Scope of Total Income - Residential Status and Scope of Total Income, Income Tax Laws Video Lecture | Income Tax Laws - B Com

Hi there ! This is Student Guide Live & we
will be discussing the Scope of Total Income.
This concept explains which income will be
included in computation of Total Income of
which Assessee. It means Income Tax divides
Income as well as assessees in different categories.
If we write different categories of income
in rows and assesse in columns, then we will
get a grid or a table consisting of multiple
cells. Each cell represents a unique combination
of income and assesse. Section 5 tells us
how to deal with this unique combination appearing
in each cell. It means same income for one
type of assesse may get included in his / her
total income; whereas it may be excluded from
the total income of another assesse. Thus,
Section 5 tells us the scope of total income
of each assesse.
Let us now understand Classification of Income
for the purpose of Section 5. On a careful
reading of Section 5, we can classify Income
in eight categories as follows
In this classification, the source of income,
the nature of activity resulting in income
etc are not important. Instead, the place
of receipt or accrual of income is important.
You can see the eight categories of income
on screen.
Income received in India means, that income
which is received in India. It’s place of
accrual may be in India or anywhere else.
Income deemed to be received in India means,
that income which is assumed to be received
in India. Section 7 deals with this type of
income. It is that income which is not actually
received in the relevant previous year. But
it is credited to the account of the assesse
during the relevant previous year. For example,
amount credited to the statutory or recognized
provident fund account of the employee. It
is credited in the current previous year,
but the employee does not receive it in his
hands for spending immediately. Therefore
it is called as deemed to be received.
Income accrued or arised in India, is that
income which is earned in India. It’s place
of receipt is immaterial.
Generally, an income is treated as accrued
in India, if the activity of earning the income
is conducted in India.
Section 9 deals with Income deemed to have
been accrued or arised in India, in detail.
Here, prima facie the place of accrual may
appear to be outside India, but due to applicability
of provisions of Section 9, it is assumed
to be accrued in India.
First four categories cover those income which
are either received or deemed to received
or accrued or deemed accrued in India.
From fifth category we move ahead to those
income, which are neither received nor accrued
in India. These are received as well as accrued
outside India. These income are further classified
in three categories.
That income which is received outside India,
accrued also outside India; but it is the
result of a business controlled from India
or Profession set up in India. The difference
between business and profession is very thin.
We will discuss about it later while discussing
Section 28. At the moment, we can just keep
it in mind that Income Tax differentiates
between business and profession.
Next category is of that income which is received
outside India, accrued also outside India;
and it is the result of a business controlled
from outside India or a profession set up
outside India.
Second last category is of that type of income
which neither from business nor from profession,
and which is further received outside India
and accrued also outside India. An example
of this can be interest or dividend received
in foreign country from investment made in
foreign country or rent received outside India
from a property situated outside India.
Last category of Income is actually referring
to savings, since it talks about income which
was earned in any year preceding to relevant
previous year and it is brought to India now
during the relevant previous year.
Thus, based on place of receipt or place of
accrual, income is classified in eight categories,
which will become eight rows of our table
of Section 5.
We have seen in the earlier discussion that
Income is divided in eight categories based
on the place of receipt or accrual of income.
Now we will discuss the categorization of
assesse. Based on Residential Status, Assessee
can be divided in four categories, namely,
Resident,
Resident & Ordinarily Resident
Resident but not ordinarily resident
Non Resident
But, Section 5 prescribes same treatment for
Resident assesse and Resident and Ordinarily
Resident Assessee.
Hence, for the purpose of Scope of Total Income,
we will combine these two. Accordingly Assessee
will be classified in three categories.
The first category is of Resident Assessee
or those Individuals and HUFs who are Resident
& Ordinarily Resident.
Second Category is of those Individuals and
HUFs who are Resident but not Ordinarily Resident.
Third category is of Non resident assessees.
We will display these three categories by
way of three columns in our table of scope
of total income.
Based on Section 5, we have divided income
in eight categories and displayed these eight
categories in eight rows. Then we divided
assessees in three categories and displayed
them in three columns.
Thus our table of scope of total income is
created with 24 unique cells. Let us now ask
one question every time in each of these 24
cells. And the question to be asked is, “ Should
we include this income in the total income
of this assesse?”
The table on the screen gives answer applicable
to each cell to this question. An analysis
of these answers reveals the following.
For first four types of income, i.e. received
in India, deemed to be received in India,
accrued in India and deemed to be accrued
in India, irrespective of the residential
status of the assesse, it will be included
in his / her total income.
As we go the next categories of income, the
answers start changing. In case of a Non resident
assesse, any income other than the first four
types, will be excluded from his total income.
In case of a Resident but not ordinarily resident
Individual or HUF, any income other than first
five types, will be excluded from his total
income.
In case of Resident and Ordinarily Resident
Individual or HUF and incase of every other
assesse who is Resident in India, except the
last income that past income repatriated to
India in RPY, every other income is included
in Total Income.
With this we come to an end of our discussion
of Scope of Total Income u/s 5 of The Income
Tax Act. Please check the website for additional
material on this subject. It will be updated
from time to time.