RESIDENTIAL STATUS AND SCOPE OF TOTAL INCOME

Section Wise Study

Section Particular
2(30) Non-Resident
2(45) Total Income
5 Scope of Total Income/Incidence of Tax
5(1) Scope of Total Income in Case of Resident in India
Proviso to Scope of Total Income in Case of Not-Ordinarily Resident in India
section 5(1)
5(2) Scope of Total Income in Case of Non-Resident
6 Resident in India
6(1) Rule for determining residential status of an Individual
6(2) Rule for determining residential status of an HUF, Firm, AOP, BOI
6(3) Rule for determining residential status of a Company
6(5) Deemed resident
6(6) Not-Ordinarily Resident in India
7 Income received or deemed to be received
9 Income deemed to be accrue or arise in India

Every person shall be charged to income tax if his total income of the previous year exceeds the maximum
amount which is not chargeable to tax.

Total Income: Total Income means the total amount of income referred to in section 5, computed in the
manner laid down in the Income Tax Act 1961

Total income is computed under five heads of income. Income computed under each head is there
thereafter aggregated and the aggregated amount is known as Gross Total Income (GTI). From Gross
total Income certain deduction are allowed under section 80C to 80U and the balance income after
deduction is called as Net Taxable Income/Total Income.

Why:
Determination of the fact whether a particular income shall be taxable or not depends upon the
residential status of the assesse.

Total income of an assessee cannot be computed unless we know his/her residential status in india
during the previous year. According to the residential status, the assessee can either be
(i) Resident in India
(ii) Non-Resident in India.

However, Individual and HUF cannot be simply called resident in India. If individual is a resident in
India, he will be either:
(i) Resident and ordinarily resident
(ii) Resident but not ordinarily resident

Other categories of person shall be either be resident in India or non-resident in India. There shall be
no further classification into ordinarily resident or not ordinarily resident
 Income Tax CA-INTER/IPCC For May/Nov 2021

RESIDENTIAL STATUS Section 6

The incidence of tax on any assessee depends upon his residential status under the Act. Taxpayers
are classified into three broad categories:
1. Resident and ordinarily resident
2. Resident but not ordinarily resident
3. Non-resident

Residential Status (Section 6)

Residential Residential Residential Residential Residential Status of
Status of an Status of a HUF Status of a Status of a other Person
Individual Firm/AOP/BOI Companies

RESIDENTIAL STATUS OF AN INDIVIDUAL (Section 6(1))

An individual is said to be resident in India in any previous year, if he satisfies any one of the
following conditions: (Basic Condition)

(i) He/she stay in India for 182 days or more during the relevant previous year or

(ii) He/she stay in India for 60 days or more during the relevant previous year. AND for 365 days or
more during 4 immediately preceding the relevant previous year

If the individual does not satisfies any one of the conditions mentioned above, the individual is
considered to be as a non-resident.

Explanation 1 : Exceptions of Section 6(1)

The following categories of individuals will be treated as residents only if the period of their stay
during the relevant previous year amounts to 182 days.

a. Indian citizens, who leave India in any previous year for the purposes of employment outside
India, or leave India as a member of the crew (sailor) of an Indian ship

b. Indian citizen or person of Indian origin engaged outside India for an employment or a business
or profession or in any other vocation, who comes on a visit to India in any previous year.

Means the 2nd basic condition is not applicable for determining the residential status for above
2 points.

Amendments made by Finance Act 2020

The above clause (b) of explanation 1 has been amended by Finance Act 2020

In case of an individual, who is a citizen of India, or person of Indian origin, who being outside India,
comes on a visit to India in any previous year.

-He shall not be a resident in India unless his stay in India for at least 182 days during the relevant
previous year in which he visits India
and
If such person having total income, (other than the income from foreign sources), exceeding Rs.
15,00,000 during the previous year, he shall not be resident in India unless his stay in India for at least
120 days during the relevant previous year in which he visits India and 365 days during the preceding
4 previous years.

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In other words, a citizen of India for person of Indian Origin, who had been in India for 365 days or
more in the 4 preceding previous year and whose undertake a visit to India in any previous year, and

a. Whose total income, (other than the income from foreign sources), does not exceeds Rs. 15,00,000
shall not be a resident in India if he stay in India up to 181 days in the relevant previous year or

b. Whose total income, (other than the income from foreign sources), exceeding Rs. 15,00,000 shall
not be a resident in India if he stay in India up to 119 days in the relevant previous year.

Income from foreign sources

For the purpose of section 6, the expression “Income from foreign sources” mean income which
accrue or arise outside India (except income derived from business controlled in or a profession setup
in India) and which is not deemed to accrue or arise in India.

Amendments made by Finance Act 2020

Notwithstanding anything contained in section 6(1) an individual, being a citizen of India having total
income, other than the income from foreign sources, exceeding Rs. 15 Lakh during the previous year
shall be deemed to be a resident in India in that previous year if he is not liable to tax in any other
country or territory by reason of his domicile or residence or any other criteria of similar nature.

