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INTRODUCTION
The scope of income i.e. what is to be included in income depends upon (a) who earns
the income i.e. whether a resident in India or a non-resident (b) when the income arises, i.e.
whether in previous year or not and (c) where the income arises whether in India or outside
India. Thus, scope of income depends upon the residential status as well as the place and year
of accrual. To understand the concept of the scope of income it is necessary to study
following sections of Income Tax Act 1961:
1. Section 5 defines the scope of income.
2. Section 6definesresidential status of a person.
3. Section 7explains when income is deemed to be received.
4. Section 8explains when dividend is to be included in income.
5. Section 9explainswhen income, apparently arising out of India, is deemed to be
arising in India.
The following points should be noted in regard to scope of income:
1. While section 4 makes the total income of the previous year chargeable to tax, section
5 defines the scope of total income chargeable to tax. It determines the extent and
scope of income which is chargeable to tax. The term scope of income means which
items of income are included and which items are excluded while computing tax
liability.
2. The scope of income depends upon the residential status of the person. There are three
broad categories of persons:
a) Resident and ordinary resident
b) Resident but not ordinarily resident
c) Non resident
Section 5 lays down what types of income would be taxable in case of assessees
belonging to each of these categories.

3. It should be noted that section 5 specifically states that the income is to be computed
subject to provisions of this act. Thus, if any of the items of income is exempt under
the provisions of the act, it is to be excluded from the scope of income.

Key terms used:

Individual: It refers to a natural human being whether male or Female, Minor or

Major.

Hindu Undivided Family (HUF): It is a relationship created due to operation of

Hindu Law. The Manager of HUF is called Karta and their members are called
Coparceners.

Company: It is an artificial person registered under Indian Companies Act 1956 or

any other Law.

Firm: It is an entity which comes into existence as a result of partnership agreement.

The Income Tax accepts only these entities as Firms which are accessed as Firms
under Section 184 of the Act.

Association of Persons (AOP) or Body of Individuals (BOI): Co-operative

societies, MARKFED, NAFED, etc are the example of such persons. When persons
combine together to carry on a joint enterprise and they do not constitute partnership
under the ambit of law, they are assessable as an Association of Persons. An A.O.P.
can have firms, companies, associations and individuals as its members.
A Body of Individual (B.O.I.) cannot have non-individuals as its members. Only
natural human being can be members of a Body of Individuals.

Local Authority: Municipality, Panchayat, Cantonment Board, Port Trust etc. are
called Local Authority.

Artificial Judicial Person: Statutory Corporations like Life Insurance Corporation,

University etc. are called Artificial Judicial Persons.

Assesses [Section 2(7)]: Assesses means a Person by whom any Tax or any other
sum of money is payable under this Act. And this is divided into 3 categories.
a) Ordinary Assesses: It includes any person against whom some proceedings
under this Act are going on. It is immaterial whether any Tax or other amount
is payable by him or not ;Any person who has sustained loss and has filed
return of Loss u/s 139(3).Any person by whom some amount of Interest, Tax
or Penalty is payable under this Act; or Any person who entitled to refund of
Tax under this Act.
b) Representative Assesses or Deemed Assesses : A person may not be liable
only for his own income or loss but also on the income or loss of other persons
e.g. Guardian of Minor or Lunatic, Agent of a Non-Resident etc. in such case
the persons responsible for the assessment of Income of such persons are
called Representative Assesses. Such person is deemed to be an Assesses.
c) Assesses-in-default: A person is deemed to be an assesses-in-default if he fails
to fulfill his statutory obligations. In case of an employer paying Salary or a
person who is paying interest it is their duty to deduct tax at source and deposit
the amount of tax so collected in Government treasury. If he fails to deduct tax
at source or deducts tax but does not deposit it in the treasury, he is known as
Assesses-in-default.

Assessment Year [Section 2(9)]: Assessment Year means the period of 12 months
commencing on the 1st day of April every year. In India, the Govt. maintains its
accounts for a period of 12 months i.e. 1st April to 31st March every year. As such it is

known as Financial Year. The Income Tax department has also selected same year for
its Assessment procedure.
The Assessment Year is the Financial Year of the Govt. of India during which
income a person relating to the relevant previous year is assessed to tax. Every person
who is liable to pay tax under this Act, files Return of Income by prescribed dates.
These Returns are processed by the Income Tax Department Officials and Officers.
This process is called Assessment. Under this Income Returned by the assesses is
checked and verified.
Tax is calculated and compared with the amount paid and assessment order is
issued. The year in which whole of this process is under taken is called Assessment
Year.

