for CA/CMA Intermediate

DIRECT
TAXATION

(for MAY/JUNE & SEP/DEC 2026 & JAN 27 EXAMS)

Amended by Finance Act, 2025
As per New Syllabus of ICAI

CA Bhanwar Borana
© Author

All rights reserved. No part of this book should be copied, reproduced, stored in retrieval system,
or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise, without obtaining prior permission in writing from the authors.

All disputes are subject to Delhi/Mumbai Jurisdiction only.

 Contents
Chapter 1 Basic Concepts 1
Chapter 2 Residence and Scope of Total Income 9
Chapter 3 Income from Salary 28
Chapter 4 Income from House Property 51
Chapter 5 Profit & Gain from Business or Profession (PGBP) 63
Chapter 6 Capital Gain 92
Chapter 7 Income from Other Sources 111
Chapter 8 Income of Other Persons Included in Assessee’s Total Income 120
Chapter 9 Aggregation of Income, Set-Off and Carry Forward of Losses 131
Chapter 10 Deductions from Gross Total Income 152
Chapter 11 Advance Tax, Tax Deduction at Source and Introduction to Tax
Collection at Source 173
Chapter 12 Provisions for Filing return of Income and Self Assessment 188
Chapter 13 Income Tax Liability Computation and Optimisation [Total Income &
Tax liability] 194
 Chapter 1: Basic Concepts

CHAPTER

Basic Concepts 1
Question 1 [Tax Calculation as per Normal Prov.]
Mr. X has a total income of ` 12,00,000 for P.Y.2025-26, comprising of income from house
property and interest on fixed deposits. Compute his tax liability for A.Y.2026-27 assuming
his age is—
(a) 45 years
(b) 63 years
(c) 82 years
Assume that Mr. X exercises the option of shifting out of the default tax regime provided u/s
115BAC(1A). [SM Q.]

Question 2 [Marginal Relief]

Compute the tax liability of Mr. A (aged 42), having total income of ` 51 lakhs for the
Assessment Year 2026-27. Assume that his total income comprises of salary income,
Income from house property and interest on fixed deposit. Assume that Mr. A exercises the
option of shifting out of the default tax regime provided u/s 115BAC(1A). [SM Q.]

Question 3 [Marginal Relief]

Compute the tax liability of Mr. B (aged 51), having total income of ` 1,01,00,000 for the
Assessment Year 2026-27. Assume that his total income comprises of salary income,
Income from house property and interest on fixed deposit. [SM Q.]

Question 4 [Rebate u/s 87A as per Normal Provisions]

Mr. Raghav aged 26 years and a resident in India, has a total income of ` 4,40,000,
comprising his salary income and interest on bank fixed deposit. Compute his tax liability for
A.Y.2026-27. Assume assessee exercises the option of shifting out of the default tax regime
provided u/s 115BAC(1A). [SM Q.]
Answer 4
Computation of tax liability of Mr. Raghav for A.Y. 2026-27
Particulars `
Tax on total income of ` 4,40,000
Tax@5%of ` 1,90,000 (` 4,40,000 – ` 2,50,000) 9,500
Less: Rebate u/s 87A (Lower of tax payable or ` 12,500) 9,500
Tax Liability Nil

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Chapter 1: Basic Concepts

Question 5 [Rebate u/s 87A as per Normal Provisions]

Mr. Dinesh aged 35 years and a resident in India, has a total income of ` 4,80,000,
comprising of long-term capital gains taxable u/s 112 arise on 10/07/2025. Compute his tax
liability for A.Y.2026-27. Assume assessee exercises the option of shifting out of the default
tax regime provided u/s 115BAC(1A). [SM Q.]
Answer 5
Computation of tax liability of Mr. Dinesh for A.Y. 2026-27
Particulars `
Tax on total income of ` 4,80,000
[email protected]% of ` 2,30,000 (` 4,80,000 – ` 2,50,000, being unexhausted basic exemption 28,750
limit)
Less: Rebate u/s 87A (Lower of ` 28,750 or ` 12,500) 12,500
16,250
Add: Health and education cess @4% 650
Tax Liability 16,900

Question 6 [Rebate u/s 87A as per Sec 115BAC]

Mr. Pawan aged 35 years and a resident in India, has a total income of `
12,15,000, comprising his salary income and interest on bank fixed deposit. Compute his
tax liability for A.Y.2026-27 under default tax regime u/s 115BAC.
Answer 6
Computation of tax liability of Mr. Pawan for A.Y. 2026-27
Particulars `
Tax on Total Income as per section 115BAC 62,250
Less: Rebate u/s 87A [not available as income > 12 lakhs] N/A
62250
Above amount restricted to
Tax on 12,00,000 + (NTI – 12,00,000) 15,000
[Nil + 15,000]
15,000
Add: HEC@4% 600
Tax Liability 15,600

Question 7 [Definition of Assessee]

Who is an “Assessee”? [SM Q.]
Answer 7
As per section 2(7), assessee means a person by whom any tax or any other sum of money is payable
under the Income-tax Act, 1961.
In addition, the term includes –

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 Chapter 1: Basic Concepts
§ Every person in respect of whom any proceeding under the Act has been taken for the assessment
of –
• his income; or
• the income of any other person in respect of which he is assessable; or
• the loss sustained by him or by such other person; or
• the amount of refund due to him or to such other person.
§ Every person who is deemed to be an assessee under any provision of the Act;
§ Every person who is deemed to be an assessee in default under any provision of the Act.

Question 8 [HUF School of laws]

What are the two schools of Hindu law and where are they prevalent? Explain. Also,
mention the difference between the two schools of Hindu Law. [SM Q.]
Answer 8
The two schools of Hindu law are Dayabaga school, prevalent in West Bengal and Assam, and
Mitakshara school, prevalent in rest of India. Under the Dayabaga school of Hindu Law, nobody
acquires the right, share in the property by birth as long as the head of family is living. Thus, the
children do not acquire any right, share in the family property, as long as his father is alive and only
on death of the father, the children will acquire right/share in the property. Hence, the father and his
brothers would be the coparceners of the HUF.
Under the Mitakshara school of Hindu Law, one acquires the right to the family property by his birth
and not by succession irrespective of the fact that his elders are living. Thus, every child born in the
family acquires a right/share in the family property.

Question 9 [HUF School of laws]

The Jain HUF in Assam comprises of Mr. Suresh Jain, his wife Mrs. Sapna Jain, his son Mr.
Sarthak Jain, his daughter-in-law Mrs. Preeti Jain, his daughter Miss Seema Jain and his
unmarried brother Mr. Pritam Jain. Which of the members of the HUF are eligible for
coparcenary rights? [SM Q.]
Answer 9
Dayabaga school of Hindu law is prevalent in Assam. In Dayabaga school of Hindu law, nobody
acquires the right, share in the property by birth as long as the head of family is living. Thus, the
children do not acquire any right, share in the family property, as long as his father is alive and only
on death of the father, the children will acquire right/share in the property.
Hence, Mr. Suresh Jain and his brother, Mr. Pritam Jain would be the coparceners of the Jain HUF
and are eligible for coparcenary rights.

Question 10 [AOP/BOI Deference]

What is the difference between an Association of Persons and Body of Individuals? [SM Q.]
Answer 10
In order to constitute an Association of Persons (AOP), persons must join for a common purpose or
action and their object must be to produce income; it is not enough that the persons receive the
income jointly.

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Chapter 1: Basic Concepts
Body of Individuals denotes the status of persons like executors or trustees who merely receive the
income jointly and who may be assessable in like manner and to the same extent as the beneficiaries
individually. Thus, coexecutors or co-trustees are assessable as a BOI as their title and interest are
indivisible.
The difference between an AOP and BOI is that in case of a BOI, only individuals can be the
members, whereas in case of AOP, any person can be its member i.e. entities like company, firm etc.
can be the member of AOP but not of BOI.
In case of an AOP, members voluntarily come together with a common will for a common intention
or purpose, whereas in case of BOI, such common will may or may not be present.