Question 1
Mr. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian ship engaged in
carriage of passengers in international traffic departing from Chennai port on 6th June, 2020. From the
following details for the P.Y. 2020-21, determine the residential status of Mr. Anand for A.Y. 2021-22,
assuming that his stay in India in the last 4 previous years (preceding P.Y. 2020-21) is 400 days and last
seven previous years (preceding P.Y. 2020-21) is 750 days:
Particulars Date
Date entered into the Continuous Discharge Certificate in 6th June, 2020 6th June 2020
respect of joining the ship by Mr. Anand
Date entered into the Continuous Discharge Certificate in respect of signing 9th Dec 2020
off the ship by Mr. Anand

Accordingly, 187 days [25+31+31+30+31+30+9] have to be excluded from the period of his stay in India.
Consequently, Mr. Anand’s period of stay in India during the P.Y. 2020-21 would be 178 days [i.e., 365
days – 187 days]. Since his period of stay in India during the P.Y. 2020-21 is less than 182 days, he is a
non-resident for A.Y. 2021-22.

Points to be remember:
1. Stay in India include stay in the territorial waters of India (Extend upto 12 NM=1852 KM)
2. Its not necessary that the period of stay must be continuous or active
3. Residential Status of an assesee is determined separately for each Previous Year.
4. Block of 24 Hour shall be taken as 1 day
5. Its not necessary that stay should be at the same place of residence, business or employment of the
individual
6. It is a duty of an asseessee to place all material facts before the assesseing officer to enable him to
determine his correct residential status.
7. Both the date of departure as well as the date of arrival are considered to be in India if actual time of
arrival and departure not known
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8. Residential Status of an individual determining above for income-tax purpose has no relation with
citizenship
9. A person is said to be of Indian origin if he or either of his parents or either of his grandparents
were born in undivided India
10. The date entered into the Continuous Discharge Certificate in respect of joining the ship/ signing off
by the said individual for the eligible voyage shall not be included while computing the period of
Stay.

Basic Condition
(i) Yes Yes No No
(ii) Yes No Yes No
Status

Resident and ordinarily resident/Resident but not ordinarily resident

Applicable to  Only individuals and HUF
whom
Condition An individual is said to be a resident and ordinarily resident (ROR) if he satisfies
both the following conditions:

a) He is a resident in any 2 out of the last 10 years preceding the relevant previous
year, and

b) His total stay in India in the last 7 years preceding the relevant previous year is
730 days or more.

If only one or none of the conditions are satisfied, the individual is a resident but
not ordinarily resident (RNOR).

Note:
1. However, as per section 6(6), in case of the citizen or person of Indian origin having total income
(other than the income from foreign sources) exceeding rupees 15,00,000 during the previous year if
he comes to India for a visit of 120 days but less than 180 days in the previous year he shall be Deemed
to be not ordinarily resident in India
2. An individual who is Deemed to be a citizen of India as per section 6(1A) newly inserted by Finance
Act 2020 shall be resident but not ordinarily resident in India as per amendment made in section 6(6)

Question 2
A citizen of USA has been staying in India since 1991. He leaves India on 16.07.2020 on a visit to UK
and returns on 04.1.2021. Determine his residential status for the previous year 2020-21.

Answer: ROR

Question 3
Mr. Mark a U.K citizen come to India for the first time in a P.Y 2015-16 for 120 days. During P.Y 2016-17,
2017-18, 2018-19, 2019-20 and 2020-21 he stays in India for 150 days, 100 days, 120 days, 190 days
and 94 days respectively. Determine his residential status for the previous year 2020-21.

Answer: RNOR

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Question 4
Mr. Raju an Indian citizen and businessmen who reside in Delhi, went to U.K for employment purpose on
15.08.2020 and come back to India on 10.11.2021. He has never been out of India in the past. Determine
his residential status for the previous year 2020-21.

Answer: NR

Question 5
Mr. Raju an Indian citizen and businessmen who reside in Delhi, went to U.K on vacation tour on
15.08.2020 and come back to India on 10.11.2021. He has never been out of India in the past. Determine
his residential status for the previous year 2020-21.

Answer: ROR

Question 6
Mr. Raju, a British national, comes to India for the first time during 2016-17. During the previous year
2016-17, 2017-18, 2018-19 and 2019-20 he was in India for 156 Days, 72 Days, 183 Days and 161 days
respectively. Further during the previous year 2020-21, he is in India for 84 Days. Determine his
residential status for the previous year 2020-21.

Answer: RNOR

Question 7
Brett Lee, an Australian cricket player visits India for 100 days in every financial year since 2010-11.
Determine his residential status for the previous year 2020-21.

Answer: RNOR

Question 8
Brett Lee, an Australian cricket player visits India for 110 days in every financial year since 2007-08.
Determine his residential status for the previous year 2020-21.

Answer: ROR

Question 9
A come to India from America for the first time on 10.10.2020. He returns to his home country after
staying in India up to 05.07.2021. Determine his residential status for the previous year 2020-21.