Previous Year [Section 3]: As the word Previous means coming before , hence it
can be simply said that the Previous Year is the Financial Year preceding the
Assessment Year e.g. for Assessment Year 2013-2014 the Previous Year should be the
Financial Year ending 31st March 2013.

RESIDENTIAL STATUS AND SCOPE OF TOTAL INCOME

The incidence of tax on any assesses depends upon his residential status under the Act.
Therefore, after determining whether a particular amount is capital or revenue in nature, if the
receipt is of a revenue nature and chargeable to tax, it has to be seen whether the assesses is
liable to tax in respect of that income. The taxability of a particular receipt would thus depend
upon not only the nature of the income and the place of its accrual or receipt but also upon the
assessees residential status.
For all purposes of income-tax, taxpayers are classified into three broad categories on the
basis of their residential status viz.
1. Resident and ordinarily resident
2. Resident but not ordinarily resident
3. Non-resident
The residential status of an assesses must be ascertained with reference to each
previous year. A person who is resident and ordinarily resident in one year may become nonresident or resident but not ordinarily resident in another year or vice versa. The provisions
for determining the residential status of assesses are:
(1) Residential status of Individuals Under 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:
i) He has been in India during the previous year for a total period of 182 days or
more, or

He has been in India during the 4 years immediately proceeding the previous
year for a total period of 365 days or more and has been in India for at least 60
days in the previous year. If the individual satisfies any one of the conditions
mentioned above, he is a resident. If both the above conditions are not
satisfied, the individual is a non-resident.

Note :
a) The term stay in India includes stay in the territorial waters of India (i.e. 12 nautical
miles into the sea from the Indian coastline). Even the stay in a ship or boat moored in
the territorial waters of India would be sufficient to make the individual resident in
India.
b)

It is not necessary that the period of stay must be continuous or active nor is it
essential that the stay should be at the usual place of residence, business or
employment of the individual.

c)

For the purpose of counting the number of days stayed in India, both the date of
departure as well as the date of arrival are considered to be in India.

d) The residence of an individual for income-tax purpose has nothing to do with

citizenship, place of birth or domicile. An individual can, therefore, be resident in
more countries than one even though he can have only one domicile.

Exceptions :
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. In other words even if
such persons were in India for 365 days during the 4 preceding years and 60 days in the
relevant previous year, they will not be treated as resident.
1. Indian citizens, who leave India in any previous year as a member of the crew of an
Indian ship or for purposes of employment outside India, or
2. Indian citizen or person of Indian origin* engaged outside India in an employment or
a business or profession or in any other vocation, who comes on a visit to India in any
previous year
* 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.

Not-ordinarily resident
Only individuals and HUF can be resident but not ordinarily resident in India. All
other classes of assesses can be either a resident or non-resident. A not- ordinarily resident
person is one who satisfies any one of the conditions specified under section 6(6).
i) If such individual has been non-resident in India in any 9 out of the 10 previous years
preceding the relevant previous year, or
ii) If such individual has during the 7 previous years proceeding the relevant previous
year been in India for a period of 729 days or less.

RESIDENCE AND SCOPE OF TOTAL INCOME

(1) Residential status of an individual

In simpler terms, an individual is said to be a resident and ordinarily resident if he

satisfies both the following conditions:

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

His total stay in India in the last 7 years proceeding the relevant previous year is 730
days or more.
If the individual satisfies both the conditions mentioned above, he is a resident and

ordinarily resident but if only one or none of the conditions are satisfied, the individual is a
resident but not ordinarily resident.

(2) Residential status of HUF

A HUF would be resident in India if the control and management of its affairs is
situated wholly or partly in India. If the control and management of the affairs is situated
wholly outside India it would become a non-resident. The expression control and
management referred to under section 6 refers to the central control and management and not
to the carrying on of day-to-day business by servants, employees or agents. The business may
be done from outside India and yet its control and management may be wholly within India.
Therefore, control and management of a business is said to be situated at a place where the
head and brain of the adventure is situated. The place of control may be different from the
usual place of running the business and sometimes even the registered office of the assesses.
This is because the control and management of a business need not necessarily be done from
the place of business or from the registered office of the assesses. But control and
management do imply the functioning of the controlling and directing power at a particular

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place with some degree of permanence. If the HUF is resident, then the status of the Karta
determines whether it is resident and ordinarily resident or resident but not ordinarily
resident. If the Karta is resident and ordinarily resident, then the HUF is resident and
ordinarily resident and if the Karta is resident but not ordinarily resident, then HUF is resident
but not ordinarily resident.