Question 11 [Income of PY Taxable in PY only]

State any four instances where the income of the previous year is assessable in the
previous year itself instead of the assessment year. [SM Q.]
Answer 11
The income of an assessee for a previous year is charged to income-tax in the assessment year
following the previous year. However, in a few cases, the income is taxed in the previous year in
which it is earned. These exceptions have been made to protect the interests of revenue. The
exceptions are as follows:
(i) Where a ship, belonging to or chartered by a non-resident, carries passengers, livestock, mail or
goods shipped at a port in India, the ship is allowed to leave the port only when the tax has
been paid or satisfactory arrangement has been made for payment thereof. 7.5% of the freight
paid or payable to the owner or the charterer or to any person on his behalf, whether in India or
outside India on account of such carriage is deemed to be his income which is charged to tax in
the same year in which it is earned.
(ii) Where it appears to the Assessing Officer that any individual may leave India during the
current assessment year or shortly after its expiry and he has no present intention of returning to
India, the total income of such individual for the period from the expiry of the respective
previous year up to the probable date of his departure from India is chargeable to tax in that
assessment year.
(iii) If an AOP/BOI etc. is formed or established for a particular event or purpose and the Assessing
Officer apprehends that the AOP/BOI is likely to be dissolved in the same year or in the next
year, he can make assessment of the income up to the date of dissolution as income of the
relevant assessment year.
(iv) During the current assessment year, if it appears to the Assessing Officer that a person is likely
to charge, sell, transfer, dispose of or otherwise part with any of his assets to avoid payment of
any liability under this Act, the total income of such person for the period from the expiry of
the previous year to the date, when the Assessing Officer commences proceedings under this
section is chargeable to tax in that assessment year.
(v) Where any business or profession is discontinued in any assessment year, the income of the
period from the expiry of the previous year up to the date of such discontinuance may, at the
discretion of the Assessing Officer, be charged to tax in that assessment year.

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 Chapter 1: Basic Concepts

Question 12 [Tax Calculation with Special Income]

Mr. Agarwal, aged 40 years and a resident in India, has a total income of ` 6,50,00,000,
comprising long term capital gain taxable u/s 112 of ` 55,00,000, short term capital gain
taxable u/s 111A of ` 65,00,000 and other income of ` 5,30,00,000. Compute his tax liability
for A.Y.2026-27 under the default tax regime and optional tax regime as per the normal
provisions of the Act assuming that the total income and its components are the same in
both tax regimes. [SM Q.]

Question 13 [Tax Calculation with Special Income]

Mr. Sharma aged 62 years and a resident in India, has a total income of ` 2,30,00,000,
comprising long term capital gain taxable @12.5% u/s 112 of ` 52,00,000, short term capital
gain taxable @20% u/s 111A of ` 64,00,000 and other income of ` 1,14,00,000. Compute
his tax liability for A.Y.2026-27 under the default tax regime and optional tax regime as per
the normal provisions of the Act assuming that the total income and its components are the
same in both tax regimes.
Question 14 [Bifurcation of Business & Agriculture Income]
Mr. B grows sugarcane and uses the same for the purpose of manufacturing sugar in his
factory. 30% of sugarcane produce is sold for ` 10 lacs, and the cost of cultivation of such
sugarcane is ` 5 lacs. The cost of cultivation of the balance sugarcane (70%) is ` 14 lacs
and the market value of the same is ` 22 lacs. After incurring ` 1.5 lacs in the manufacturing
process on the balance sugarcane, the sugar was sold for ` 25 lacs. Compute B’s business
income and agricultural income. [SM Q.]
Answer 14
Computation of Business Income and Agriculture Income of Mr. B
Particulars Business Agricultural Income
Income
(`) (`) (`)
Sale of Sugar
Business income
Sale Proceeds of sugar 25,00,000
Less: Market value of sugarcane (70%) 22,00,000
Less: Manufacturing exp. 1,50,000
PGBP 1,50,000
Agricultural income
Market value of sugarcane (70%) 22,00,000
Less: Cost of cultivation 14,00,000
8,00,000
Sale of sugarcane
Agricultural Income
Sale proceeds of sugarcane (30%) 10,00,000
Less: Cost of cultivation 5,00,000 5,00,000
Agriculture Income 13,00,000

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Chapter 1: Basic Concepts

Question 15 [Agriculture Income]

Explain with brief reasons, whether the following income can be regarded as agricultural
income, as per the provisions of the Income-tax Act, 1961:
(i) Rent received for letting out agricultural land for a movie shooting.
(ii) Income from sale of seedlings in a nursery adjacent to the agricultural lands owned by
an assessee. [SM Q.]
Answer 15
(i) Rent received for letting out agricultural land for a movie shooting:
As per section 2(1A), “agricultural income” means, inter alia,
• any rent or revenue derived from land
• which is situated in India and is used for agricultural purposes.
In the present case, rent is being derived from letting out of agricultural land for a movie shoot,
which is not an agricultural purpose and hence, it does not constitute agricultural income.

(ii) Income from sale of seedlings in a nursery:

As per Explanation 3 to section 2(1A), income derived from saplings or seedlings grown in a
nursery is deemed to be agricultural income, whether or not the basic operations were carried out
on land.
Therefore, the amount received from sale of seedlings in a nursery adjacent to the agricultural
lands owned by the assessee constitutes agricultural income.
Question 16 [Bifurcation of Business & Agriculture Income]
Mr. Raja, a resident Indian, earns income of ` 10 lakhs from sale of coffee grown and cured
in India during the A.Y.2026-27. His friend, Mr. Shyam, a resident Indian, earns income of `
20 lakhs from sale of coffee grown, cured, roasted and grounded by him in India during the
A.Y.2026-27. What would be the business income chargeable to tax in India of Mr. Raja and
Mr. Shyam? [SM Q.]
Answer 16
In case of income derived from the sale of coffee grown and cured by the seller in India, 25% income
on such sale is taxable as business income. In case of income derived from the sale of coffee grown,
cured, roasted and grounded by the seller in India, 40% income on such sale is taxable as business
income.
Business income of Mr. Raja = 25% of ` 10 lakhs = ` 2.5 lakhs
Business income of Mr. Shyam = 40% of ` 20 lakhs = ` 8 lakhs

Question 17 [Bifurcation of Business & Agriculture Income]

Miss Vivitha, a resident and ordinarily resident in India, has derived the following income
from various operations (relating to plantations and estates owned by her) during the year
ended 31-3-2026:
S. No. Particulars `
(i) Income from sale of centrifuged latex processed from rubber plants 3,00,000
grown in Darjeeling.
(ii) Income from sale of coffee grown and cured in Yercaud, Tamil Nadu. 1,00,000
(iii) Income from sale of coffee grown, cured, roasted and grounded, in 2,50,000
Colombo. Sale consideration was received at Chennai.
(iv) Income from sale of tea grown and manufactured in Shimla. 4,00,000

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 Chapter 1: Basic Concepts
(v) Income from sapling and seedling grown in a nursery at Cochin. 80,000
Basic operations were not carried out by her on land.
You are required to compute the business income and agricultural income of Miss Vivitha
for the A.Y. 2026-27. [SM Q.]
Answer 17
Computation of business income and agricultural income of Ms. Vivitha for the A.Y.2026-27
Sr. Source of income Gross (`) Business income Agricultural
No. income

% ` `
(i) Sale of centrifuged latex from 3,00,000 35% 1,05,000 1,95,000
rubber plants grown in India.
(ii) Sale of coffee grown and cured in 1,00,000 25% 25,000 75,000
India.
(iii) Sale of coffee grown, cured, roasted 2,50,000 100% 2,50,000 -
and grounded outside India. (See
Note 1 below)
(iv) Sale of tea grown and manufactured 4,00,000 40% 1,60,000 2,40,000
in India
(v) Saplings and seedlings grown in
nursery in India (See Note 2 below) 80,000 Nil 80,000
Total 5,40,000 5,90,000
Notes:
1. Where income is derived from sale of coffee grown, cured, roasted and grounded by the seller in
India, 40% of such income is taken as business income and the balance as agricultural income.
However, in this question, these operations are done in Colombo, Sri lanka. Hence, there is no
question of such apportionment and the whole income is taxable as business income. Receipt of
sale proceeds in India does not make this agricultural income. In the case of an assessee, being a
resident and ordinarily resident, the income arising outside India is also chargeable to tax.
2. Explanation 3 to section 2(1A) provides that the income derived from saplings or seedlings
grown in a nursery would be deemed to be agricultural income whether or not the basic
operations were carried out on land.
Question 18 [Tax calculation and Partial integration in case of Agriculture Income]
Mr. X, a resident, has provided the following particulars of his income for the P.Y.
2025-26.
(i) Income from salary (computed) - ` 10,80,000
(ii) Income from house property (computed) - ` 2,50,000
(iii) Agricultural income from a land in Jaipur - ` 4,80,000
(iv) Expenses incurred for earning agricultural income - ` 1,70,000
Compute his tax liability for A.Y. 2026-27 assuming his age is -
(a) 45 years
(b) 70 years

