (or deemed to be received) inIndiaduring the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) inIndiaduring the previous year.
  2. If Income is received (or deemed to received) inIndiaduring the previous year but it accrues (or arises) outsideIndiaduring the previous year.
  3. If income is received outsideIndiaduring the previous year but it accrues or arises or is deemed to accrue or arise) inIndiaduring the previous year.

Foreign Income

If the following two conditions are satisfied, then such income is “foreign Income”

  1. Income is not received (or not deemed to be received) inIndiaand
  2. Income does not accrue or arise (or does not deemed to accrue or arise) in India.

Incidence of Tax

Indian income

(i)   For resident and ordinarily resident in India Individuals        - Taxable in India
(ii)  For resident but nor ordinarily resident in India Individuals   - Taxable in India
(iii) For non-resident Indians Individuals               … …              .  - Taxable in India

Foreign Income

(i)  For resident and ordinarily resident in India Individuals        - Taxable in India
(ii) For Individuals resident but not ordinarily resident in India – only two types of foreign incomes (case 1 and case 2 given below) are taxable in India.
Case 1- If it is business income and business is controlled wholly or partly from India.
Case 2- If it is income from profession which is set up in India.
No other foreign income (like salary, rent, interest, etc.) is taxable in India in the hands of a resident but not ordinarily resident Individuals
(iii) For non-resident Indians Individuals                                  .Not taxable in India

 

Discrepancy between Form 26AS and Tax Claimed

 … 

Form 26AS shows the Tax Credit history for the assessee as per the Income Tax department’s records. It is possible that there is a mismatch between tax claimed in income tax return and tax credit reflected in Form 26AS for an assessee. This could lead to lesser refund or additional tax liability for the assessee.

Potential reasons for mismatch

  1. Deductor/collector has not filed his Tax Deducted at Source(TDS)/ Tax Collected at Source (TCS) statement.  E.g., Employer has not filed his quarterly TDS return
  2. You have not provided PAN to the deductor/collector;
  3. You have provided incorrect PAN to the deductor/collector;
  4. The deductor/collector has made an error in quoting your PAN in the TDS/TCS return;
  5. The deductor/collector has not quoted your PAN;
  6. The details of challan against which your TDS/TCS was deposited was wrongly quoted in the statement by the deductor or wrongly quoted in the challan details uploaded by the bank.
  7. Your PAN was not properly quoted in the tax payment challans (applicable to Part C of Form 26AS).
  8. The bank has made error in entering the PAN while digitizing the challan data (applicable to Part C of Form 26AS).
  9. The bank has failed to upload the digitized information to TIN (applicable to Part C of Form 26AS).

How to identify and rectify error:

 

For Self Assessment Tax, Advance Tax
  1. You can use the challan status enquiry facility provided at TIN website (https://tin.tin.nsdl.com/oltas/index.htmlto verify whether a challan bearing the Challan Identification Number (CIN) given in the counterfoil available with you has been uploaded to TIN.
    1. If the PAN as seen in this uploaded data is not your PAN, you may take up the issue with your Assessing Officer for rectification of PAN.
    2. In case the bank has not uploaded the details with respect to your deposit of tax, you may take up with your bank so that this information is upoaded.
    3. If the amount of advance/self assessemnt tax is incorrectly reflect in Part C of Form 26AS, then take up the matter with the bank.
For TDS/ TCS
  1. Check with your employer/deductor/collector to find out whether TDS/TCS quarterly returns were filed
    1. If TDS/TCS returns were not filed, request the employer/ deductor to file a TDS/TCS statement.
  2. Check with employer/deductor/collector to verify if there were any errors in PAN Number, amount of tax deducted or challan details in the TDS return
    1. If yes, then follow up with employer/deductor/collector to file TDS/TCS correction return
  3. Check with employer/deductor/collector to see if correct challan details were provided in TDS/TCS return but bank has made error while digitising challan details
    1. If yes, then inform employer/deductor/collector to contact bank for rectification

Note: The deductor can use the Quarterly Statement Status facility available at TRACES website (http://contents.tdscpc.gov.in/en/deductor-faq2.html) to verify both upload and booking status of the TDS/TCS return uploaded by it.

Exception for mismatch upto Rs. 5,000/-:

Per Instruction No. 4/2012 issued by the IT department (dated 02-Feb-2012):

  1. In all returns (ITR-1 to ITR-6), where the difference between the TDS claim and matching TDS amount reported in AS-26 data does not exceed Rs. Five thousands, the TDS claim may be accepted without verification.
  2. Where there is zero TDS matching, TDS credit shall be allowed only after due verification.
  3. Where there are TDS claims with invalid TAN, the TDS credit for such claims is not to be allowed.
  4. In all other cases TDS credit shall be allowed after due verification.

As per the above, mismatch between TDS claim and Tax Credit Statement (Form 26AS) upto Rs 5,000 may be accepted by the department.

For additional information please refer the FAQ section of TRACES website. The url for the same is given below:

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