(3) Residential status of firms and association of persons

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. Where the control and management of the affairs
is situated wholly outside India, the firm would become a non-resident.

(4) Residential status of companies

A company is said to be resident in India if
(i)

it is an Indian company as defined under section 2(26), or

(ii)

Its control and management is situated wholly in India during the accounting year.
Thus, every Indian company is resident in India irrespective of the fact whether the

control and management of its affairs is exercised from India or outside. But a company, other
than an Indian company, would become resident in India only if the entire control and
management of its affairs is in India.

(5) Residential status of local authorities and artificial juridical persons

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. Where the control
and management of the affairs is situated wholly outside India, they would become nonresidents.

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SCOPE OF TOTAL INCOME

Section 5 provides the scope of total income in terms of the residential status of the
assesses because the incidence of tax on any person depends upon his residential status. The
scope of total income of an assesses depends upon the following three important
considerations :
(i)

The residential status of the assesses (as discussed earlier);

(ii)

The place of accrual or receipt of income, whether actual or deemed; and

(iii)

The point of time at which the income had accrued to or was received by or on
behalf of the assesses.

The ambit of total income of the three classes of assesses would be as follows:
(1) Resident and ordinarily resident - The total income of a resident assesses would,
under section 5(1), consist of :
(i)

Income received or deemed to be received in India during the previous year;

(ii)

Income which accrues or arises or is deemed to accrue or arise in India during the
previous year; and

(iii)

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 Under section 5(1), the computation of total
income of resident but not ordinarily resident is the same as in the case of resident and
ordinarily resident stated above except for the fact that the income accruing or arising

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to him outside India is not to be included in his total income. 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-residents total income under section 5(2) includes :
(i)

income received or deemed to be received in India in the previous year; and

(ii)

Income which accrues or arises or is deemed to accrue or arise in India during the
previous year.

RESIDENT AND

RESIDENT BUT NOT

ORDINARILY

ORDINARILY

RESIDENT

RESIDENT

NON-RESIDENT

Income received/ deemed

Income which is received/

Income

received/

To be received/ accrued or

deemed to be received/

deemed to be received/

arisen/ deemed to accrue or

accrued or arisen/deemed to

accrued or arisen/deemed

arise in or outside India.

accrue or arise in India.

to accrue or arise in India

And
Income which accrues or
arises outside India being
derived from a business
controlled from or
profession set up in India.

Note:
All assesses, 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.

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DEEMED RECEIPT AND ACCRUAL OF INCOME IN

INDIA
The taxability of a certain item as income would depend upon the method of
accounting followed by the assesses. This is because under the cash system of accounting an
income would be taxable only when it is received by the assesses himself or on his behalf.
But under the mercantile system it would be taxable once the assesses gets the legal right to
claim the amount. However, it has been specifically provided that in the case of income from
salaries, the liability to tax arises immediately when the income is due to the assesses
irrespective of the method of accounting followed. Likewise, in the case of dividends, the
income would be included in total income of the shareholder under section 8 in the year in
which the final dividend is declared and, in the case of interim dividend, in the year in which
they are made unconditionally available to the shareholders.

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MEANING OF INCOME RECEIVED OR DEEMED TO BE

RECEIVED
All assesses 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.

Income is to be included in the total income of the assesses immediately on its actual

or deemed receipt. The receipt of income refers to only the first occasion when the recipient
gets.
The money under his control. Therefore, when once an amount is received as income,
remittance or transmission of that amount from one place or person to another does not
constitute receipt of income in the hands of the subsequent recipient or at the place of
subsequent receipt. Income deemed to be received Under section 7, the following shall be
deemed to be received by the assesses during the previous year irrespective of whether he had
actually received the same or not
(i)

The annual accretion in the previous year to the balance to the credit of an
employee participating in a recognized provident fund (RPF). Thus, the
contribution of the employer in excess of 12% of salary or interest credited in
excess of 9.5% p.a. (up to 31.8.2010)and 8.5% p.a. (from 1.9.2010) is deemed to
be received by the assesses.