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Chapter 1: Basic Concepts

Question 19 [Agriculture Income]

Discuss the taxability of the following transactions giving reasons, in the light of relevant
provisions, for your conclusion.
(i) Mr. Rajpal took a land on rent from Ms. Shilpa on monthly rent of ` 10,000. He sub- lets
the land to Mr. Manish for a monthly rent of ` 11,500. Manish uses the land for grazing
of cattle required for agricultural activities. Mr. Rajpal wants to claim deduction of `
10,000 (being rent paid by him to Ms. Shilpa) from the rental income received by it from
Mr. Manish.
(ii) Mr. Netram grows paddy on land. He then employs mechanical operations on grain to
make it fit for sale in the market, like removing hay and chaff from the grain, filtering the
grain and finally packing the rice in gunny bags. He claims that entire income earned by
him from sale of rice is agricultural income not liable to income- tax since paddy as
grown on land is not fit for sale in its original form.
Answer 19
(i) The rent or revenue derived from land situated in India and used for agricultural purposes would
be agricultural income u/s 2(1A)(a). Therefore, rent received from sub-letting of the land used for
grazing of cattle required for agriculture activities is agricultural income. The rent can either be
received by the owner of the land or by the original tenant from the sub-tenant.
Accordingly, rent received by Mr. Rajpal from Mr. Manish for using land for grazing of cattle
required for agricultural activities is agricultural income exempt u/s 10(1). As per section 14A, no
deduction is allowable in respect of exempt income.
(ii) The income from the process ordinarily employed to render the produce fit to be taken to the
market would be agricultural income u/s 2(1A)(b)(ii). The process of making the rice ready from
paddy for the market may involve manual operations or mechanical operations, both of which
constitute processes ordinarily employed to make the product fit for the market. Accordingly, the
entire income earned by Mr. Netram from sale of rice is agricultural income.

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 Chapter 2: Residence and Scope of Total Income

CHAPTER

Residence and Scope of

Total Income 2
Question 1 [Residential Status of Crew Member]
Mr. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian ship
engaged in carriage of passengers in international traffic departing from Chennai port on 6th
June, 2025. From the following details for the P.Y. 2025-26, determine the residential status
of Mr. Anand for A.Y. 2026-27, assuming that his stay in India in the last 4 previous years
(preceding P.Y. 2025-26) is 400 days: [SM Q.]
Particulars Date
Date entered into the Continuous Discharge Certificate in respect of 6th June, 2025
joining the ship by Mr. Anand
Date entered into the Continuous Discharge Certificate in respect of 9th December, 2025
signing off the ship by Mr. Anand
Answer 1
In this case, since Mr. Anand is an Indian citizen and leaving India during P.Y. 2025-26 as a member
of the crew of the Indian ship, he would be resident in India if he stayed in India for 182 days or
more.
The voyage is undertaken by an Indian ship engaged in the carriage of passengers in international
traffic, originating from a port in India (i.e., the Chennai port) and having its destination at a port
outside India (i.e., the Singapore port). Hence, the voyage is an eligible voyage for the purposes of
section 6(1).
Therefore, the period beginning from 6th June, 2025 and ending on 9th December, 2025, being the
dates entered into the Continuous Discharge Certificate in respect of joining the ship and signing off
from the ship by Mr. Anand, an Indian citizen who is a member of the crew of the ship, has to be
excluded for computing the period of his stay in India. Accordingly, 187 days [25 + 31 + 31 + 30 +
31 + 30 + 9] have to be excluded from the period of his stay in India. Consequently, Mr. Anand’s
period of stay in India during the P.Y. 2025-26 would be 178 days [i.e., 365 days – 187 days]. Since
his period of stay in India during the P.Y. 2025-26 is less than 182 days, he is a non-resident for A.Y.
2026-27.
Question 2 [Residential Status of Crew Member]
You are required to determine the residential status of Mr. Dinesh, a citizen of India, for the
previous year 2025-26.
Mr. Dinesh is a member of crew of a Singapore bound Indian ship, carrying passengers in
the international waters, which left Kochi port in Kerala, on 16th August, 2025.
Following details are made available to you for the previous year 2025-26:
Particulars Date
Date entered into the Continuous Discharge Certificate in respect of 16th August, 2025
joining the ship by Mr. Dinesh
Date entered into the Continuous Discharge Certificate in respect of 21st January, 2026
signing off the ship by Mr. Dinesh

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Chapter 2: Residence and Scope of Total Income
In June, 2025, he had gone out of India to Dubai on a private tour for a continuous period of
27 days.
During the last four years preceding the PY 2025-26, he was present in India for 425 days.
During the last seven PY’s preceding the PY 2025-26, he was present in India for 830 days.
[RTP NOV-20 Q.]
Answer 2
Determination of residential status of Mr. Dinesh for the P.Y. 2025-26
As per Explanation 1 to section 6(1), where an Indian citizen leaves India as a member of crew of an
Indian ship, he will be resident in India only if he stayed in India for 182 days during the relevant
previous year.
As per Explanation 2 to section 6(1)1, in case of an individual, being a citizen of India and a member
of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in
respect of an eligible voyage, not include the period commencing from the date entered into the
Continuous Discharge Certificate in respect of joining of ship by the said individual for the eligible
voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing
off by that individual from the ship in respect of such voyage.
Eligible voyage includes a voyage undertaken by an Indian ship engaged in the carriage of passengers
in international traffic, originating from any port in India and having its destination at a port outside
India.
In this case, voyage is undertaken by a foreign bound Indian ship engaged in the carriage of
passengers in international traffic, originating from a port in India (i.e., the Kochi port) and having its
destination at a port outside India (i.e., the Singapore port). Hence, the voyage is an eligible voyage.
Therefore, the period from 16th August, 2025 and ending on 21st January, 2026 has to be excluded
for computing the period of stay of Mr. Dinesh in India. Accordingly, the period of 159 days
[16+30+31+30+31+21] has to be excluded for computing the period of his stay in India during the
P.Y.2025-26.
Further, since Mr. Dinesh had also gone out of India to Dubai on a private tour for a continuous
period of 27 days in June, 2025, such period has also to be excluded for computing his period of stay
in India during the P.Y.2025-26.
Consequently, the period of stay in India during the P.Y. 2025-26 would be 179 days [i.e., 365 days –
159 days – 27 days], which is less than 182 days.
Thus, Mr. Dinesh would be a non-resident for A.Y. 2026-27.
Since the residential status of Mr. Dinesh is “non-resident” for A.Y. 2026-27 consequent to his
number of days of stay in India in P.Y. 2025-26, being less than 182 days, his period of stay in India
in the earlier previous years become irrelevant.

Question 3 [Residential Status of Individual]

Brett Lee, an Australian cricket player visits India for 100 days in every financial year. This
has been his practice for the past 10 financial years.
(a) Find out his residential status for the assessment year 2026-27.
(i) What will be your answer if he stays 90 days instead of 100 days.
(ii) What will be your answer if he stays 110 days instead of 100 days.
(b) Would your answer change if the above facts relate to Srinath, an Indian citizen who
resides in Australia and represents the Australian cricket team?
(c) What would be your answer if Srinath had visited India for 120 days instead of 100 days
every year, including P.Y.2025-26? [SM Q.]

