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SECTION 5. INCIDENCE OF TAX (SCOPE OF TOTAL INCOME)

Indian Income : Income which accrues in India.

Foreign Income : Income which accrues outside India.

Source of income is located in India : Indian income.

Source of income located outside India : Foreign income.

Source of income is said to be located in India if (BATS)

Business is done in India, the income is generated from an asset which is located in India, there is a transfer of asset which is located in India; or services are rendered in India.

Incidence of tax

R-OR			R-NOR		nr
1.	Income which accrues or arise in India. (indian income)	Taxable	Taxable		Taxable
2.	Income which accrues or arise outside India. (Foreign Income)	Taxable	Not Taxable. However in case of		Not Taxable but if income is received in India then taxable.
			Business Income	Professional Income
			Taxable if business is controlled from India	Taxable if Profession is set up in India
			Taxable if any income is received in India. ta^vbyrk com
3.	Dividend from an Indian company exempt u/s 10(34).	Exempt	Exempt		Exempt
4.	Past untaxed profit (not taxable since already taxed in earlier PY)	Not Taxable	Not Taxable		Not Taxable
5.	Gifts received from relatives (not taxable since capital receipts)	Not Taxable	Not Taxable		Not Taxable

P1 : Short questions and answers

If income accrues in India then such income is always taxable in India irrespective of residential status. (True or False)
. If income accrues outside India then such income is taxable in case of an assessee who is R-NOR & NR.
When the income is received in India from a source outside India then such income is always taxable in India irrespective of residential status. (True or False)
Which income of NR is not taxable in India.

Solution
1. True.
2. False, taxable only if certain conditions are satisfied.
3. True. In case of R-OR all incomes are taxable in India whether received in India or outside India.
4. Foreign income received outside India is not taxable in India. However if such income is received in India
then it is taxable in India.

P2 : Explain the taxability of following transactions with reasons:
1. Profit from business in Khetri (India) and managed from outside India. Income is received outside India.
2. Profit from business in Italy & managed from India. Income is received outside India.
3. Salary from services rendered in India. Salary is paid by a foreign company.
4. Salary from services rendered outside India. Salary is paid by an Indian company.
5. Income from house property in London (received there)
6. Interest on saving bank deposit in Standard Chartered Bank, New Delhi
7. Amount brought into India out of the past untaxed profits earned in Germany
8. Income from agriculture in Sri Lanka being invested there
9. Income from business in Nepal, being controlled from India
10. Gift in foreign currency from a relative received in India
11. Income from house property in USA received in USA (₹ 76,000 is used in Canada for meeting the educational expenses of X’s daughter and ₹ 10,000 is later on remitted to India)
12. Dividends received in Belgium from French companies out of which ₹ 2,500 were remitted to India.
13. Dividend from Indian Company. Indian company is wholly owned subsidiary of foreign company.
14. Dividend from Foreign Company. Foreign company is wholly owned by Indian citizens.
15. Income from business in Dubai controlled from India. 60% received in India.

Solution

		R-OR	R-NOR	NR
1.	Profit from a business in Khetri (Indian Income)	T	T	T
2.	Profit from a business in Italy and managed from India. • _T \ .com (Foreign Income)	T	T	NT
3.	Salary from services rendered in India. (Indian Income)	T	T	T
4.	Salary from services rendered outside India. (Foreign Income)	T	NT	NT
5.	Income from house property in London. (Foreign Income)	T	NT	NT
6.	Interest on saving bank deposit in India. (Indian Income)	T	T	T
7.	Past untaxed profits.	NT	NT	NT
8.	Income from agriculture in Sri Lanka. (Foreign Income)	T	NT	NT
9.	Income from business in Nepal, controlled from India. (Foreign Income)	T	T	NT
10.	Gifts from a relative received in India.	NT	NT	NT
11.	Income from house property in USA received inUSA. (Foreign Income)	T	NT	NT
12.	Dividend from French companies. (Foreign Income)	T	NT	NT
13.	Dividend from Indian Company. (Indian Income)	E	E	E
14.	Dividend from Foreign Company. (Foreign Income)	T	NT	NT
15.	Business income from Dubai controlled from India. (Foreign Income)	T (100%)	T (100%)	T (60%)

P3 : Compute gross total income if he is : (i) R-OR (ii) R-NOR (iii) Non-Resident.

Profit from business in Sharjah, controlled from USA, 75% received in India	10,000
Income from house property in Delhi received in Bhutan	40,000
Profit from business in Gaya controlled from Ghana	50,000
Profit from business in Kochi controlled from Sikkim	70,000
Profit from business in Shimla received in Africa	55,000
Profit from business in Ghana controlled from Gaya	25,000
Profit from agricultural land in Zurich	5,000

Remuneration from services rendered in Brazil paid by an Indian company. (50% remuneration remitted to India)	12,000
Remuneration from services rendered in Chandigarh paid by a foreign company	18,000
Interest from Bonds of U.S.A. (75% of interest brought to India)	26,000
Dividend from an Indian Company	8,000
Past untaxed profit remitted to India	80,12,513

