1. Income Received in India :
Any income which is received in India, during the previous year by any assessee, is liable to tax in India, irrespective of the residential status of the assessee and the place of accrual of such income .
Receipts means the first receipt:
The receipt of income refers to the first occasion when the recipient gets the money under his own control. Once an amount is received as income, any remittance or transmission of the amount to another place does not result in receipt within the meaning of this clause at the other place .
This principle is of importance ..
in determining the year of receipt, and
for ascertaining the incidence of taxation where it depends purely upon receipt of income.
For instance, in the case of non-residents, their foreign income is not assessable, unless it is actually received in India. In their case, unless, at the time the money is received in India, it is received as income from an outside source, such receipt will not be an income receipt. If a non-resident had already received moneys outside India (in an earlier year or during the previous year) as income or exempt income and he was transferring the funds into India in the accounting year, such moneys will not count as income in the eyes of law .
2. Income Deemed to be Received in India [Section 7]:
The following incomes shall be deemed to be received in India in the previous year even in the absence of actual receipt:
- Contribution made by the employer to the recognized provident fund in excess of 12% of the salary of the employee;
- Interest credited to the RPF of the employee which is in excess of 9.5% p.a.
- Transfer balance from the unrecognized fund to a Recognised Provident Fund (It has been discussed in the Chapter on ‘Income from Salaries’);
- The contribution made, by the Central Government or any other employer in the previous year, to the account of an employee under a notified contributory pension scheme referred to in section 80CCD.
3. Income Accrue or Arise in India:
‘Accrue’ means ‘to arise or spring as a natural growth or result’, to come by way of increase.
‘Arising’ means ‘coming into existence or notice or presenting itself’.
‘Accrue’ connotes growth or accumulation with a tangible shape so as to be receivable. In a secondary sense, the two words together mean ‘to become a present and enforceable right’ and ‘to become a present right of demand’.
Frequently, in the context of ‘accrual’ or ‘arisal’, the word ‘earned’ is used. The two are different concepts. A person may be said to have ‘earned’ his income in the sense that he has contributed to its production by rendering services or otherwise and the parenthood of the income can be traced to him. But in order that the income may be said to have ‘accrued’ to him, an additional element is necessary, that he must have created a debt in his favour.
4. Incomes which are Deemed to Accrue or Arise in India [Section 9]:
The following incomes shall be deemed to accrue or arise in India:
(a) Income from a Business Connection in India:
Any income which arises, directly or indirectly, from any activity or a business connection in India is deemed to be earned in India.
(1) Business Connection to include any Business activity carried out through a Dependant Agent [Explanation 2 to section 9(1)]
“Business connection” shall include any business activities carried through a person who, acting on behalf of the non-resident, —
— has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident or
— habitually concludes contracts or
— habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are—
(i) in the name of the non-resident; or
(ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or
(iii) for the provision of services by the non-resident.
(2) “Business Connection” to include “Significant Economic presence” also [Explanation 2A inserted under section 9(1)(i)] [W.e.f. A.Y. 2019-20]
‘Significant economic presence’ of a non-resident in India shall constitute ‘Business Connection’ in India.
“Significant economic presence” for this purpose, shall mean—
(a) transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed; or
(b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means.
Provided that the transactions or activities shall constitute significant economic presence in India, whether or not, —
(i) the agreement for such transactions or activities is entered in India; or
(ii) the non-resident has a residence or place of business in India; or
(iii) the non-resident renders services in India.
The Act has further provided that only so much of income as is attributable to such transactions or activities referred to in clause (a) and (b) above shall be deemed to accrue or arise in India.
|The above amendment in the domestic law will enable India to negotiate for inclusion of the new nexus rule in the form of ‘significant economic presence’ in the Double Taxation Avoidance Agreements. It may be clarified that the aforesaid conditions stated above are mutually exclusive. The threshold of “revenue” and the “users” in India will be decided after consultation with the stakeholders. Further, it is also clarified that unless corresponding modifications to PE rules are made in the DTAAs, the cross-border business profits will continue to be taxed as per the existing treaty rules.|
In the case of a Non-Resident the following shall not, however, be treated as business connection in India:
(i) Operations confined to purchase of goods in India for purpose of exports;
(ii) Operations confined to collection of news and views for transmission outside India by or on behalf of Non-Resident who is engaged in the business of running news agency or of publishing newspapers, magazines or journals;
(iii) Operations confined to shooting of cinematograph films in India if such Non-Resident is:
(a) an individual—he should not be a citizen of India; or
(b) a firm—the firm should not have any partner who is a citizen of India or who is resident in India; or (c) a company—the company does not have any shareholder who is a citizen of India or who is resident in India.
