Tax Provisions for Special Cases: formula sheet

Key formulas

Basic residency tests

Resident if: stay in India ≥ 182 days in the previous year OR (stay ≥ 60 days in the previous year AND ≥ 365 days in the 4 preceding years)

Meeting either test makes you resident. Failing both makes you non-resident.

Relaxed 60-day condition

Indian citizen or person of Indian origin visiting India: if Indian-source income is ₹15,00,000 or less, the 60 days becomes 182 days. If Indian-source income is above ₹15,00,000, the second test needs ≥ 120 days in the year AND ≥ 365 days in the 4 preceding years. Indian citizen leaving India for employment abroad, or crew of an Indian ship: 60 days becomes 182 days irrespective of income.

The 182-day test itself does not change. Only the second test is relaxed. The two-tier 182/120-day rule is for citizens or PIOs visiting India. Those leaving for employment abroad or serving as crew get 182 days only.

Deemed resident

Indian citizen with Indian-source total income > ₹15,00,000 and not liable to tax in any other country is deemed resident in India. He is treated as resident but RNOR, even if he fails both day tests.

Exam trap: foreign-source income is excluded when checking the ₹15,00,000 limit.

RNOR conditions

Resident but RNOR if either of these is met: (a) NR in 9 of the 10 preceding years, OR (b) stay ≤ 729 days in the 7 preceding years

The two tests are alternatives. One is enough. RNOR also applies to a citizen or PIO who is resident only through the 120-day rule and to deemed residents.

Scope of income

ROR: global income. RNOR: India-source income + business controlled/profession set up in India. NR: India-source income only.

Income received in India is taxable for all three.

Capital gains rates (listed equity shares and equity mutual funds, STT paid)

Short-term: 20%. Long-term (held more than 12 months): 12.5% on gains above ₹1,25,000 a year. Plus 4% cess and surcharge if applicable.

Applies to transfers on or after 23 July 2024. The ₹1,25,000 threshold applies to residents and non-residents alike. Only a resident can adjust an unused basic exemption limit against gains under sections 111A, 112 and 112A. Check the latest rates in your study material.

Chapter XII-A (section 115E)

Investment income from specified foreign-exchange assets: 20%. Long-term capital gains on assets other than specified assets: 12.5%. Long-term gains on specified assets: exempt under section 115F if the net consideration is reinvested in specified assets. No deductions allowed.

Only for a non-resident Indian as defined in section 115C: an individual who is a citizen of India or a person of Indian origin and is a non-resident. Assets must be bought with convertible foreign exchange. The NRI may opt out.

DTAA relief

Tax on the same income = lower of Act rate or treaty rate; claim needs Tax Residency Certificate (TRC) and Form 10F

Section 90 allows the assessee to choose whichever is more beneficial.

Revocable trust

Income of revocable trust → taxed in the settlor's hands

Applies where the settlor can re-assume power over the income or assets. Test this first.

Specific trust

Trustee taxed as representative assessee, in like manner and to the same extent as each beneficiary

Beneficiaries and their shares are known. Each share is taxed at that beneficiary's rates.

Discretionary trust

Tax = Trust income × MMR (including surcharge and cess)

Shares indeterminate or unknown. Section 164 deals with this. Limited exceptions exist, e.g. certain trusts created by will for dependants.

MMR

MMR = highest slab rate (30%) + applicable surcharge + 4% cess

Surcharge depends on income level and regime, so use the rate given in the question.

AOP/BOI, shares indeterminate or unknown

Tax at MMR on total income

Applies to both AOPs and BOIs.

AOP/BOI, shares determinate

Slab rates; but if any member's other income exceeds the basic exemption limit → MMR on AOP/BOI income

The member test uses the member's income excluding the share from the AOP/BOI.

Member's share

Share of income already taxed in the AOP/BOI → not taxed again in the member's hands (generally)

Avoids double taxation. Check the exact relief only if the question gives rates.

Spouse clubbing rule

Income from asset transferred to spouse without adequate consideration → clubbed with transferor

Section 64(1)(iv). Applies to direct or indirect transfers. Exceptions: adequate consideration, transfer in connection with an agreement to live apart, and assets transferred before marriage. Income on income earned from the reinvested amount is not clubbed.