Answer: NR

Question 10
A come to India from America for the first time on 03.10.2019. He returns to his home country after
staying in India up to 28.09.2020.
a. Determine his residential status for the previous year 2020-21.
b. Determine his residential status for the previous year 2019-20.
Answer: in both cases Non-Resident (NR)

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Question 11
“B” an Indian citizen left India for the first time on 21.09.2020 for employment in U.K. During the
previous year 2021-22 he comes to India on 05.05.2021 for 150 days. Determine his residential status
for the assessment year 2021-22 and 2022-23.

Answer: in both cases Non-Resident (NR)

Question 12
“A” was born in Karachi in 1946. He has been staying in UK since 1972. He come to visit India on
02.10.2020 and return on 31.03.2021. Determine his residential status for the assessment year 2021-22.

Answer: NR

Question 13
“A” was born in UK in 1966. His father was born in USA in 1936. A’s grandfather was born in Karachi in
1916. A visits India for 180 days during the previous year 2020-21. Determine his residential status for
the assessment year 2021-22.

Answer: NR

Question 14
“A” a citizen of India, left India on 06.06.2007 for employment abroad. He did not come to India up to P.Y
2017-18. During 2018-19 and 2019-20, he visited India for 145 days and 195 days respectively. In the
P.Y 2020-21 he come to India on 07.04.2020 and left on 30.11.2020. Determine his residential status for
the assessment year 2021-22.

Answer: RNOR

Question 15
“A” a citizen of India has been carrying on a professional in Dubai (UAE) where he is not liable to pay any
Income Tax. His taxable Indian income for the P.Y 2020-21 is Rs. 12,00,000 and he has also earned Rs.
5,00,000 from exercising the profession in Dubai. The profession is setup in India. Besides, the
professional income, he has earned Rs. 10,00,000 in Dubai. Determine his residential status for the
assessment year 2021-22 if: -
a. During the previous year 2020-21 he has visited India for 110 days.
b. During the previous year 2020-21 he has not visited India
c. During the previous year 2020-21 he has visited India for 190 days.
d. During the previous year 2020-21 he has visited India for 122 days and in the 4 preceding P.Y
immediately the previous year 2020-21, he was in India for 300 days.
e. During the previous year 2020-21 he has visited India for 122 days and in the 4 preceding P.Y
immediately the previous year 2020-21, he was in India for 400 days.

Answer: a. Deemed to be resident in India as per section 6(1A)

b. Deemed to be resident in India as per section 6(1A)
c. Resident in India
d. Deemed to be resident in India as per section 6(1A)

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e. Resident in India

Question 16
“A” a citizen of India has been carrying on a professional in Dubai (UAE) where he is not liable to pay any
Income Tax. His taxable Indian income for the P.Y 2020-21 is Rs. 9,00,000 and he has also earned Rs.
5,00,000 from exercising the profession in Dubai. The profession is setup in India. Besides, the
professional income, he has earned Rs. 10,00,000 in Dubai. Determine his residential status for the
assessment year 2021-22 if: -
a. During the previous year 2020-21 he has visited India for 110 days.
b. During the previous year 2020-21 he has not visited India
c. During the previous year 2020-21 he has visited India for 190 days.
d. During the previous year 2020-21 he has visited India for 122 days and in the 4 preceding P.Y
immediately the previous year 2020-21, he was in India for 300 days.
e. During the previous year 2020-21 he has visited India for 122 days and in the 4 preceding P.Y
immediately the previous year 2020-21, he was in India for 400 days.

Answer: a. Non-Resident in India

b. Non-Resident in India
c. Resident in India
d. Non-Resident in India
e. Non-Resident in India

Question 17
“A” a citizen of India has been carrying on a professional in Singapore which is setup in India. He visited
India during the P.Y 2020-21 for 145 days. Determine his residential status for the assessment year
2021-22. If he has earned the following income during the P.Y 2020-21.
a. Taxable Indian Income Rs. 8,00,000
b. Income from profession in Singapore Rs. 10,00,000
c. Other income earned in Singapore Rs. 9,00,000
“A” is liable to pay income tax in Singapore.

Answer: RNOR

Question 18
“A” a citizen of India has been carrying on a professional in Singapore which is setup in India. He visited
India during the P.Y 2020-21 for 115 days. Determine his residential status for the assessment year
2021-22. If he has earned the following income during the P.Y 2020-21.
a. Taxable Indian Income Rs. 8,00,000
b. Income from profession in Singapore Rs. 10,00,000
c. Other income earned in Singapore Rs. 9,00,000
“A” is liable to pay income tax in Singapore.

Answer: NR

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Question 19
Mr. B, a Canadian citizen, comes to India for the first time during the P.Y. 2016-17. During the financial
years 2016-17, 2017-18, 2018-19 2019-20 and 2020-21, he was in India for 55 days, 60 days, 90 days,
150 days and 70 days, respectively. Determine his residential status for the A.Y. 2021-22.