(ii)

The taxable transferred balance from unrecognized to recognized provident fund

(being the employers contribution and interest thereon).

(iii)

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

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MEANING OF INCOME ACCRUING AND ARISING

Accrue refers to the right to receive income, whereas due refers to the right to enforce
payment of the same. For e.g. salary for work done in December will accrue throughout the
month, day to day, but will become due on the salary bill being passed on 31 ST December or
1st January. Similarly, on Government securities, interest payable on specified dates arise
during the period of holding, day to day, but will become due for payment on the specified
dates. Example: Interest on Government securities is usually payable on specified dates, say
on 1st January 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. 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.

For example,
when a loan to a director has already been treated as dividend under section 2(22)(e)
and later dividend is declared, distributed and adjusted against the loan, the same cannot be
treated as dividend income again. With a view to removing difficulties and clarifying doubts
in the taxation of income, Explanation 1 to Section 5 specifically provides that an 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. Further, Explanation 2 to
Section 5 makes it clear that once an item of income is included in the assessees total income
and subjected to tax on the ground of its accrual/deemed accrual or receipt, it cannot again be
included in the persons 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.

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INCOME DEEMED TO ACCRUE OR ARISE IN INDIA

[SECTION 9]
Certain types of income are deemed to accrue or arise in India even though they may
actually accrue or arise outside India. The categories of income which are deemed to accrue
or arise in India are:
(i)

Any income accruing or arising to an assesses in any place outside India whether
directly or indirectly (a) through or from any business connection in India, (b)
through or from any property in India, (c) through or from any asset or source of
income in India or (d) through the transfer of a capital asset situated in India.

(ii)

Income, which falls under the head Salaries, if it is earned in India. Any income
under the head Salaries payable for rest period or leave period which is preceded
and succeeded by services rendered in India, and forms part of the service contract
of employment, shall be regarded as income earned in India.

(iii)

Income from Salaries which is payable by the Government to a citizen of India

for services rendered outside India (However, allowances and perquisites paid
outside India by the Government is exempt).

(iv)

Dividend paid by an Indian company outside India.

(v)

Interest

(vi)

Royalty

(vii)

Fees for technical services

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Nature of Income

Condition

Illustration
A non resident having a
branch office in India for

When there is business

doing business in India.

connection in India

Income of the branch office

Business Income
shall be income accruing or
arising in India.
Rental income earned by a
Property or asset source is in
Property income

non resident from a property

India.

Income from transfer of a

When the capital asset is in

situated in India
A non resident selling a plot

capital asset

India.
Where services are rendered

of land situated in India.

A non resident working in

in India.
Indian citizen, working for

India for an Indian Company

the Government of India and

Indian citizen working for the

rendering services outside

Indian Embassy in USA.

Income from Salaries

India.
A non resident receiving
Dividend payable/paid by an
Dividend Income

dividends in US for shares

Indian Company.
held in an Indian Company

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A foreign company receiving

If the income is received
royalty from a non resident
from: Government of India
for the Indian Business of
A resident assessed except
such non resident.
where such payment is for
Interest, Royalty and Fees for

A foreign company receiving

business or profession

Technical Services

interest from a resident

outside India A non
individual, for loan taken for
resident assesses where the
his business in Singapore,
payment pertains to business
will not be income arising in
or profession in India
India.

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Income from business connection

(i)

Business connection shall include any business activity carried out through a
person acting on behalf of the non-resident.

(ii)

He must have an authority which is habitually exercised to conclude contracts on

behalf of the non-resident. However, if his activities are limited to the purchase of
goods or merchandise for the non-resident, this provision will not apply.

(iii)

Where he has no such authority, but habitually maintains in India a stock of goods
or merchandise from which he regularly delivers goods or merchandise on behalf
of the non-resident, a business connection is established.

(iv)

Business connection is also established where he habitually secures orders in

India, mainly or wholly for the non-resident. Further, there may be situations when
other non- residents control the above-mentioned non-resident. Secondly, this nonresident may also control other non-residents. Thirdly, all other non-residents may
be subject to the same common control, as that of the non-resident. In all the three
situations, business connection is established, where a person habitually secures
orders in India, mainly or wholly for such non-residents.