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 Chapter 2: Residence and Scope of Total Income

Question 4 [Residential Status of Individual]

Mr. B, a Canadian citizen, comes to India for the first time during the P.Y. 2021-22. During
the financial years 2021-22, 2022-23, 2023-24, 2024-25 and 2025-26, he was in India for 55
days, 60 days, 90 days, 150 days and 70 days, respectively. Determine his residential
status for the A.Y. 2026-27. [SM Q.]
Question 5 [Residential Status of Individual]
Mr. Ram, an Indian citizen, left India on 22.09.2025 for the first time to work as an officer of
a company in Germany. Determine the residential status of Ram for the assessment year
2026-27. [SM Q.]
Answer 5
U/s 6(1), an individual is said to be resident in India in any previous year if he satisfies any one of the
following conditions –
(i) He has been in India during the previous year for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding the previous year for a total period
of 365 days or more and has been in India for at least 60 days in the previous year.
In the case of Indian citizens leaving India for employment, the period of stay during the previous
year must be 182 days instead of 60 days given in (ii) above.
During the previous year 2025-26, Mr. Ram, an Indian citizen, was in India for 175 days only (i.e.,
30+31+30+31+31+22 days). Thereafter, he left India for employment purposes.
Since he does not satisfy the minimum criteria of 182 days stay in India during the relevant previous
year, he is a non-resident for the A.Y. 2026-27.

Question 6 [Residential Status of Individual]

Mr. Dey, a non-resident, residing in US since 1990, came back to India on 1.4.2024 for
permanent settlement. What will be his residential status for assessment year 2026-27?
[SM Q.]
Answer 6
Mr. Dey is a resident in A.Y. 2026-27 since he has stayed in India for a period of 365 days (more
than 182 days) during the P.Y. 2025-26.
As per section 6(6), a person will be “Not ordinarily Resident” in India in any previous year, if such
person, inter alia,:
(a) has been a non-resident in 9 out of 10 previous years preceding the relevant previous year; or
(b) has during the 7 previous years immediately preceding the relevant previous year been in India
for 729 days or less.
If he does not satisfy either of these conditions, he would be a resident and ordinarily resident.
For the previous year 2025-26 (A.Y. 2026-27), his status would be “Resident but not ordinarily
resident” since he was non-resident in 9 out of 10 previous years immediately preceding the P.Y.
2025-26. He can be resident but not ordinarily resident also due to the fact that he has stayed in India
only for 365 days (i.e., less than 730 days) in 7 previous years immediately preceding the P.Y. 2025-
26.

Question 7 [Residential Status of Individual & Total Income]

Mr. Dhruv, a person of Indian origin and citizen of Country X, got married to Ms. Deepa, an
Indian citizen residing in Country X, on 4th February, 2025 and came to India for the first
time on 20-02-2025. He left for Country X on 12th August, 2025. He returned to India again
on 20-01-2026 with his wife to spend some time with his parents-in law for 30 days and
thereafter returned to Country X on 18.02.2026.
He received the following gifts from his relatives and friends of her wife during 01-04-2025 to
CA Bhanwar Borana 11
Chapter 2: Residence and Scope of Total Income
31-03-2026 in India:
- From parents of wife ` 1,01,000
- From married sister of wife ` 11,000
- From very close friends of his wife ` 2,82,000
(a) Determine his residential status and compute the total income chargeable to tax along
with the amount of tax payable on such income for the Assessment Year 2026-27.
(b) Will your answer change if he has received ` 16,00,000 instead of ` 2,82,000 from very
close friends of his wife during the previous year 2025-26 and he stayed in India for 400
days during the 4 years preceding the previous year 2025-26? [MTP Q.]
Answer 7
(a) Determination of residential status and computation of total income and tax payable of
Mr. Dhruv
U/s 6(1), an individual, being a person of Indian origin and who comes on a visit to India during the
previous year and his total income other than the income from foreign source exceeds ` 15,00,000, is
said to be resident in India, if he stayed in India for a total period of 120 days or more during that
previous year and for 365 days or more during the 4 years immediately preceding the relevant
previous year.
However, in case, the total income other than the income from foreign source does not exceed `
15,00,000, the said individual is said to be resident in India, only if he stayed in India for a total
period of 182 days or more during that previous year.
Since in the present case, total income other than from foreign source, of Mr. Dhruv, a person of
Indian origin does not exceed ` 15,00,000, he would be said to be resident in India, only if he stayed
in India for 182 days or more during the previous year 2025-26 relevant to A.Y. 2026-27.
His stay in India during the previous year 2025-26 is as under:
01.04.2025 to 12.08.2025 - 134 days
20.01.2026 to 18.02.2026 - 30 days
Total 164 days
Since Mr. Dhruv has stayed in India during the previous year for less than 182 days, he is said to be
non-resident. Accordingly, his total income and tax payable would be computed in the following
manner:
Computation of total income and tax payable of Mr. Dhruv for the A.Y. 2026-27
Particulars `
Income from other sources
Cash gifts received from non-relatives is chargeable to tax as per section 56(2)(x) if the
aggregate value of such gifts exceeds ` 50,000.
- ` 1,01,000 received from parents of wife would be exempt, since parents of wife Nil
fall within the definition of ‘relatives’ and gifts from a relative are not chargeable
to tax.
- ` 11,000 received from married sister-in-law is exempt, since sister of wife falls Nil
within the definition of relative and gifts from a relative are not chargeable to tax.
- Gift received from close friends of his wife of ` 2,82,000 is taxable u/s 56(2)(x)
since the said sum exceeds` 50,000. 2,82,000
Total Income 2,82,000
Tax on total income of ` 2,82,000 as per default tax regime u/s 115BAC is Nil due to
basic exemption of ` 4,00,000 Nil
Tax on total income of ` 2,82,000 as per normal provisions [5% of ` 32,000 in excess 1,600

12 CA Bhanwar Borana
 Chapter 2: Residence and Scope of Total Income
Particulars `
of` 2,50,000, being the basic exemption limit]
Add: Health and Education cess@4% 64
Total tax payable 1,664
Total tax payable (rounded off) 1,660

(b) Determination of residential status and computation of total income and tax payable of Mr.
Dhruv (if he has received cash gifts from non-relative for` 16,00,000):
Where an individual, being a person of Indian origin comes on visit to India and he is having total
income other than income from foreign sources exceeding ` 15 lakhs during the previous year, such
individual is said to be resident in India, if he stays in India during the previous year for 120 days or
more and for 365 days or more during the 4 years immediately preceding the relevant previous year.
As per section 6(6),such individual whose stay in India is for 120 days or more but less than 182 days
in the P.Y. 2025-26 would be resident but not ordinarily resident irrespective of his residential status
or no. of days of stay in India in the immediately preceding PYs.
Mr. Dhruv, is a person of India origin who has come on a visit to India during the previous year.
Since his total income other than income from foreign sources exceeds` 15,00,000; and his stay in
India is for 164 days during the P.Y. 2025-26 and for 400 days during the 4 years immediately
preceding the P.Y. 2025-26, he is resident but not ordinarily resident in India for the P.Y. 2025-26.
In such case, his total income and tax payable would be computed in the following manner:
Computation of total income and tax payable of Mr. Dhruv for the A.Y. 2026-27
Particulars `
Income from other sources
Cash gifts received from non-relatives is chargeable to tax as per section 56(2)(x) if
the aggregate value of such gifts exceeds` 50,000.
- ` 1,01,000 received from parents of wife would be exempt, since parents of wife Nil
fall within the definition of ‘relatives’ and gifts from a relative are not
chargeable to tax.
- ` 11,000 received from married sister-in-law is exempt, since sister of wife falls Nil
within the definition of relative and gifts from a relative are not chargeable to
tax.
- Gift received from close friends of his wife of ` 16,00,000 is taxable u/s 56(2)(x) 16,00,000
since the amount of cash gifts exceeds ` 50,000.
Total Income 16,00,000
Tax on total income of ` 16,00,000 as per default tax regime u/s 115BAC
Upto` 4,00,000 Nil
` 4,00,001 – ` 8,00,000 @5% 20,000
` 8,00,001 – ` 12,00,000 @ 10% 40,000
` 12,00,001 – ` 16,00,000 @ 15% 60,000 1,20,000
Add: Health and Education cess@4% 4,800
Total tax payable 1,24,800

CA Bhanwar Borana 13
Chapter 2: Residence and Scope of Total Income
Note – Since his tax payable as per normal provisions is ` 3,04,200 [` 2,92,500 (` 1,12,500 plus 30%
on ` 6,00,000 income exceeding ` 10,00,000) plus ` 11,700, being health and education cess @4%],
which is higher than the tax payable computed as per concessional tax rates available u/s 115BAC, it
is beneficial for him to opt for section 115BAC.