Answer: NR

Question 20
Mr. C, a Japanese citizen left India after a stay of 10 years on 1.6.2018. During the financial year 2020-21,
he comes to India for 46 days. Later, he returns to India for 1 year on 10.10.2020. Determine his
residential status for the A.Y.2021-22.

Answer: ROR

Question 21
Mr. D, an Indian citizen, leaves India on 22.9.2020 for the first time, to work as an officer of a company
in France. Determine his residential status for the A.Y. 2021-22.

Answer: NR

RESIDENTIAL STATUS OF AN HUF

Resident A HUF would be resident in India if the control and management of its affairs is
situated wholly or partly in India.
Non-Resident If the control and management of the affairs is situated wholly outside India it
would become a non-resident.
ROR/RNOR  If the Karta is resident and ordinarily resident, then the HUF is resident and
ordinarily resident.
 If the Karta is resident but not ordinarily resident, then HUF is resident but not
ordinarily resident.

Question 22
The business of a HUF is transacted from Australia and all the policy decisions are taken there. Mr. E, the
Karta of the HUF, who was born in Kolkata, visits India during the P.Y. 2020-21 after 15 years. He comes
to India on 1.4.2020 and leaves for Australia on 1.12.2020. Determine the residential status of Mr. E and
the HUF for A.Y. 2021-22.

Answer: During the P.Y. 2020-21, Mr. E has stayed in India for 245 days (i.e. 30+31+30+31+31+
30+31+30+1 days). Therefore, he is a resident. However, since he has come to India after 15
years, he does not satisfy the condition for being ordinarily resident.
Therefore, the residential status of Mr. E for the P.Y. 2020-21 is resident but not ordinarily
resident.

Since the business of the HUF is transacted from Australia and policy decisions are taken there, it
is assumed that the control and management is in Australia i.e., the control and management is
wholly outside India. Therefore, the HUF is a non-resident for the P.Y. 2020-21.

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Question 23
During the P.Y 2020-21 R and Sons HUF was partly controlled from India by its Karta Mr. R who is citizen
of India but stay outside India. For the purpose of managing the affairs of the HUF, R has been regularly
visiting in India. Determine the residential status of HUF for A.Y. 2021-22 if:
a. R has been visiting India for 100 days every year for the last 12 years.
b. R has been visiting India for 110 days every year for the last 12 years.
c. R has been visiting India for the last 12 years. During the immediately preceding 4 P.Y he was in
India for 50 days every year and prior to that for 200 days every year.

Answer: HUF is Resident

a. HUF is RNOR.
b. HUF is RNOR.
c. HUF is ROR.

RESIDENTIAL STATUS OF AN FIRMS And ASSOCIATION OF PERSONS

Resident  A firm and an AOP would be resident in India if the control and management of its
affairs is situated wholly or partly in India.
Non-Resident  Where the control and management of the affairs is situated wholly outside India,
the firm and AOP would become a non-resident.

RESIDENTIAL STATUS OF AN COMPANIES

Resident A company would be resident in India in any previous year, if-
 it is an Indian company; or
 its place of effective management, in that year, is in India.

“Place of effective management” to mean a place where key management and

commercial decisions that are necessary for the conduct of the business of an entity
as a whole are, in substance made
Non-Resident  if above condition does not satisfy

RESIDENTIAL STATUS OF LOCAL AUTHORITIES AND ARTIFICIAL JURIDICAL PERSONS

Resident Local authorities and artificial juridical persons would be resident in India if the
control and management of its affairs is situated wholly or partly in India.
Non-Resident Where the control and management of the affairs is situated wholly outside India,
they would become non-residents.

SCOPE OF TOTAL INCOME

Under Income Tax Act incidence of tax on any person depends upon his residential status.
The scope of total income of an assessee depends upon the following three important considerations:
a. the residential status of the assessee;
b. the place of accrual or receipt of income, whether actual or deemed; and
c. the point of time at which the income had accrued to or was received by or on behalf of the
assessee.

The ambit of total income of the three classes of assessees would be as follows:

1. Resident and ordinarily resident

The total income of a resident assessee would, consist of:
(1) Income received or deemed to be received in India during the previous year;
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(2) Income which accrues or arises or is deemed to accrue or arise in India during the previous year;
and
(3) Income which accrues or arises outside India even if it is not received or brought into India during
the previous year.

In simpler terms, a resident and ordinarily resident has to pay tax on the total income accrued or deemed
to accrue, received or deemed to be received in or outside India.

2. Resident but not ordinarily resident

The total income of a resident but not ordinarily resident assessee would, consist of:
(1) Income received or deemed to be received in India during the previous year;
(2) income which accrues or arises or is deemed to accrue or arise in India during the previous year

However, where such income is derived from a business controlled from or profession set up in India,
then it must be included in his total income even though it accrues or arises outside India.