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Exception :
"Business connection", however, shall not be held to be established in cases where the
non-resident carries on business through a broker, general commission agent or any other
agent of an independent status, if such a person is acting in the ordinary course of his
business. A broker, general commission agent or any other agent shall be deemed to have an
independent status where he does not work mainly or wholly for the non-resident. He will
however, not be considered to have an independent status in the three situations explained in
(iv) above, where he is employed by such a non-resident. Where a business is carried on in
India through a person referred to in (ii), (iii) or (iv) mentioned above, only so much of
income as is attributable to the operations carried out in India shall be deemed to accrue or
arise in India. (1) (b) &(c) Income from property, asset or source of income. Any income
which arises from any property (movable, immovable, tangible and intangible property)
would be deemed to accrue or arise in India eg. hire charges or rent paid outside India for the
use of the machinery or buildings situated in India, deposits with an Indian company for
which interest is received outside India etc. (1)(d) Income from the transfer of a capital asset.
Capital gains arising from the transfer of a capital asset situated in India would be deemed to
accrue or arise in India in all cases irrespective of the fact whether (i) the capital asset is
movable or immovable, tangible or intangible; (ii) the place of registration of the document of
transfer etc., is in India or outside; and (iii) the place of payment of the consideration for the
transfer is within India or outside. (2) & (3) Income from salaries. Under section 9(1)(ii)
income which falls under the head salaries, would be deemed to accrue or arise in India, if it
is in respect of services rendered in India.

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Exception under section 9(2):

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. It may
however, be noted here that the salary of an employee in the United Nations Organization
(UNO) or in its constituent bodies is exempt under United Nations (Privilege and Immunity)
Act.

Income from dividends

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 are exempt from
tax in the hands of the shareholder. It may be noted that dividend distribution tax under
section 115-O does not apply to deemed dividend under section 2(22)(e), which is chargeable
in the previous year in which such dividend is distributed or paid.

Interest Under section 9(1)(v)

An interest is deemed to accrue or arise in India if it is payable by
(i)

The Central Government or any State Government.

(ii)

a person resident in India (except 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)

(iii)

a non-resident when it is payable in respect of any debt incurred or moneys

borrowed and used for the purpose of a business or profession carried on in India
by him. 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. Thus,
if a non-resident A borrows money from a non-resident B and invests the same

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in shares of an Indian company, interest payable by A to B will not be deemed

to accrue or arise in India.

Royalty
Royalty will be will be deemed to accrue or arise in India when it is payable by
(i)

The Government; or

(ii)

A person who is a resident in India except in cases 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 utilized 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. Lump sum royalty payments made by a resident for the transfer of
all or any rights (including the granting of a license) in respect of computer
software supplied by a non-resident manufacturer along with computer hardware
under any scheme approved by the Government under the Policy on Computer
Software Export, Software Development and Training, 1986 shall not be deemed
to accrue or arise in India. Computer software means any computer programme
recorded on any disc, tape, perforated media or other information storage device
and includes any such programme or any customized electronic data.

The term royalty means consideration (including any lump sum consideration but
excluding any consideration which would be the income of the recipient chargeable under the
head Capital gains) for:

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The transfer of all or any rights (including the granting of license) in respect of a
patent, invention, model, design, secret formula or process or trade mark or similar
property;

The imparting of any information concerning the working of, or the use of, a patent,
invention, model, design, secret formula or process or trade mark or similar property;

The use of any patent, invention, model, design, secret formula or process or trade
mark or similar property;

The imparting of any information concerning technical, industrial, commercial or

scientific knowledge, experience or skill;

The use or right to use any industrial, commercial or scientific equipment but not
including the amounts referred to in section 44BB;

The transfer of all or any rights (including the granting of licence) in respect of any
copyright, literary, artistic or scientific work including films or video tapes for use in
connection with television or tapes for use in connection with radio broadcasting, but
not including consideration for the sale, distribution or exhibition of cinematographic
films;

The rendering of any service in connection with the activities listed above. The
definition of royalty for this purpose is wide enough to cover both industrial
royalties as well as copyright royalties. The deduction specially excludes income
which should be charge- able to tax under the head capital gains.

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Fees for technical services

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, except in cases where the fees are payable in
respect of technical services utilized 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 utilized in a business or profession carried on by the non-resident in India
or where such services are utilized for the purpose of making or earning any
income from any source in India. A fee for technical services means any
consideration (including any lump sum consideration) for the rendering of any
managerial, technical or consultancy services (including providing the services of
technical or other personnel). However, it does not include consideration for any
construction, assembly, mining or like project undertaken by the recipient or
consideration which would be income of the recipient chargeable under the head
Salaries.

