Assessment of Individuals including Non-residents for CMA Final

What this chapter covers

Assessment of Individuals including Non-residents: topics in the order to study them

1. 1Residential Status of an IndividualEvery other topic depends on it, so learn the tests and apply them first.
2. 2Scope of Total Income and Incidence of TaxOnce status is fixed, you decide which income is taxable in India for each category.
3. 3Special Provisions for Non-residents under Section 213It builds on status and scope, and limits deductions for non-resident Indians.
4. 4Head Office Expenditure of Non-residents (Section 60)A separate non-resident rule with a cap formula, best studied right after section 213 while non-resident rules are fresh.
5. 5Computation of Total Income and Tax Liability of IndividualsHere you combine status, scope and the special rules into full numerical answers.
6. 6Assessment Procedure, Returns and Advance Tax for IndividualsProcedure makes sense once you can compute income and tax, so it comes last.

How to prepare Assessment of Individuals including Non-residents

1. Learn the residential status tests until you can apply them to a short fact pattern without notes. Always note the tax year and the days of stay.
2. Make a one-page table of what is taxable for each status. Use it to test every income item in a question.
3. Read section 213 and section 60 in the Act's own words. Note each condition, because the questions turn on conditions.
4. For section 60, practise the cap: find the adjusted total income first, then take 5% of it, or of the three-year average where the adjusted total income is a loss. Remember the average depends on how many of the previous three tax years the assessee was assessable.
5. Solve full computations of total income and tax. Write each head, then gross total income, then Chapter VIII deductions, then tax.
6. Revise procedure and advance tax as short rules. Remember section 403: advance tax does not apply to a resident individual aged 60 or more at any time in the tax year who has no business or profession income.
7. Finish with mixed case scenarios and timed MCQs, checking status and conditions before choosing an answer.

Common mistakes in Assessment of Individuals including Non-residents

• Skipping or rushing the residential status test

  Fix: Apply the day-count and other conditions step by step and write the conclusion before touching any income.

• Allowing expenses against the investment income of a non-resident Indian

  Fix: Recall section 213(1): no expenditure or allowance is allowed against that investment income.

• Claiming Chapter VIII deductions when gross total income is only investment income or long-term capital gains

  Fix: Check the composition of gross total income first. If it fits section 213(2)(a), allow no deduction; if other income exists, use the reduced gross total income under 213(2)(b).

• Applying the section 60 cap to the wrong base

  Fix: Compute adjusted total income as defined in section 60(3), without the listed allowances, carried forward losses and Chapter VIII deductions, then apply 5%.

• Using the wrong number of years for the average adjusted total income

  Fix: Count the previous three tax years in which the assessee was assessable, and divide by that count (three, two or one).

• Applying advance tax exemption to every senior citizen

  Fix: Check all conditions of section 403(3): resident individual, age 60 or more at any time in the tax year, and no business or profession income.

Last-day revision: Assessment of Individuals including Non-residents

• ✓Fix residential status first. Every other step depends on it.
• ✓Section 213(1): no deduction for any expenditure or allowance against the investment income of a non-resident Indian.
• ✓Section 213(2)(a): if gross total income is only investment income or long-term capital gains or both, no Chapter VIII deduction.
• ✓Section 213(2)(b): if other income is also present, reduce gross total income by that income, then allow Chapter VIII as if the reduced figure were the gross total income.
• ✓Section 60 allows head office expenditure attributable to the Indian business or profession, subject to a cap.
• ✓Section 60 cap: 5% of adjusted total income, or 5% of average adjusted total income if the adjusted total income is a loss.
• ✓Average adjusted total income uses the arithmetic mean of the previous three tax years, or two or one if the assessee was assessable in only that many.
• ✓Head office expenditure means executive and general administration expenditure incurred outside India.
• ✓Section 403(3): advance tax is not payable by a resident individual aged 60 or more who has no business or profession income.
• ✓In computations, follow the order: heads of income, gross total income, deductions, total income, tax.
• ✓Under section 312, an executor is treated as resident or non-resident by the residential status of the deceased in the year of death.

Assessment of Individuals including Non-residents practice questions

• Mr Arvind Menon, an Indian citizen, works in Singapore and is not liable to tax there or in any other country by reason of domicile or resid…
• Mr Harish Rao, an Indian citizen resident in the UK, visits India and stays for 130 days in the tax year. His income other than foreign-sour…
• Sunita is an Indian citizen who lives in a country that levies no income tax. She was not in India at all during the current tax year. Her t…
• Meera, an Indian citizen, lives abroad and visits India for 100 days in the tax year. Her total income, other than income from foreign sourc…
• Mr Iyer, who was resident in India in the tax year in which he died, left an estate that earned income in later tax years. His only executor…
• Vikram is an Indian citizen. In the current tax year he was in India for 130 days and his total income excluding income from foreign sources…
• Mr Sharma is a citizen of India who lives in Singapore. In the current tax year he visits India for 100 days. His total income, other than i…
• Mr Arvind, a non-resident individual and not a citizen of India or person of Indian origin, is in India for 70 days in the tax year and has …

Assessment of Individuals including Non-residents in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

• CS ExecutiveClassification and Tax Incidence on Companies
• CA FinalNon Resident Taxation
• CMA IntermediateResidential Status and Scope of Total Income
• CS ProfessionalComputation of Total Income, Tax Liability and Filing of Returns of various Entities excluding Companies