Question 8 [Residential Status of Individual & Total Income]

Miss Charlie, an American national, got married to Mr. Radhey of India in USA on 2.03.2025
and came to India for the first time on 16.03.2025. She left for USA on 19.9.2025. She
returned to India again on 27.03.2026. While in India, she had purchased a show room in
Mumbai on 30.04.2025, which was leased out to a company on a rent of ` 25,000 p.m. from
1.05.2025. She had taken loan from a bank for purchase of this show room on which bank
had charged interest of ` 97,500 upto 31.03.2026. She had received the following cash gifts
from her relatives and friends during 1.4.2025 to 31.3.2026:
- From parents of husband ` 51,000
- From married sister of husband ` 11,000
- From two very close friends of her husband (` 1,51,000 and ` 21,000) ` 1,72,000
(a) Determine her residential status and compute the total income chargeable to tax along
with the amount of tax liability on such income for the Assessment Year 2026-27 if she
opts out of the default tax regime u/s 115BAC.
(a) Would her residential status undergo any change, assuming that she is a person of
Indian origin and her total income from Indian sources is `18,00,000 and she is not liable
to tax in USA? [SM Q.]
Answer 8
I. U/s 6(1), an individual is said to be resident in India in any previous year, if he/she satisfies any
one of the following conditions:
(i) He/she has been in India during the previous year for a total period of 182 days or more, or
(ii) He/she has been in India during the 4 years immediately preceding the previous year for a
total period of 365 days or more and has been in India for at least 60 days in the previous
year.
If an individual satisfies any one of the conditions mentioned above, he/she is a resident. If both
the above conditions are not satisfied, the individual is a non-resident.
Therefore, the residential status of Miss Charlie, an American National, for A.Y.2026-27 has to
be determined on the basis of her stay in India during the previous year relevant to A.Y. 2026-27
i.e., P.Y.2025-26 and in the preceding four assessment years.
Her stay in India during the previous year 2025-26 and in the preceding four years are as under:
P.Y. 2025-26
01.04.2025 to 19.09.2025 - 172 days
27.03.2026 to 31.03.2026 - 5 days
Total 177 days
Four preceding previous years
P.Y. 2024-25 [1.4.2024 to 31.3.2025] - 16 days
P.Y.2023-24 [1.4.2023 to 31.3.2024] - Nil
P.Y.2022-23 [1.4.2022 to 31.3.2023] - Nil
P.Y.2021-22 [1.4.2021 to 31.3.2022] - Nil
Total 16 days
The total stay of the assessee during the previous year in India was less than 182 days and during

14 CA Bhanwar Borana
 Chapter 2: Residence and Scope of Total Income
the four years preceding this year was for 16 days. Therefore, due to non-fulfillment of any of the
two conditions for a resident, she would be treated as non-resident for the Assessment Year 2026-
27.

Computation of total income of Miss Charlie for the A.Y. 2026-27

Particulars ` `
Income from house property
Show room located in Mumbai remained on rent from 01.05.2025 to 2,75,000
31.03.2026 @ ` 25,000/- p.m.
Gross Annual Value [` 25,000 x 11] (See Note 1 below)
Less: Municipal taxes Nil
Net Annual Value (NAV) 2,75,000
Less: Deduction u/s 24
30% of NAV 82,500
Interest on loan 97,500 1,80,000 95,000
Income from other sources
Cash gifts received from non-relatives is chargeable to tax as per
section 56(2)(x), if the aggregate value of such gifts exceeds `
50,000.
- `50,000 received from parents of husband would be exempt,
since parents of husband fall within the definition of ‘relative’ Nil
and gifts from a relative are not chargeable to tax.
- `11,000 received from married sister of husband is exempt, since
sister-in-law falls within the definition of relative and gifts from a Nil
relative are not chargeable to tax.
- Gift received from two friends of husband ` 1,51,000 and `
21,000 aggregating to ` 1,72,000 is taxable u/s 56(2)(x) since the
aggregate of ` 1,72,000 exceeds ` 50,000. (See Note 2 below) 1,72,000 1,72,000
Total income 2,67,000
Computation of tax liability by Miss Charlie for the A.Y. 2026-27
Particulars `
Tax on total income of ` 2,67,000 850
Add: Health and Education cess@4% 34
Total tax liability 884
Total tax liability (rounded off)
880
Notes:
1. Actual rent received has been taken as the gross annual value in the absence of other
information (i.e. Municipal value, fair rental value and standard rent) in the question.
2. If the aggregate value of taxable gifts received from non-relatives exceed ` 50,000 during the
year, the entire amount received (i.e. the aggregate value of taxable gifts received) is taxable.
Therefore, the entire amount of ` 1,72,000 is taxable u/s 56(2)(x).
3. Since Miss Charlie is a non-resident for the A.Y. 2026-27, rebate u/s 87A would not be
available to her, even though her total income does not exceed ` 5 lacs.
4. The tax liability of Miss Charlie would be the same even if she opts to pay tax as per section
CA Bhanwar Borana 15
Chapter 2: Residence and Scope of Total Income
115BAC, since she would be eligible for deduction u/s 24(b), for interest on housing loan in
respect of let out property under regular provisions as well as u/s 115BAC of the Income-tax
Act, 1961.

II. Residential status of Miss Charlie in case she is a person of Indian origin and her total
income from Indian sources exceeds ` 18,00,000
If she is a person of Indian origin and her total income from Indian sources exceeds ` 15,00,000
(` 18,00,000, in her case), the condition of stay in India for a period exceeding 120 days during
the previous year and 365 days during the four immediately preceding previous years would be
applicable for being treated as a resident. Since her stay in India exceeds 120 days in the
P.Y.2025-26 but the period of her stay in India during the four immediately preceding previous
years is less than 365 days (only 16 days), her residential status as per section 6(1) would
continue to be same i.e., non-resident in India.
Further, since she is not a citizen of India, the provisions of section 6(1A) deeming an individual
to be a citizen of India would not get attracted in her case, even though she is a person of Indian
origin and her total income from Indian sources exceeds ` 15,00,000 and she is not liable to pay
tax in USA.
Therefore, her residential status would be non-resident in India for the previous year 2025-26.

Question 9 [Residential Status of Individual & Total Income]

Determine the residential status and total income of Mr. Raghu for the assessment year
2026-27 from the information given below. Assuming that he has exercised the option of
shifting out of the default tax regime provided u/s 115BAC(1A)
Mr. Raghu (age 62 years), an American citizen, is employed with a multinational company in
Gurugram. Mr. Raghu holds a senior level position as researcher in the company, since
2009. To share his knowledge and finding in research, company gave him an opportunity to
travel to other group companies outside India while continuing to be based at the Gurugram
office.
The details of his travel outside India for the financial year 2025-26 are as under:
Country Period of stay
USA 25 August, 2025 to 10 November, 2025
UK 20 November, 2025 to 23 December, 2025
Germany 10 January, 2026 to 24 March, 2026
During the last four years preceding the previous year 2025-26, he was present in India for
380 days. During the last seven previous years preceding the previous year 2025-26, he
was present in India for 700 days. During the P.Y. 2025-26, he earned the following
incomes:
(1) Salary ` 15,00,000. The entire salary is paid by the Indian company in his Indian bank
account.
(2) Dividend amounting to ` 48,000 received from Treat Ltd., a Singapore based company,
which was transferred to his bank account in Singapore.
(3) Interest on fixed deposit with Punjab National Bank (Delhi) amounting to ` 10,500 was
credited to his saving account. [MTP Q.]
Answer 9
Determination of residential status
Mr. Raghu would be a resident in India in P.Y. 2025-26, if he satisfies any one of the following
conditions:

16 CA Bhanwar Borana
 Chapter 2: Residence and Scope of Total Income
(i) He has been in India during the previous year for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding the previous year for a total period
of 365 days or more and has been in India for at least 60 days in the previous year.
If he satisfies any one of the mentioned above, he is a resident. If both the above conditions are not
satisfied, he would be a non-resident.
During the P.Y. 2025-26 Mr. Raghu stayed in India for 179 days i.e., 365 days – 186 days [78 days +
34 days + 74 days] and 380 days i.e., more than 365 days during the 4 preceding previous years. He
satisfies the second basic condition for being a resident. Hence, he is a resident in India for
A.Y.2026-27.
A person would be “Not ordinarily Resident” in India in any previous year, if such person, inter alia:
(a) has been a non-resident in 9 out of 10 previous years preceding the relevant previous year; or
(b) has during the 7 previous years immediately preceding the relevant previous year been in India
for 729 days or less.
For the previous year 2025-26, Mr. Raghu would be “Resident but not ordinarily resident” since he
stayed for less than 729 days during the 7 previous years immediately preceding P.Y. 2025-26.
Computation of total income of Mr. Raghu for A.Y.2026-27
Particulars Amount (`)
(1) Salary from Indian company received in a bank account in 15,00,000
India
Less: Standard deduction u/s 16(ia) 50,000 14,50,000
(2) Dividend of ` 48,000 received from Singapore based company transferred to Nil
his bank account in Singapore is not taxable in the hands of the resident but
not ordinarily resident since the income has neither accrued or arisen in India
nor has it been received in India.
(3) Interest on fixed deposit with PNB credited to his savings bank account is 10,500
taxable in the hands of Mr. Raghu as Income from other sources, since it has
accrued and arisen in India and is also received in India.
Gross Total Income 14,60,500
Less: Deduction u/s 80TTB 10,500
Total Income 14,50,000

Question 10 [Residential Status of Individual & Total Income]

Miss Bhanushali, an American National, got married to Mr. Vikas of India in New York on
3rd February, 2025 and came to India for the first time on 14-02-2025. She left for New York
on 11-08-2025. She returned to India again on 20-02-2026.
She received the following gifts from her relatives and friends during 01-04-2025 to 31-03-
2026 in India:
- From parents of husband ` 71,000
- From married sister of husband ` 21,000
- From two very close friends of her husband ` 1,41,000 and ` 1,21,000 ` 2,62,000
(i) Determine her residential status and compute the total income chargeable to tax for the
Assessment Year 2026-27. Assuming that she has exercised the option of shifting out of
the default tax regime provided u/s 115BAC(1A)
(ii) Will the residential status change if she had returned to India again on 20-01-2026
CA Bhanwar Borana 17
Chapter 2: Residence and Scope of Total Income
instead of 20-02-2026? [MTP Q.]

Answer 10
(i) Determination of residential status and computation of total income of Miss Bhanushali (if
she returned to India on 20.2.2026)
Particulars `
U/s 6(1), an individual is said to be resident in India in any previous year, if he/she
satisfies any one of the following conditions:
(i) He/she has been in India during the previous year for a total period of 182 days
or more, or
(ii) He/she has been in India during the 4 years immediately preceding the previous
year for a total period of 365 days or more and has been in India for at least 60
days in the previous year.
If an individual satisfies any one of the conditions mentioned above, he/she is a
resident. If both the above conditions are not satisfied, the individual is a non-
resident.

Therefore, the residential status of Miss Bhanushali, an American National, for

A.Y.2026-27 has to be determined on the basis of her stay in India during the
previous year relevant to A.Y. 2026-27 i.e. P.Y.2025-26 and in the preceding four
assessment years.
Her stay in India during the previous year 2025-26 and in the preceding four years
are as under:
P.Y. 2025-26
01.04.2025 to 11.08.2025 - 133 days
20.02.2026 to 31.03.2026 - 41 days
Total 174 days
Four preceding previous years
P.Y.2024-25 [14.2.2024 to 31.3.2025] - 47 days
P.Y.2023-24 - Nil
P.Y.2022-23 - Nil
P.Y.2021-22 - Nil
Total 47 days
The total stay of Miss Bhanushali during the previous year in India was less than 182
days and during the four years preceding this year was for 47 days.
Therefore, due to non-fulfilment of any of the two conditions for a resident, she
would be treated as non-resident for the Assessment Year 2026-27.
Computation of total income of Miss Bhanushali for the A.Y. 2026-27
Income from other sources
Gifts received from non-relatives is chargeable to tax as per section 56(2) (x) if the
aggregate value of such gifts exceeds ` 50,000.
- ` 71,000 received from parents of husband would be exempt, since parents of
husband fall within the definition of ‘relatives’ and gifts from a relative are not Nil
chargeable to tax.
- ` 21,000 received from married sister-in-law is exempt, since sister of husband
falls within the definition of relative and gifts from a relative are not chargeable Nil
to tax.

18 CA Bhanwar Borana
 Chapter 2: Residence and Scope of Total Income
Particulars `
- Gift received from two friends of her husband ` 1,41,000 and ` 1,21,000
aggregating to ` 2,62,000 is taxable u/s 56(2)(x) since the aggregate of ` 262000
2,62,000 exceeds ` 50,000.
Total Income 262000
(ii) Determination of residential status of Miss Bhanushali (if she returned to India on
20.1.2026)
Particulars `
Yes, the answer would change, if she had returned to India again on 20.1.2026
instead of 20.2.2026.
In such case, her stay in India during the previous year 2025-26 would be:
01.04.2025 to 11.08.2025 - 133 days
20.01.2026 to 31.03.2026 - 72 days
Total 205 days
Since she satisfies the condition of stay in India for more than 182 days during the
previous year 2025-26, she would become resident in India. She would be a resident
but not ordinarily resident in India for A.Y. 2026-27, since her stay in India in the
preceding seven years is less than 730 days (it is only 47 days)1
1 In the alternative, an individual can be treated as not ordinarily resident if she is non-resident in
any 9 out of 10 preceding assessment years. In this case, Miss Bhanushali is a non-resident in all
10 preceding assessment years. She was in India for only 47 days in A.Y.2026-27 and never
visited India earlier.

Question 11 [Residential Status of Individual & Total Income]

Ms. Rita, an Indian citizen and an MBA from Howard University, was employed in AFL LLP
of Country A since June, 2017. She came to India on 15.11.2025 and joined as CEO of
Autofit Ltd. Ms. Rita was in India before she left for overseas education in May, 2013 and
was subsequently employed outside India and never visited India thereafter. There is no
income-tax in Country A. She has earned interest income of ` 2,40,000 (net) in Country A
and salary income from AFL LLP of ` 15 lakhs up to the date of her return to India in the
financial year 2025-26.
Salary income (computed) of Ms. Rita from Autofit Ltd. up to 31.03.2026 is ` 13,50,000 and
she earned dividend of ` 3,00,000 from shares of an Indian company.
What would be the residential status of Ms. Rita and her total income for the A.Y. 2026-27?
Answer 11
Determination of residential status of Ms. Rita for the A.Y. 2026 -27
As per section 6(1), in order to be a resident of India in the P.Y.2025 -26, Ms. Rita should satisfy
either of the following two conditions -
(1) Her stay in India should be for a period of 182 days or more in the P.Y.2025-26; or
(2) Her stay in India should be for a period of 60 days or more in the P.Y.2025-26 and for a period of
365 days or more in the four immediately preceding previous years.
Ms. Rita’s stay in India in the P.Y.2025-26 is 137 days (i.e., 16 days + 31 days +31 days + 28 days +
31 days). She left India in May, 2013 and never visited India thereafter. Her stay in India in the four
immediately preceding previous years would be Nil.
Therefore, she does not satisfy either condition (1) or condition (2) for being a resident.