(b) Income from any Property, Asset or Source of Income situated in India:
Any income which arises from any property movable or immovable, tangible or intangible which is situated in India, is deemed to accrue or arise in India. Example: R who lives in London, has a house property situated in India which has been given by him on rent. Rent derived by R shall be taxable in India whether such rent is received by him in India or outside India as the house property is situated in India.
(c) Income from the Transfer of any Capital Asset situated in India:
Where the capital asset is situate in India, regardless of the residential status of the transferor or the transferee, capital gain, arising on its transfer, would be deemed to be income accruing or arising in India and hence would be taxable.
Apportionment of profits [Explanation (d) to Section 9(1)(i)]
In the case of a business of which all the operations are not carried in India, only that part of income shall be deemed to accrue or arise in India which is reasonably attributable to the operations carried on in India.
Where the goods are manufactured in India and were sold out side India, the profit will be apportioned in two parts—one for manufacturing operations and another for selling operations. The profits which could be reasonably attributed to selling operations will not be deemed to accrue in India.
In cases where the income attributable to operations carried out in India cannot be ascertained, Rule 10 of Income-tax Rules 1962 provides
- such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable having regard to the facts and circumstances of the case; or
- any amount which bears the same proportion to the total profits and gains of the business of the assessee computed in accordance with the provisions of the Act as the receipts so- accruing or arising bear to the total receipts of the business; or
- in such other manner as the Assessing Officer may deem suitable.
(d) Any income which falls under the head ‘Salaries’ if it is earned in India:
This explanation provides an artificial place of accrual for income taxable under th head ‘Salaries’. According to it the incomes chargeable to tax as salaries shall be deemed to accrue or arise in India if they are earned in India. The place of receipt and actual accrual of the salary is immaterial. Any income payable for
- service rendered in India, and
- the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment,
Any income payable for services rendered in India shall be regarded as income earned in India though it may be paid in India or outside.
(e) Income by way of Salary Payable by the Government to an Indian citizen/national for services rendered outside India:
The following conditions have to be satisfied before such income is treated as deemed to accrue or arise in India:
- Income should be chargeable under the head ‘Salaries’;
- The payer should be Government of India;
- The recipient should be an Indian citizen — whether Resident or Non-Resident;
- The services should be rendered outside India.
While salary of Indian citizen in the above case shall be deemed to accrue or arise in India but all allowances or perquisites paid outside India by the Government to the above Indian citizens for their rendering services outside India are exempt under section 10(7).
(f) Income by way of Interest payable by:
- Government; or
- A person who is a resident in India, except where interest is payable in respect of money borrowed and used for the purpose of business or profession carried on outside India or earning any income from any source outside India; or
- A person who is a non-resident in India provided interest is payable in respect of money borrowed and used for a business or profession carried on in India,
shall be income which is deemed to accrue or arise in India in the hands of the recipient.
(g) Income by way of Royalty payable by:
- Government; or
- A person who is a resident in India except where it is payable in respect of any right/information/property used for the purpose of a business or profession carried on outside India or earning any income from any source outside India; or
- A person who is a non-resident provided royalty is payable in respect of any right/information/property used for the purpose of the business or profession carried on in India or earning any income from any source in India, shall be income which is deemed to accrue or arise in India in the hands of the recipient.
(h) Income by way of Fees for Technical Services payable by:
- Government; or
- A person who is a resident in India, except where services are utilised for a business or profession carried on outside India or earning any income from any source outside India; or
- A person who is a non-resident provided fee is payable in respect of services for a business or profession carried on in India or earning any income from any source in India, shall be income which is deemed to accrue or arise in India in the hands of the recipient.
5. Scope of Total income (Section 5):
|Particulars of Income||Resident|
|1. Income received or deemed to be received in India whether earned in India or elsewhere.||Yes||Yes||Yes|
|2. Income which accrues or arises or is deemed to accrue or arise in India during the previous year, whether received in India or elsewhere.||Yes||Yes||Yes|
|3. Income which accrues or arises outside India and received outside India from a business controlled from India.||Yes||Yes||No|
|4. Income which accrues or arises outside India and received|
outside India in the previous year from any other source.
|5. Income which accrues or arises outside India and received outside India during the years preceding the previous year and remitted to India during the previous year.||No||No||No|
Highlights of Provisions of Incidence Of Tax:
An analysis of the above provisions would highlight the following:
(a) Any income which is either received in India or deemed to be received in India is taxable in India, irrespective of the residential status.
(b) Any income which is either earned in India or is deemed to be earned in India is taxable in India, irrespective of the residential status.
(c) For a Resident in India (for individual & HUF, resident and ordinarily resident in India) all global income, wherever earned / received is taxable in India.
(d) For a non-resident, an income is taxable only if it is either earned in India or it is received in India. (e) For not ordinarily resident, income earned and received outside India will be taxable, only when it is from a business or profession controlled or set up in India.