3. Non-resident
A non-resident’s total income includes:
(1) Income received or deemed to be received in India in the previous year; and
(2) Income which accrues or arises or is deemed to accrue or arise in India during the previous year.

Note: All assessees, whether resident or not, are chargeable to tax in respect of their income accrued,
arisen, received, or deemed to accrue, arise or to be received in India whereas residents alone are
chargeable to tax in respect of income which accrues or arises outside India.

Residential Status and Scope of Total Income

Resident and Resident but not Non-
Scope of total Ordinarily Resident Ordinarily Resident Resident
Income
Income received or deemed to be
received in India during the previous Yes Yes Yes
year
Income accruing or arising or deeming
to accrue or arise in India during the Yes Yes Yes
previous year
Income accruing or arising outside Yes, even if such Yes, if income is
India income is not derived from a No
received or brought business controlled
into India during the from or profession set
previous year up in India; Otherwise,
No.

Resident and Ordinarily Resident but not Ordinarily Non-Resident (NR)

Resident (ROR) Resident (RNOR)
 Income accruing/arising in  Income accruing/arising in  Income accruing/arising in
India or deemed to India or deemed to India or deemed to
accrue/arise in India accrue/arise in India accrue/arise in India (whether
(whether received in (whether received in received in India/Outside
India/Outside India) India/Outside India) India)
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 Income received in India or  Income received in India or  Income received in India or

deemed to be received in deemed to be received in deemed to be received in India
India India
 Income accruing/arising in
 Income accruing/arising in  Income accruing/arising in abroad and received in abroad
abroad and received in abroad and received in  Income from Business &
abroad abroad Professional carried on outside
 Income from Business & India but controlled from India.
Professional carried on
outside India but controlled  Income from Business &
from India. Professional carried on outside
India which was initially setup
 Income from Business & in India.
Professional carried on
outside India which was
initially setup in India.

Important Points
 Global income is taxable in case of resident in India but where an assessee has paid tax in the foreign
country on the income which accrues or arise outside India, he shall get a relief of tax paid by him in
the foreign country while computing his tax payable on such income in India. This is known as double
taxation relief.

 The income, which has in any preceding year been included in the total income of a person on accrual
basis, shall not again be included on its receipt by him in India during the previous year.

 Any income is to be included in the total income only if it is taxable as per the provision of income tax
act and shall be computed as per the provision of the act. Exempt income shall not form part of total
income.

 For the purpose of taxation what is relevant is the first receipt. If an amount is received outside India
and then subsequently remitted to India, it shall be a receipt outside India and merely because it has
been remitted to India would not make an income received in India.

 Income is taxable whether it is received in cash or in kind.

 The income to be taxed in a particular assessment year is the income which is earned or which arise
during the relevant previous year. Therefore, if an income which was earned during any earlier year
but could not be taxed in India due to any reason, may be because of the fact that assessee was a non -
resident in that year, will not become taxable merely because it has been remitted to India during the
previous year. For example if X earned an income of 2,50,000 during the previous year 2019-20 outside
India and kept it outside India during that year but remitted this amount to India during the previous
year 2020-21 it shall not be taxed as income of the previous year 2020-21.

Accruing Arising
Right to receive income Right to enforce payment
e.g. salary for work done in December will e.g. Government securities, interest payable on
accrue throughout the month, day to day, but specified dates arise during the period of holding,
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will become due on the salary bill being passed day to day, but will become due for payment on the
on 31st December or 1st January. specified dates.

Example
Interest on Government securities is usually payable on specified dates, say on 1stJanuary and 1st July.
In all such cases, the interest would be said to accrue from 1st July to 31st December and on 1st January,
it will fall due for payment.

Question 24
From the following particulars of income furnished by Mr. Anirudh pertaining to the year ended
31.3.2021, compute the total income for the assessment year 2021-22, if he is:
(i) Resident and ordinary resident.
(ii) Resident but not ordinarily resident.
(iii) Non-resident

Particular Amount
A Short term capital gains on sale of shares of an Indian Company received in Germany Rs. 15,000
B Dividend from a Japanese Company received in Japan Rs. 10,000
C Rent from property in London deposited in a bank in London, later on remitted to Rs. 75,000
India through approved banking channels
D Dividend from RP Ltd., an Indian Company Rs. 6,000
E Agricultural income from land in Gujarat Rs. 25,000

Answer: Total Income for ROR Rs. 83,500, RNOR Rs. 21,000 and NR Rs. 21,000

Points to be noted.
It must be noted that income which has been taxed on accrual basis cannot be assessed again on receipt
basis, as it will amount to double taxation.

Item of income accruing or arising outside India shall not be deemed to be received in India merely
because it is taken into account in a balance sheet prepared in India.

Once an item of income is included in the assessee’s total income and subjected to tax on the ground of
its accrual/deemed accrual or receipt, it cannot again be included in the person’s total income and
subjected to tax either in the same or in a subsequent year on the ground of its receipt - whether actual
or deemed.