CA Bhanwar Borana 19
Chapter 2: Residence and Scope of Total Income
As per section 6(1A), an individual who is a citizen of India would be deemed to be a resident of
India if his total income, other than income from foreign sources, exceed ` 15 lakh during the
relevant previous year and he is not liable to tax in any other country by reason of his domicile or
residence or any other criteria of similar nature.
Ms. Rita’s total income, other than income from foreign sources, would be ` 16,50,000 for A.Y.2026-
27 as shown below –
Particulars `
Salary income from Autofit Ltd. [Computed] [Accrues or arises in India] 13,50,000
Dividend from shares of an Indian company [Accrues or arises in India] 3,00,000
16,50,000
Since Ms. Rita is a citizen of India who is not liable to pay income-tax in Country A and her total
income, other than income from foreign sources, exceed ` 15 lakhs, she would be deemed resident in
India u/s 6(1A) for A.Y.2026-27. A deemed resident is, by default, a resident but not ordinarily
resident.
In case of a resident but not ordinarily resident, income accrues or arises, deemed to accrue or arise
and received or deemed to be received in India, is taxable. In addition, Income which accrues or
arises outside India would also be taxable if it is derived from a business controlled in or a profession
set up in India.
Ms. Rita’s total income for A.Y. 2026-27
Particulars `
Salary income from AFL LLP [Not taxable since it accrues or arises outside -
India]
Salary income from Autofit Ltd. [Computed] 13,50,000
Interest income in Country A [Not taxable since it accrues or arises outside India] -
Dividend from shares of an Indian company 3,00,000
Total Income 16,50,000

Question 12 [Residential Status of HUF]

The business of a HUF is transacted from Australia and all the policy decisions are taken
there. Mr. E, the Karta of the HUF, who was born in Kolkata, visits India during the P.Y.
2025-26 after 15 years. He comes to India on 1.4.2025 and leaves for Australia on
1.12.2025. Determine the residential status of Mr. E and the HUF for A.Y. 2026-27. [SM Q.]

Question 13 [Total Income with 10(7) exemption]

Mr. David, an Indian citizen aged 40 years, a Government employee serving in the Ministry
of External Affairs, left India for the first time on 31.03.2025 due to his transfer to High
Commission of Canada. He did not visit India any time during the previous year 2025-26. He
has received the following income for the Financial Year 2025-26:
S. No. Particulars `
(i) Salary (Computed) 5,00,000
(ii) Foreign Allowance [not included in (i) above] 4,00,000
(iii) Interest on fixed deposit from bank in India 1,00,000
(iv) Income from agriculture in Nepal 2,00,000
(v) Income from house property in Nepal 2,50,000
20 CA Bhanwar Borana
 Chapter 2: Residence and Scope of Total Income
Compute his Gross Total Income for Assessment Year 2026-27. [SM Q.]
Answer 13
As per section 6(1), Mr. David is a non-resident for the A.Y. 2026-27, since he was not present in
India at any time during the previous year 2025-26.
As per section 5(2), a non-resident is chargeable to tax in India only in respect of following incomes:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or deemed to accrue or arise in India.
In view of the above provisions, income from agriculture in Nepal and income from house property
in Nepal would not be chargeable to tax in the hands of David, assuming that the same were received
in Nepal. Income from ‘Salaries’ payable by the Government to a citizen of India for services
rendered outside India is deemed to accrue or arise in India as per section 9(1)(iii). Hence, such
income is taxable in the hands of Mr. David, even though he is a non-resident.
However, allowances or perquisites paid or allowed as such outside India by the Government to a
citizen of India for rendering service outside India is exempt u/s 10(7). Hence, foreign allowance of `
4,00,000 is exempt u/s 10(7) in the hands of Mr. David.
Gross Total Income of Mr. David for A.Y. 2026-27
Particulars `
Salaries (computed) 5,00,000
Income from other sources (Interest on fixed deposit in India) 1,00,000
Gross Total Income 6,00,000

Question 14 [Total Income with 10(7) exemption]

Mr. Shridhar (age 45 years), a citizen of India, serving in the Ministry of Finance in India,
was transferred to Indian Embassy in Australia on 15th March 2025. His income during the
financial year 2025-26 is given hereunder:
Particulars `
Rent from a house situated at Australia, received in Australia. Thereafter, 5,25,000
remitted to Indian bank account.
Interest on Post office savings bank account in India 4,500
Salary from Government of India 9,25,000
Foreign Allowances from Government of India 8,00,000
Mr. Shridhar did not come to India during the financial year 2025-26. Compute his Gross
Total Income for the Assessment year 2026-27. Assume he opted out from section 115BAC.
[MTP Q.]
Answer 14
Mr. Shridhar is a non-resident for the A.Y.2026-27, since he was not present in India at any time
during the previous year 2025-26 [Section 6(1)].
As per section 5(2), a non-resident is chargeable to tax in India only in respect of following incomes:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or income deemed to accrue or arise in India.
Computation of Gross Total Income of Mr. Shridhar for A.Y. 2026-27
Particulars `
Salaries 9,25,000
Salary from Government of India

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Chapter 2: Residence and Scope of Total Income
Particulars `
(Income chargeable under the head ‘Salaries’ payable by the Government to a citizen of
India for services rendered outside India is deemed to accrue or arise in India u/s
9(1)(iii). Hence, such income is taxable in the hands of Mr. Shridhar, a citizen of India,
even though he is a non-resident and rendering services outside India)
Foreign Allowance from Government of India Nil
[Any allowances or perquisites paid or allowed as such outside India by the Government
to a citizen of India for rendering service outside India is exempt u/s 10(7)].
Gross Salary 9,25,000
Less: Standard Deduction u/s 16(ia) of ` 50,000, being lower of gross salary or ` 50,000 50,000
8,75,000
Income from House Property Nil
Rent from a house situated at Australia, received in Australia
(Income from property situated outside India would not be taxable in India in the hands
of a non-resident, since it neither accrues or arises in India nor is it deemed to accrue or
arise in India nor is it received in India)
Income from Other Sources
Interest on Post office savings bank account – exempt upto` 3,500 1,000
Gross Total Income 8,76,000
Note – Interest on Post office saving bank account of ` 1,000 would be allowed as deduction u/s
80TTA.
Question 15 [Scope of Total income in case of ROR, R but NOR & NR]
Compute the total income in the hands of an individual aged 35 years, being a resident and
ordinarily resident, resident but not ordinarily resident, and non- resident for the A.Y. 2026-
27, assuming that he has exercised the option of shifting out of the default tax regime
provided u/s 115BAC(1A) – [SM Q.]
Particulars Amount (`)
Interest on UK Development Bonds, 50% of interest received in India 10,000
Income from a business in Chennai (50% is received in India) 20,000
Short term capital gains on sale of shares of an Indian company received 20,000
in London
Dividend from British company received in London 5,000
Long term capital gains on sale of plant at Germany, 50% of profits are 40,000
received in India
Income earned from business in Germany which is controlled from Delhi (` 70,000
40,000 is received in India)
Profits from a business in Delhi but managed entirely from London 15,000

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 Chapter 2: Residence and Scope of Total Income
Particulars Amount (`)
Income from house property in London deposited in a Bank at London, 50,000
brought to India (Computed)
Interest on debentures in an Indian company received in London 12,000
Fees for technical services rendered in India but received in London 8,000
Profits from a business in Mumbai managed from London 26,000
Income from property situated in Nepal received there (Computed) 16,000
Past foreign untaxed income brought to India during the previous year 5,000
Income from agricultural land in Nepal, received there and then brought to 18,000
India
Income from profession in Kenya which was set up in India, received there 5,000
but spent in India
Gift received on the occasion of his wedding 20,000
Interest on savings bank deposit in State Bank of India 12,000
Income from a business in Russia, controlled from Russia 20,000
Dividend from Reliance Petroleum Limited, an Indian Company 5,000
Agricultural income from a land in Rajasthan 15,000

Question 16 [Scope of Total income in case of ROR & NR]

Mr. Ramesh & Mr. Suresh are brothers and they earned the following incomes during the
financial year 2025-26. Mr. Ramesh settled in Canada in the year 1996 and Mr. Suresh
settled in Delhi. Compute the total income for the A.Y. 2026-27, assuming that he has
exercised the option of shifting out of the default tax regime provided u/s 115BAC(1A) –
[SM Q.]
Sr. No. Particulars Mr. Ramesh Mr. Suresh
(`) (`)
1. Interest on Canada Development Bonds (only 35,000 40,000
50% of interest received in India)
2. Dividend from British company received in London 28,000 20,000
3. Profits from a business in Nagpur, but managed 1,00,000 1,40,000
directly from London
4. Short term capital gain on sale of shares of an 60,000 90,000
Indian company received in India
5. Income from a business in Chennai 80,000 70,000
6. Fees for technical services rendered in India, but 1,00,000 ----
received in Canada
7. Interest on savings bank deposit in UCO Bank, 7,000 12,000
Delhi
8. Agricultural income from a land situated in Andhra 55,000 45,000
Pradesh
9. Rent received in respect of house property at 1,00,000 60,000