Minor child rule

Minor's income → clubbed with the parent having higher total income

Section 64(1A). Applies to a minor child, including an adopted or step child, but not a minor married daughter. Where the marriage of the parents does not subsist, the income is clubbed with the parent who maintains the minor child in the previous year.

Minor child exceptions

No clubbing: (a) minor with disability under section 80U; (b) income from own skill, talent, specialised knowledge or experience

Income from manual work done by the minor also is not clubbed. Income earned by investing the minor's own skill-based earnings is not covered by the exception and is clubbed.

Spouse's salary or commission

Remuneration of spouse from a concern where you have substantial interest → clubbed with you

Substantial interest generally means holding at least 20% of voting power or profit share. No clubbing if the spouse has technical or professional qualifications and the income is solely due to those.

Daughter-in-law rule

Income from assets transferred, directly or indirectly, without adequate consideration to son's wife → clubbed with transferor

Section 64(1)(vi). Applies to the transferor, not to the son. The exception is adequate consideration. The living apart and before marriage exceptions belong to the spouse rule.

Transfer to a person or AOP for the benefit of spouse or daughter-in-law

Assets transferred to a person or AOP without adequate consideration → income clubbed to the extent it is for the immediate or deferred benefit of spouse or son's wife

Section 64(1)(vii) covers benefit of the spouse and section 64(1)(viii) covers benefit of the son's wife. Clubbing is with the transferor and only to the extent of the benefit.

Clubbing versus set off

Clubbing = add another person's income to yours; Set off = adjust your own losses against your own income

Two different concepts. Do not mix them in options.

Order of set-off

Same head (intra-head) → other heads (inter-head) → carry forward

Apply the current year loss first. Then use brought-forward losses against the current year income.

Capital loss set-off

STCL → STCG or LTCG | LTCL → LTCG only

Capital losses cannot be set off against income under any other head.

Capital loss carry forward

Up to 8 assessment years; STCL against STCG or LTCG, LTCL against LTCG only

The loss must be determined in a return filed on or before the due date.

Non-speculative business loss carry forward

Up to 8 assessment years; set off only against profits and gains of business or profession

Needs a timely return (section 80). Cannot be set off against salary.

Speculative business loss

Carry forward up to 4 assessment years; set off only against speculative business income

Needs a timely return (section 80).

Race horse loss

Set off only against income from owning and maintaining race horses; carry forward up to 4 assessment years against the same income only

It cannot be set off against any other head or any other income.

House property loss

Current year set-off against other heads limited to ₹2,00,000; balance carried forward 8 assessment years against house property income only

The cap applies to the current-year loss only. Brought-forward loss is set off only against house property income. Can be carried forward even if the return is filed late.

Unabsorbed depreciation

Carried forward without time limit; set off against business income first, then income under any other head except salary

Treated as part of the depreciation of the next year. Does not need a timely return.

Money gift threshold

Aggregate of money received without consideration (non-exempt) > ₹50,000 in the previous year ⇒ entire aggregate taxable

The ₹50,000 limit is applied separately under each clause: money, immovable property and other property. Up to ₹50,000 is not taxed. Once the money aggregate crosses it, the full amount is taxed, not only the excess.

Immovable property received without consideration

Stamp duty value of the property > ₹50,000 ⇒ entire stamp duty value taxable

Value is the stamp duty value, not the market price. This is a separate clause test from money and other property, so do not total them together.

Immovable property for inadequate consideration

Taxable = Stamp duty value − Consideration, if the difference > greater of ₹50,000 and 10% of consideration

If the difference is within the limit, nothing is taxed. If the consideration was fixed by an agreement earlier than the transfer date, and the consideration or part of it was paid by a non-cash mode on or before the agreement date, the stamp duty value on the date of the agreement can be used. The percentage safe harbour can be changed by amendments, so use the figure in your current workbook.

Other property without consideration

Aggregate fair market value of other property received without consideration > ₹50,000 ⇒ entire aggregate taxable

Covers shares, securities, jewellery, bullion, paintings, sculptures, drawings, works of art and archaeological collections. Fair market value is found under the Income-tax Rules, with a prescribed method for unlisted shares. The ₹50,000 test is on other property alone, separate from money and immovable property.

Other property for inadequate consideration

Taxable = Fair market value − Consideration, if the difference > ₹50,000

This limit is applied under the other property clause. The 10% test applies only to immovable property.