Income u/s 9
1 Salary Income is deemed to accrue/arise in India if the services are rendered in India. So place of
accrual of salary is the place where work has been done by employee
However, it does not include Salary payable by Indian Govt to an Indian citizen for the services
rendered outside India is deemed to accrue/arise in India. However, all allowances & Perquisites
received by such person outside India are fully exempt u/s 10(7)
Pension payable outside India by the Government to its officials and judges who
permanently reside outside India shall not be deemed to accrue or arise in India.

2 Income from any property or asset (movable, immovable, tangible, intangible) is deemed to
accrue/arise in India if such property situated in India.

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(i) Hire charges or rent paid outside India for the use of the machinery or buildings situated in
India,
(ii) Deposits with an Indian company for which interest is received outside India etc.

3 Any Income from Business Connection

Business Connection Means any activity undertaken in India in relation to a business apart from
the normal foreign operation of the business (business operation are being managed in India as
well as outside India)

Tax needs to be paid in India on the profit earned due to any activity carried out in India. Business
connection can be exist in the form of:
-branch or agent or
-subsidiary in India or
-factory in India, etc

Business connection would be established if the person acting on behalf of the non-
resident-
 habitually conclude contracts (However, if his activities are limited to the purchase of goods
or merchandise for the non-resident, this provision will not apply.)
 habitually maintains in India a stock of goods or merchandise from which he regularly delivers
goods or merchandise on behalf of the non-resident, or
 habitually secures orders in India

However, in case of Non- Residents, the following operations shall not be treated as Business
connection in India and therefore income from such operation shall not be taxable.
 In the case of a non-resident, no income shall be deemed to accrue or arise in India to him
through or from operations which are confined to the purchase of goods in India for the
purpose of export.
 In the case of a non-resident, being a person engaged in the business of running a news agency
or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or
arise in India to him through or from activities which are confined to the collection of news
and views in India for transmission out of India.
 In the case of a non-resident, no income shall be deemed to accrue or arise in India through or
from operations which are confined to the shooting of any cinematograph film in India, if such
non-resident is:
 an individual, who is not a citizen of India or
 a firm which does not have any partner who is a citizen of India or who is resident in India;
or
 a company which does not have any shareholder who is a citizen of India or who is
resident in India.

Amendment by Finance Act 2020

For the removal of doubts it is hereby declared that income attributable to the operations carried
out in India, as referred to in Explanation 1, shall include income from-

(i) Such advertisements which target a customer who resides in India or a customer who accesses
the advertisements through internet protocol address located in India

(ii) Sale of data collected from a person who resides in India or from a person who uses internet
protocol address located in India and

(iii) Sale of goods or services using data collected from a person who resides in India or from a
person who uses internet protocol address located in India
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4 Income through transfer of a capital asset situated in India

Further, an asset or a capital asset being any share or interest in a company or entity registered
or incorporated outside India shall be deemed to be and shall always be deemed to have been
situated in India, if the share or interest derives, directly or indirectly, its value substantially from
the assets located in India.

5 All dividends paid by an Indian company must be deemed to accrue or arise in India.
Under section 10(34), income from dividends referred to in section 115-O is exempt from tax in
the hands of the shareholder.

6 An interest is deemed to accrue or arise in India if it is payable by -

(i) the Government.
(ii) a person resident in India.
Exception: Where it is payable in respect of any money borrowed and used for the purposes of
a business or profession carried on by him outside India or for the purposes of making or
earning any income from any source outside India, it will not be deemed to accrue or arise in
India.
(iii) a non-resident when it is payable in respect of any moneys borrowed and used for the purpose
of a business or profession carried on in India by him.

Exception: Interest on money borrowed by the non-resident for any purpose other than a
business or profession, will not be deemed to accrue or arise in India.

Example
If a non-resident ‘A’ borrows money from a non-resident ‘B’ and invests the same in shares of an
Indian company, interest payable by ‘A’ to ‘B’ will not be deemed to accrue or arise in India.

7 Royalty will be deemed to accrue or arise in India when it is payable by -

(i) the Government.
(ii) a person who is a resident in India

Exception: Where it is payable for the transfer of any right or the use of any property or
information or for the utilization of services for the purposes of a business or profession carried
on by such person outside India or for the purposes of making or earning any income from any
source outside India; or

(iii) a non-resident only when the royalty is payable in respect of any right, property or
information used or services utilised for purposes of a business or profession carried on in India
or for the purposes of making or earning any income from any source in India.

(Consideration for use or right to use computer software is also Included within the scope of
Royalty)

Example
Mr. Soham, an Indian Citizen, left India on 20-04-2015 for the first time to setup a software firm
in Singapore. On 10-04-2017, he entered into an agreement with LK Limited, an Indian Company,
for the transfer of technical documents and designs to setup an automobile factory in Faridabad.
He reached India along with his team to render the requisite services on 15-05-2017 and was able
to complete his assignment on 20-08-2017. He left for Singapore on 21-08-2017. He charged ` 50
lakhs for his services from LK Limited.