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Chapter 2: Residence and Scope of Total Income
Sr. No. Particulars Mr. Ramesh Mr. Suresh
(`) (`)
Bhopal
10. Life insurance premium paid --- 30,000
Answer 16
Computation of total income of Mr. Ramesh & Mr. Suresh for the A.Y. 2026-27
S. Particulars Mr. Ramesh Mr. Suresh
No. (Non- Resident) (Resident)
(`) (`)

1. Interest on Canada Development Bond (See Note 2) 17,500 40,000

2. Dividend from British Company received in London (See - 20,000
Note 3)
3. Profits from a business in Nagpur but managed directly from 1,00,000 1,40,000
London (See Note 2)
4. Short term capital gain on sale of shares of an Indian 60,000 90,000
company received in India (See Note 2)
5. Income from a business in Chennai (See Note 2) 80,000 70,000
6. Fees for technical services rendered in India, but received in 1,00,000 -
Canada (See Note 2)
7. Interest on savings bank deposit in UCO Bank, Delhi (See 7,000 12,000
Note 2)
8. Agricultural income from a land situated in Andhra Pradesh - -
(See Note 4)
9. Income from house property at Bhopal (See Note 5) 70,000 42,000
Gross Total income 4,34,500 4,14,000
Less: Deduction under Chapter VI-A
Section 80C - Life insurance premium - 30,000
Section 80TTA (See Note 6) 7,000 10,000
Total Income 4,27,500 3,74,000

Notes:
1. Mr. Ramesh is a non-resident since he has been living in Canada since 1996. Mr. Suresh, is
settled in Delhi, and thus, assumed as a resident and ordinarily resident.
2. In case of a resident and ordinarily resident, his global income is taxable as per section 5(1).
However, as per section 5(2), in case of a non-resident, only the following incomes are
chargeable to tax:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or deemed to accrue or arise in India.
Therefore, fees for technical services rendered in India would be taxable in the hands of Mr.
Ramesh, even though he is a non-resident.
The income referred to in Sl. No. 3,4,5 and 7 are taxable in the hands of both Mr. Ramesh and
Mr. Suresh since they accrue or arise/ deemed to accrue or arise in India.

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 Chapter 2: Residence and Scope of Total Income
Interest on Canada Development Bond would be fully taxable in the hands of Mr. Suresh,
whereas only 50%, which is received in India, is taxable in the hands of Mr. Ramesh.
3. Dividend received from British company in London by Mr Ramesh, a non- resident, is not
taxable since it accrued and is received outside India. However, such dividend received by Mr.
Suresh is taxable, since he is a resident and ordinarily resident.
4. Agricultural income from a land situated in India is exempt u/s 10(1) in the case of both non-
residents and residents.
5. Income from house property-
Mr. Ramesh Mr. Suresh
(`) (`)
Rent received 1,00,000 60,000
Less: Deduction u/s 24(a) @30% 30,000 18,000
Net income from house property 70,000 42,000
The net income from house property in India would be taxable in the hands of both Mr. Ramesh
and Mr. Suresh, since the accrual and receipt of the same are in India.
6. In case of an individual, interest upto ` 10,000 from savings account with, inter alia, a bank is
allowable as deduction u/s 80TTA.

Question 17 [Income deemed to accrued or arise in India]

Examine the correctness or otherwise of the statement - “Income deemed to accrue or arise
in India to a non-resident by way of interest, royalty and fees for technical services is to be
taxed irrespective of territorial nexus”. [SM Q.]
Answer 17
This statement is correct.
As per Explanation to section 9, income by way of interest, royalty or fees for technical services
which is deemed to accrue or arise in India by virtue of clauses (v), (vi) and (vii) of section 9(1), shall
be included in the total income of the non- resident, whether or not -
(i) non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.
In effect, the income by way of fees for technical services, interest or royalty from services utilised in
India would be deemed to accrue or arise in India in case of a non-resident and be included in his
total income, whether or not such services were rendered in India and irrespective of whether the non-
resident has a residence or place of business or business connection in India.

Question 18 [Income deemed to accrued or arise in India]

Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant
practising in Colombo, specializing in project financing. The payment was made in Colombo.
Mr. Kulasekhara is a non-resident. The consultancy is related to a project in India with
possible Ceylonese collaboration. Is this payment chargeable to tax in India in the hands of
Mr. Kulasekhara, since the services were used in India? [SM Q.]
Answer 18
A non-resident is chargeable to tax in respect of income received outside India only if such income
accrues or arises or is deemed to accrue or arise to him in India.
The income deemed to accrue or arise in India u/s 9 comprises, inter alia, income by way of fees for
technical services, which includes any consideration for rendering of any managerial, technical or
consultancy services. Therefore, payment to a management consultant relating to project financing is

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Chapter 2: Residence and Scope of Total Income
covered within the scope of “fees for technical services”.
The Explanation below section 9(2) clarifies that income by way of, inter alia, fees for technical
services, from services utilized in India would be deemed to accrue or arise in India in case of a non-
resident and be included in his total income, whether or not such services were rendered in India or
whether or not the non- resident has a residence or place of business or business connection in India.
In the instant case, since the services were utilized in India, the payment received by Mr.
Kulasekhara, a non-resident, in Colombo is chargeable to tax in his hands in India, as it is deemed to
accrue or arise in India.
Question 19 [Misc. Concepts]
Examine with reasons whether the following transactions attract income-tax in India in the
hands of recipients:
(i) Salary paid by Central Government to Mr. John, a citizen of India ` 7,00,000 for the
services rendered outside India.
(ii) Interest on moneys borrowed from outside India ` 5,00,000 by a non-resident for the
purpose of business within India say, at Mumbai.
(iii) Post office savings bank interest of ` 19,000 received by a resident assessee, Mr. Ram,
aged 46 years.
(iv) Royalty paid by a resident to a non-resident in respect of a business carried on outside
India.
(v) Legal charges of ` 5,00,000 paid in Delhi to a lawyer of United Kingdom who visited
India to represent a case at the Delhi High Court. [SM Q.]
Answer 19
Taxable/Not Amount liable Reason
Taxable to tax (`)
(i) Taxable 6,50,000 As per section 9(1)(iii), salaries payable by the Government
to a citizen of India for service rendered outside India shall
be deemed to accrue or arise in India. Therefore, salary paid
by Central Government to Mr. John for services rendered
outside India would be deemed to accrue or arise in India
since he is a citizen of India. He would be entitled to
standard deduction of ` 50,000 u/s 16(ia).
(ii) Taxable 5,00,000 As per section 9(1)(v)(c), interest payable by a non-
resident on moneys borrowed and used for the purposes of
business carried on by such person in India shall be deemed
to accrue or arise in India in the hands of the recipient.
(iii) Partly Taxable 5,500 The interest on Post Office Savings Bank a/c, would be
exempt u/s 10(15)(i), only to the extent of ` 3,500 in case
of an individual a/c. Further, interest upto ` 10,000, would
be allowed as deduction u/s 80TTA from Gross Total
Income. Balance ` 5,500 i.e., ` 19,000 - ` 3,500 - ` 10,000
would be taxable in the hands of Mr. Ram, a resident.
(iv) Not Taxable - Royalty paid by a resident to a non-resident in respect of a
business carried outside India would not be taxable in the
hands of the non-resident provided the same is not received
in India. This has been provided as an exception to deemed
accrual mentioned in section 9(1)(vi)(b).
(v) Taxable 5,00,000 In case of a non-resident, any income which accrues or

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 Chapter 2: Residence and Scope of Total Income
Taxable/Not Amount liable Reason
Taxable to tax (`)
arises in India or which is deemed to accrue or arise in
India or which is received in India or is deemed to be
received in India is taxable in India.
Therefore, legal charges paid in India to a non- resident
lawyer of UK, who visited India to represent a case at the
Delhi High Court would be taxable in India.

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