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CMA Intermediate · Direct and Indirect Taxation · Residential Status and Scope of Total Income

Ravi, a resident and ordinarily resident individual, earns Rs 3,00,000 as a salary-like fee from a foreign client, which accrued and was received entirely outside India. Meera, a resident but not ordinarily resident individual, earns Rs 4,00,000 from a foreign profession set up and managed wholly outside India, accrued and received outside India. Taking only these items, what is the amount includible in total income of Ravi and Meera respectively under section 5?

Ravi, being ordinarily resident, is taxed on foreign accrual, so Rs 3,00,000 is included. Meera, being not ordinarily resident, is taxed on foreign income only if from a business controlled in India or a profession set up in India. Hers is not, so Nil.

  1. ARs 3,00,000 and Rs 4,00,000
  2. BNil and Nil
  3. CRs 3,00,000 and NilCorrect
  4. DNil and Rs 4,00,000

Explanation

Under section 5(1)(c), a resident who is ordinarily resident is taxed on income accruing outside India, so Ravi includes Rs 3,00,000. For a not ordinarily resident person, such income is included only if derived from a business controlled in India or a profession set up in India. Meera's profession was set up outside India, so her income is excluded. Including Rs 4,00,000 for Meera ignores the NOR restriction.

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