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Determine the residential status of Mr. Soham for the Assessment Year 2021-22 and examine
whether the fees charged from LK Limited would be chargeable to tax as per the Income-tax Act,
1961.
8 Any fees for technical services will be deemed to accrue or arise in India if they are payable by -
(i) the Government.

(ii) a person who is resident in India

Exception: Where the fees is payable in respect of technical services utilised in a business or
profession carried on by such person outside India or for the purpose of making or earning any
income from any source outside India.

(iii) a person who is a non-resident, only where the fees are payable in respect of services utilised
in a business or profession carried on by the non-resident in India or where such services are
utilised for the purpose of making or earning any income from any source in India.

Example
Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant practisingin
Colombo, specializing in project financing. The payment was made in Colombo. Mr. Kulasekhara
is a non-resident. The consultancy is related to a project in India with possible Ceylonese
collaboration. Is this payment chargeable to tax in India in the hands of Mr. Kulasekhara, since the
services were used in India?

9 Income arsing outside India, being any sum of money exceeding Rs. 50,000 paid on or after
05.07.2019 by a person resident in India to a Non-resident, not being a company, or to a foreign
company, shall be deemed to accrue or arise in India

Question 25 (Solution discussed in class)

Compute the total income in the hands of an individual, being a resident and ordinarily resident, resident
but not ordinarily resident, and non-resident for the A.Y. 2021-22

Particulars Amount
Interest on UK Development Bonds, 50% of interest received in India 10,000
Income from a business in Chennai (50% is received in India) 20,000
Profits on sale of shares of an Indian company received in London 20,000
Dividend from British Company received in London 5,000
Profits on sale of plant at Germany 50% of profits are received in India 40,000
Income earned from Business in Germany which is controlled from Delhi (Rs. 40,000 is 70,000
received in India)
Profits from a business in Delhi but managed entirely from London 15,000
Income from House Property in London deposited in a Indian Bank at London, brought 50,000
to India (computed)
Interest on debentures in an Indian company received in London. 12,000
Fees for technical services rendered in India but received in London 8,000
Profits from a business in Bombay managed from London Pension for services rendered 26,000
in India but received in Burma
Income from property situated in Pakistan received there 16,000
Past foreign untaxed Income brought to India during the previous year 5,000
Income from agricultural land in Nepal received there and then brought to India 18,000
Income from profession in Kenya, which was set up in India, received there but spent 5,000
in India
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Gift received on the occasion of his wedding 20,000

Interest on Savings Bank Deposit in State Bank of India 12,000
Income from a business in Russia, controlled from Russia 20,000
Dividend from Reliance Petroleum Limited, an Indian company 5,000
Agricultural income from a land in Rajasthan 15,000

Income Received or Deemed to be Received in India

Any income which is received in India, during the P.Y 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.

Receipt of Income refer to only the first occasion where the recipient gets the money under his control
Once the amount received as Income, remittance or transmission of that amount from one place to
another place does not result in receipt.

Example
Mr. Ram has one property in Singapore and rent of such property directly received in India in such
case rent income would be treated as Income received in India and taxable for all cases (ROR, RNOR,
NR)

Mr. Ram has one property in Singapore and rent of such property received in Singapore and than
remitted to India. In such case rent income would not be treated as Income received in India and
taxable for (ROR only)

Income Deemed to be Received in India

All assessees are liable to tax in respect of the income received or deemed to be received by them in
India during the previous year irrespective of -
(i) their residential status, and
(ii) the place of its accrual.

If a Provident Fund is maintained in India, amount credited to such Provident Fund being maintained
in India is treated as Income received in India and thus taxable in all three cases (ROR, RNOR, NR)

The services may be rendered by the employee in India or outside India, but the amount credited to
PF being maintained in India would always be taxable

Interest on PF maintained in India is also treated as Income received in India and hence taxable in all
three cases

Employers contribution to recognised Provident Fund (RPF) is exempt to the extent of 12% of salary
of the employee and Interest on RPF is exempt upto the extent of 9.5% p.a.

Transfer balance from unrecognised funds to a recognised provident funds.

The contribution made by the Central Govt. or any other employer in the previous year, to the account
of an employee under the notified contributory pension scheme referred to in section 80CCD.

Contribution in excess of 12% of salary to Recognised provident fund or interest credited in excess of
9.5% p.a (Annual accretion to the credit of RPF)

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Income Accruing/Arising Abroad & received in Abroad

This income is taxable in the hands of ROR

If a Provident Fund is maintained in India, amount credited to such Provident Fund being maintained
in India is treated as Income received in India and thus taxable in all three cases (ROR, RNOR, NR)

The services may be rendered by the employee in India or outside India, but the amount credited to
PF being maintained in India would always be taxable.

Interest on PF maintained in India is also treated as Income received in India and hence taxable in all
three cases

Employers contribution to recognised Provident Fund (RPF) is exempt to the extent of 12% of salary
of the employee and Interest on RPF is exempt upto the extent of 9.5% p.a.

