Assessment of Individuals under Assessment of Other Entities :

The term “individual” as such has nowhere been defined in the Income-tax Act, 1961. Section 2(31), however, states that “person” inter alia, includes an individual. In the commonly understood sense of the term, an individual means a human being or a single person. The person may be major, minor, married or unmarried, possessing sound or unsound mind. All the same, he is assessable as an ‘individual‘ and is liable to pay tax, if the total income earned by him during any previous year exceeds the prescribed limit exempted from tax. If an individual who is liable to pay tax for any year dies before he is assessed to tax, his executor, administrator or legal representative is treated as the individual assessee for purposes of assessment of the income of the deceased person. In the case of an individual who is a minor or a lunatic, the assessment of his income will be made on his guardian or the trustee. However, if the incapacitated person has no trustee or guardian or trustee or guardian is a non-resident and cannot be traced, the assessment can be made directly on the minor or lunatic. The rights and duties of all representative assessees are the same as those of the persons they are representing.

1. Total income of an individual: The total income of an individual for any previous year, which is liable to tax, is to be computed under the various heads discussed earlier. Further, sections 60 to 65 of the Income-tax Act, 1961 provide for clubbing of income arising to minor children, spouse, daughter-in-law etc. with the income of the individual under certain circumstances. These provisions must be strictly construed inasmuch as they create an artificial liability to tax. . A married woman, being an individual, is liable to income tax in respect of the total income of any previous year arising to her in her own right, including the income from assets inherited by her or gifted to her by a person other than her husband or her father -in-law or mother-in-law.

2. Assessment of a non-resident individual : The tax structure explained above is also applicable to an individual who is a non-resident during the previous year. The scope of deemed income taxable in the hands of a non-resident as laid down in section 5 has already been explained in section 9(1) which extends the liability to tax of a non-resident individual in respect of income which although not actually accruing or arising in Indians deemed to be so accruing or arising, assumes significance in the assessment of non-resident individual.

3. Flat rate of tax on winnings from lotteries, crossword puzzles etc. [Section 115BB] : Under section 115BB, gross winnings from lotteries, crossword puzzles, races including horse races (other than income from the activity of owning and maintaining race horses), card games and other games of any sort or from gambling or betting of any nature whatsoever shall be chargeable to income-tax at a flat rate of 30% on the gross winnings.

4. Tax on non-resident sportsmen or sports associations [Section 115BBA] :

This section is applicable where the total income of an assessee,

(a) being a sportsman (including an athlete), who is not a citizen of India and is a nonresident, includes any income received or receivable by way of participation in any game or sport or advertisement or contribution of articles in relation to any game or sport in India in newspapers, magazines, journals.

(b) being a non-resident sports association or institution, includes any amount guaranteed to be paid or payable to such association or institution in relation to any game or sport played in India.

(c) being an entertainer, who is not a citizen of India and is a non-resident, includes any income received or receivable from his performance in India. The income-tax payable shall be the aggregate of –

(i) the amount of income-tax calculated on the income referred to in clause (a) or clause (b) or clause (c) at the rate of 20%; and

(ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income in clause (a), (b) and (c).

No deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the income referred to in clause (a) or clause (b) or clause (c).

Further, such an assessee is not required to file a return of income under section 139(1), if his total income consists only of (a), (b) and (c) above and tax deductible at source has been fully deducted.

5. Special provisions relating to certain incomes of non-residents – Chapter XII A:

This Chapter seeks to lay down a concessional method of taxation of certain specified income of non-residents. For this purpose, a non-resident Indian means a non-resident individual who may either be an Indian citizen or a person of Indian origin. A person shall be deemed to be Indian origin if he or either of his parents or any of his grand-parents was born in undivided India. ‘Foreign exchange asset‘ means any ‘specified asset‘ which the assessee has acquired, purchased with or subscribed to in convertible foreign exchange. Such ‘specified assets‘ are as follows:

(a) shares in an Indian company.

(b) debentures issued by an Indian company which is not a private company as defined in the Companies Act, 1956.

(c) deposits with a non-private Indian company.

(d) any specified securities of Central Government.

(e) units of the Unit Trust of India.

(f) such other assets as may be notified by the Central Government.

The income derived from such a foreign exchange asset is called investment income.

“Investment income” means any income derived (other than dividends referred to in section 115-O) from a foreign exchange asset.

“Long-term capital gains” means income chargeable under the head “Capital Gains” relating to a capital asset, being a foreign exchange asset which is not a short -term capital asset.