Ans: 3,11,000; 2,65,500; 2,40,500.
Solution

	R-OR	R-NOR	NR
Profit from a business in Sharjah. (Foreign Income)	10,000	7,500	7,500
Income from house property in Delhi. (Indian Income)	40,000	40,000	40,000
Profit from business in Gaya. (Indian Income)	50,000	50,000	50,000
Profit from business in Kochi. (Indian Income)	70,000	70,000	70,000
Profit from business in Shimla. (Indian Income)	55,000	55,000	55,000
Profit from business in Ghana. (Foreign Income)	25,000	25,000	Nil
Profit from agricultural land in Zurich. (Foreign Income)	5,000	Nil	Nil
Remuneration from services in Brazil. (Foreign Income)	12,000	Nil	Nil
Remuneration from services rendered in Chandigarh. (Indian Income)	18,000	18,000	18,000
Interest from Bonds of U.S.A. (Foreign Income)	26,000	Nil	Nil
Dividend from an Indian Company exempt u/s 10(34). (Indian Income)	Exempt	Exempt	Exempt
Past untaxed profit.	NT	NT	NT
Total	3,11,000	2,65,500	2,40,500

P4: Compute gross total income if he is : (i) R-OR (ii) R-NOR (iii) Non-Resident.

1.	Interest on German Development Bonds (one-third is received in India)	51,000
2.	Income from agriculture in Bangladesh, remitted to India.	31,000
3.	Income from property in Canada received in U.S.A.	1,10,000
4.	Income earned from business in Kuwait, business being controlled from Mumbai. (? 25,000 is received in India)	65,000
5.	Dividend from an Indian company	15,000
6.	Royalty received in Singapore from Mr.David, aresident in India, for technical services provided for a business carried on in Singapore.	25,000
7.	Profit from a business in Chennai; this business in controlled from Singapore	1,25,000
8.	Profit on sale of a building in India, but received in Nepal	2,50,000
9.	Income from agriculture in Punjab, received in Mumbai	30,000
10.	Profit from business in Paris controlled from Delhi. (60% of the profit deposited in a bank there and 40% is remitted to India)	40,000
11.	Interest received from Mr. Dayal, a non-resident, on the loan provided to him for a business in India.	28,000

Ans: 7,25,000; 5,25,000; 4,45,000

Assignment
P1: During the financial year Mr. Taxcrazy had the following taxable incomes:

1	Salary received in India for services rendered in Pakistan	10000
2	Income from profession in India, but received in Japan	3000
3	Profit earned from business in Koderma, India.	5000
4	Agricultural Income in Germany	10000
5	Profits from business carried on at Nepal but controlled from India
6	Past untaxed profit remitted to India during the previous year from USA
7	Profit form business in England received in India

Compute the income he (a) resident and ordinarily resident in India, (b) not ordinarily resident, (c) non-resident
in India.
Ans : 45,000; 35,000; 28,000

P2 : Following are the particulars of income of Sri Ram.

1	Salary received in India for three months	9000
2	Income from the house property in India	13470
3	Interest on Saving Bank Deposit in SBI	1000
4	Income from agriculture in Indonesia being invested there	12,350
5	Income from business in Bangladesh, being controlled from India	10,150
	Dividends received in Belgium from French companies out of which 2500

Compute the income he (a) resident and ordinarily resident in India, (b) not ordinarily resident, (c) non-resident
in India.
Ans : 68,970; 33,620; 23,470

P3: Arun, a citizen of India residing in Germany for the past 10 years, came back to India for the first time during January, 2014. During the financial year 2013-14, he received the following income :
He works in a company in Germany and earns a salary of Euro 1,000 per month;
He owns agricultural land near Bangalore and a residential house in Delhi which has been let-out. While the agricultural income is being remitted to his account in Germany every year, the rental income of ₹84,000 is being deposited in his bank account at Delhi; and He also owns shares in various Indian companies and receives dividend every year, which has been regularly deposited in his bank account at Delhi.
He seeks your advice as to taxability of the above income under the provisions of the Income-tax Act, 1961 as
he is an Indian citizen and earning income in India.

[CS J06]

Ans: Salary not taxable; Agricultural income not taxable; rental income taxable; dividend not taxable.
P4: Mr X has business interest in both India and Hongkong. Discuss the tax treatment.

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FAQs on Incidence of Tax (Scope of Total Income) - Taxation - Income Tax for assessment (Inter Level)

1. What is the incidence of tax?

Ans. The incidence of tax refers to the burden of a tax, i.e., who ultimately bears the economic cost of the tax. It can be understood as the impact of the tax on different individuals or entities, such as consumers, producers, or both.

2. What is the scope of total income for taxation purposes?

Ans. The scope of total income for taxation purposes refers to the range of income sources that are considered taxable. It includes all income earned or received by an individual or entity from various sources such as employment, business, investments, capital gains, and any other taxable activities.

3. How is the incidence of tax determined?

Ans. The incidence of tax is determined by analyzing the elasticity of supply and demand for the taxed goods or services. If the demand is more elastic than supply, consumers bear a larger share of the tax burden. Conversely, if the supply is more elastic than demand, producers bear a larger share of the tax burden.

4. What are the different factors that affect the incidence of tax?

Ans. Several factors can influence the incidence of tax, including the price elasticity of demand and supply, the relative bargaining power of buyers and sellers, the ability to shift the tax burden, and the market structure. These factors can vary across different industries and markets, leading to different outcomes in terms of tax incidence.

5. How does tax incidence impact consumers and producers?

Ans. The impact of tax incidence on consumers and producers depends on the elasticity of demand and supply. If consumers bear a larger share of the tax burden, it can lead to higher prices for goods or services, reducing their purchasing power. On the other hand, if producers bear a larger share, it can affect their profitability and potentially lead to reduced production or investment. Ultimately, the burden of tax incidence can have a significant impact on both consumers and producers.

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