Contribution in excess of 12% of salary to Recognised provident fund or interest credited in excess of
9.5% p.a (Annual accretion to the credit of RPF)

Income to be included in computation of Taxable Income

Income Deemed to Income received/Deemed to Income Accruing/Arising abroad
Accrue/Arise in India be received in India & received abroad
 Taxable in case of ROR  Taxable in case of ROR  Taxable in case of ROR

 Taxable in case of RNOR  Taxable in case of RNOR  Taxable in case of RNOR only
 when business carried outside
 Taxable in case of NR  Taxable in case of NR India but controlled from India
or Profession carried outside
Received means First India but setup in India
Receipt

Question 26
A Ltd a German company which is non-resident in India earn the following income by way of fees for
technical services. Advise about the taxability of such Income in the hands of R Ltd. in India.
a. Govt of India paid Rs. 30,00,000 under an agreement to be used for the project in India.
b. S Ltd an Indian company paid Rs. 40,00,000 for the know how to be used in India.
c. Y Ltd. an Indian Company paid Rs. 50,00,000 for know how acquired in Germany to be used in
China.
d. Z Ltd. a non-resident company paid Rs. 54,00,000 for acquiring a know how to be used in India
for carrying on certain manufacturing business.

Answer: a. Taxable, b. Taxable, c. Not Taxable and d. Taxable

Question 27
The following are the particular of Income of “Y” for the P.Y 2020-21:
a. Rent from a property in Delhi received in USA Rs. 80.000
b. Income from a business in Bangalore controlled from USA Rs. 1,80,000
c. Income from a business in USA controlled from India Rs. 1,20,000

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d. Rent from property in USA received there but subsequently remitted to India Rs. 60,000
e. Interest from deposits with Indian company received in USA Rs. 20,000
f. Profit for the year 2019-20 of a business in USA remitted to India during
The previous year 2020-21 (Not taxed earlier) Rs. 75,000
g. Gifts received from his parents Rs. 45,000

Compute his income for the A.Y 2021-22 if he is:

a) Resident and ordinarily resident in India
b) Resident and Not ordinarily resident in India
c) Non-resident in India

Answer: Total Income for ROR Rs. 4,60,000, RNOR Rs. 4,00,000 and NR Rs. 2,81,000

Question 28
The following are the particular of Income of “A” for the P.Y 2020-21:
a. Interest from Indian company received in London Rs. 1,20,000
b. Pension from former employer in India received in USA Rs. 1,80,000
c. Profit earned from business in Paris which is controlled in India, half of the
profit being received in India Rs. 2,00,000
d. Income from agriculture in Bhutan and remitted to India Rs. 1,25,000
e. Income from property in England received there Rs. 4,00,000
f. Past foreign income brought to India Rs. 10,000
g. Gifts of money received by A, outside India on 05.08.2020
from Y, a resident in India Rs. 1,20,000

Compute his income for the A.Y 2021-22 if he is:

a) Resident and ordinarily resident in India
b) Non-resident in India

Answer: Total Income for ROR Rs. 11,45,000 and NR Rs. 5,20,000

Question 29
The following are the particular of Income of “Ram” for the P.Y 2020-21:
a. Salary income received in India for services rendered in Hong-Kong Rs. 3,90,000
b. Income from profession in India but received in Germany Rs. 3,60,000
c. Property income in Uganda
(out of which Rs. 2,40,000 was remitted to India) Rs. 5,00,000
d. Profit earned from business in Bangalore Rs. 1,50,000
e. Agriculture Income in Kenya Rs. 1,60,000
f. Profit from a business carried on at Nepal but controlled from India Rs. 2,20,000

Compute his income for the A.Y 2021-22 if he is:

a) Resident and ordinarily resident in India
b) Resident and Not ordinarily resident in India
c) Non-resident in India

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Answer: Total Income for ROR Rs. 17,80,000, RNOR Rs. 11,20,000 and NR Rs. 9,00,000

Question 30
The following are the particular of Income of “Ram” for the P.Y 2020-21:
a. Profit from business in Iran but received in India Rs. 5,00,000
b. Income from house property in Iran but received in India Rs. 1,20,000
c. Income from house property in Sri-Lanka deposited in a bank there Rs. 1,80,000
d. Profit of business established in Sri-Lanka deposited in a bank there,
This business in controlled in India.
(out of Rs. 2,00,000 a sum of Rs. 1,00,000 is remitted in India) Rs. 2,00,000
e. Income from profession in India but received in London Rs. 2,40,000
f. Profit earned from business in Kanpur Rs. 1,60,000
g. Income from agriculture in England,
it is all spent on the education of children in London Rs. 2,70,000

Compute his income for the A.Y 2021-22 if he is:

d) Resident and ordinarily resident in India
e) Resident and Not ordinarily resident in India
f) Non-resident in India

Answer: Total Income for ROR Rs. 16,70,000, RNOR Rs. 12,20,000 and NR Rs. 10,20,000

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