(i) Flat rate for investment income and long-term capital gains [Section 115E]:

Where the total income of a non-resident Indian consists only of investment income and capital gains arising out of the transfer of long-term foreign exchange assets, tax payable by him shall be the aggregate of :

(a) income-tax on investment income at the rate of 20%;

(b) income-tax on long-term capital gains at the rate of 10%; and

(c) income-tax on his other total income.

(ii) Exemption of capital gains arising from transfer of long-term foreign exchange asset [Section 115F] : Where the non-resident Indian transfers the original foreign exchange asset and within a period of six months of such a transfer deposits or invests the whole or part of the net consideration in:

(a) any specified asset or

(b) any notified savings certificates referred to in section 10(4B)

then, the capital gains arising on such a transfer will be dealt with as follows :

If the cost of the new asset, referred to in (a) or (b) above, is not less than the net consideration in respect of the original asset the whole of such capital gain shall be exempt. If such cost is less than the net consideration, the exemption will be limited to:

Total capital gain *  Cost of new asset / Net Consideration

Note:

1. When the new asset consists of deposits, the cost means the amount of such deposits.

2. Net consideration means the full value of the consideration received or accruing as a result of the transfer as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

3. Where the new asset is transferred or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the capital gain, exempted as above, shall be chargeable as long term capital gain of the previous year in which the new asset is transferred or converted.

(iii) Return need not be filed [Section 115G] : Where the total assessable income of the non-resident during the previous year consisted only of investment income and long -term capital gains relating to foreign exchange assets and tax on such income has been deducted at source then he need not file a return of income under section 139(1).

(iv) Benefits available even after the assessee becomes a resident [Section 115H]: Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income in any subsequent year, he may furnish a declaration along with such a return to the effect that the provisions of this chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being debentures, deposits, securities of Central Government and such other notified assets. If he does so, then these provisions will continue to apply to him t ill such assets are transferred or otherwise converted into money.

(v) Option to the assessee [Section 115-I]: A non-resident Indian may elect not to be governed by these provisions. For this purpose he has to declare in the return regarding his option not to be governed by these provisions. In such a case the total income and tax payable there on will be computed in accordance with the other provisions of this Act and consequently, the provisions of this chapter will not apply to such non-resident assessees.

6. Special concessions in the case of individuals not being citizens of India : Although basically the law of income-tax is applicable alike to both citizens and non-citizens of India, and there is no difference in the general principles for computing the total income under the Income-tax Act, 1961, however, on a consideration of the peculiar circumstances in which a foreigner might come to or live in India, certain concessions and reliefs are granted to them. These have been discussed in detail in Chapter 3 under the head ‘Incomes not includible in the total income‘ [Section 10(6)].

7. Exemptions and reliefs available to individuals : The tax exemptions and reliefs available under the Act to individuals in respect of income chargeable to tax fall under the following categories:

1. Income altogether excluded from the total income, and on which in consequence, no income-tax is payable [Section 10].

2. Deductions from gross total income both in respect of income, a part of which is not chargeable to income-tax and payments made by the assessee, a part or the whole of which is deductible from the gross total income.

3. Relief in tax when salary is paid in arrears [Section 89].

8. Rebate of tax and relief in certain cases

•  Income from association of persons or bodies of individuals: If the assessee is a member of an association of persons or a body of individuals (other than a HUF, a company or a firm) income-tax shall not be payable by him in respect of any portion of the amount receivable by him from the association or body on which tax has already been paid by the association or body [Section 86]. For the purposes of this provision in the case of an association of persons which is assessable under section 67A, the members of the AOP whose shares in the income are indeterminate or unknown, will be entitled to receive equal shares in the income of the AOP and the individual share of such member will be determined accordingly.
•  Relief when salary etc. is paid in arrears or in advance [Section 89]: It has already been explained in the Chapter relating to salaries that arrears or advances of salaries are assessable in the hands of the recipients in the year in which these are received. Consequently, in a financial year, an employee may become chargeable to tax in respect of salary for more than 12 months. Likewise, any payment in the nature of profit in lieu of salary (within the meaning of section 17(3)) is also chargeable in the year of receipt in addition to the normal salary received by the employee. In consequence, the aggregate salary income may become liable to tax at a rate higher than that at which it would otherwise have been assessed. To obviate such a hardship, the Assessing Officer has been empowered to grant relief in appropriate cases, on the employee making an application, in accordance with Rule 21A of the Income-tax Rules, 1962. In appropriate cases coming under section 192(2A), where the employer is the Government or a public sector undertaking, co-operative society, local authority, university, institution or body, such employer himself is entitled to take into account the relief under section 89(1).