Relatives of an individual

Spouse; brother or sister of the individual; brother or sister of the spouse; brother or sister of either parent; any lineal ascendant or descendant of the individual; any lineal ascendant or descendant of the spouse; and the spouse of each of these persons other than the spouse

The spouse's parents and children are relatives. Cousins and friends are not. For a HUF, any member is a relative.

Exempt occasions and sources

Marriage of the receiver; will or inheritance; contemplation of death of donor; specified institutions

Marriage of the receiver's child, birthdays and anniversaries are not exempt occasions.

Cost and holding period of exempt gift or inheritance

Cost = Previous owner's cost (plus their improvements); Holding period = Previous owner's period + receiver's period

If the previous owner bought before 1 April 2001, the option of fair market value on 1 April 2001 may apply.

Cost of a taxed gift

Cost = Value taxed under 56(2)(x); holding period starts from date of receipt

This prevents the same value being taxed twice.

Quick revision

• Always fix the taxpayer's status first: resident, non-resident, HUF, trust, AOP/BOI.
• Residential status decides whether foreign income is taxable in India.
• An HUF is a separate taxable unit with its own return and its own assessment.
• Trust and AOP/BOI taxation depends on whether the beneficiary or member shares are determinate.
• Clubbing moves income to the person who transferred the asset or income in specified cases, such as to a spouse or minor child.
• Losses are first set off within the same head, then against other heads, subject to the exceptions in the workbook.
• Carry-forward of losses generally needs a return filed on time; check the exact condition per loss type.
• Gifts from specified relatives and gifts on inheritance are treated differently from gifts from others; learn the exact list and limits.
• Inheritance itself is not taxed as income, but later income from the inherited asset is taxable.
• Advance tax is paid in instalments during the year; learn the workbook's schedule and exemptions.
• TDS is deducted at source; the deductor's obligations and the taxpayer's credit claim are separate points.
• Learn thresholds and rates only from the latest workbook version.

Common mistakes

• Treating an Indian citizen abroad as a resident because of citizenship. Fix: Residential status depends on days of stay. Citizenship matters only for the relaxations and for deemed residence.
• Applying the 120-day rule to everyone who visits India. Fix: It applies only to Indian citizens or PIOs visiting India, only when Indian-source income exceeds ₹15,00,000, and it still needs 365 days or more in the 4 preceding years. Otherwise use 182 days.
• Applying MMR to every trust. Fix: MMR is for discretionary trusts. A specific trust is taxed like its beneficiaries.
• Taxing the beneficiary instead of the trustee in a specific trust. Fix: The trustee is the representative assessee and is assessed. The beneficiary's rates and exemption are used.
• Clubbing income on income, such as profit earned by the spouse on reinvesting clubbed interest. Fix: Club only income directly from the transferred asset. Later income from reinvestment stays with the spouse.
• Clubbing a minor's income with the lower earning parent. Fix: Compare total incomes of both parents and club with the higher one. If the marriage of the parents does not subsist, club with the parent who maintains the child.
• Setting off a long-term capital loss against short-term capital gain. Fix: Remember the one-way rule: STCL can go against STCG or LTCG. LTCL goes against LTCG only.
• Setting off a capital loss against salary or business income. Fix: Capital loss can never be set off against another head. It stays inside capital gains.
• Taxing only the amount above ₹50,000. Fix: It is a threshold. Once crossed, the whole amount is taxable.
• Treating cousins, friends or in-laws as relatives. Fix: Use the defined list only. A parent's brother or sister is a relative. A cousin is not.

Exam tips

• Questions often hide the answer in a number of days. Compute it before reading the options.
• Watch the ₹15,00,000 limit. It is Indian-source income. Above it, the second test for a visiting citizen or PIO needs 120 days in the year plus 365 days in the 4 preceding years. At or below it, 182 days are needed. The same limit is used for deemed residence.
• Know what is taxed under each status. A table-style match of ROR, RNOR and NR is a common question.
• On DTAA, remember the conditions: the Act or the treaty, whichever is more beneficial, and TRC with Form 10F.
• Check dates of transfer in capital gains questions, because rates changed on 23 July 2024.
• Revocable versus irrevocable is a frequent first filter. Read the settlor's powers carefully.
• Watch for the words 'determinate' and 'indeterminate'. They decide the rate.
• If the question gives an MMR figure, use it directly. Do not add your own surcharge or cess.