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RESIDENTIAL STATUS
The incidence of tax of an assesses depends upon his residential status. Therefore,
residential status of an assesses plays an important role. Residential Status is to be determined
on a year to year basis, as it may change every year, a person may be Resident in one year and
Non-Resident in the other year. Residential status is different from citizenship/nationality.

[A] Residential Status of an Individual Assesses:

An assesses being an individual, could be Resident (R.) in India or Non-Resident
(N.R.) in India. If he is Resident in India, then he/she could be Resident and Ordinarily
Resident (R.O.R.) or he/she could be Resident but Not Ordinarily Resident (R.N.O.R.) in
India. This can be better explained with the help of the following chart:-

RNI RN EO ED S N S I DV-I D E N T AB NU DT N O T
ORI D REE U DSN A I I T DN EA NR YIT L Y R E S I D E N T
R(L N E R( S R )I D) E N T

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Residential Status of an Individual is determined by Section 6 of the act. An

Individual is called Resident, if he/she satisfies at least one out of the following two Basic
conditions :-

BASIC CONDITIONS :1.) He/She stays in India for 182 days or more during the relevant Previous Year. (Whether
its a Leap year or not, limit will be 182 days only)
OR
2.) (a.) He/She is in India for 60 days or more during the relevant Previous Year
(whether its a Leap year or not, limit will be 60 days only)
AND
(b.) He/She is in India for 365 days or more during the last four Previous Years,
immediately preceding the relevant previous year.

EXCEPTIONS TO THE ABOVE CONDITIONS : In the following two cases, the second basic condition as given above is not applicable:1.) An Indian Citizen, who leaves India during the previous year, for the purpose
of employment (employment includes job, business or profession also)
outside India or leaves India for employment as a crew member of an Indian
Ship.
2.) An Indian Citizen or a person of Indian origin, who stays abroad, but comes
to India for a visit during the relevant Previous Year. (A person is said to be of
Indian Origin if he himself or any of his/her parents or grandparents were
born in undivided India, where undivided India would mean India, Pakistan
and Bangladesh of todays time).
Residential Status is to be determined on a year to year basis, as it may
change every year. A person, who satisfies either of the two basic conditions

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mentioned above, will be treated as a Resident for that Previous Year and person
who does not satisfy both the basic conditions will be treated as Non-Resident
(N.R.) for that Previous Year. But in case of two exceptions, the second basic
condition is not applicable at all, hence, such persons will be Resident only if
he/she satisfies the first basic condition of 182 days or more during the relevant
Previous Year, else, he/she will be a Non-Resident for that Previous Year.

ADDITIONAL CONDITIONS:
Under Section 6(6), a Resident, is called as Ordinarily Resident (ROR) in
India, if both the additional conditions mentioned below are satisfied, otherwise
he/she will be treated as Not Ordinarily Resident (RNOR) in India :1.) He has been Resident in India (based on two basic conditions mentioned above) in
at least 2 out of last 10 Previous Years immediately preceding the relevant Previous
Year.

AND
2.) He/She has been in India for a period of 730 days or more during the last 7 Previous
Years, immediately preceding the relevant Previous Year.
Therefore, we can say that
R.O.R.: An Assesses, who satisfies at least one of the two basic conditions plus both
the Additional conditions.
R.N.O.R.: An Assesses, who satisfies at least one of the two basic conditions and does
not satisfy either both or anyone of the Additional conditions.
N.R.: An Assesses, who does not satisfy any of the basic conditions.

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Note:
1.) The Date of entering India, as well as the date of leaving India, shall be
counted as stay in India. Where, stay in India is not for the whole day, and then
physical presence shall be counted on hourly basis.
2.) Stay outside the soil (land) of India, but within the territorial waters of India,
shall also be treated as stay in India. (Territorial Water limits of India = water
limit up to a distance of 20 Nautical Miles from the land of India). For e.g.:
Stay in a Boat moored or anchored within territorial waters of India.
3.) February month has 29 days in case of a leap year.
4.) There cannot be different residential status for different source of income
falling within the same Previous Year i.e. if an assesses is Non-Resident for one
income, then he is Non-Resident for all the incomes within the same year, as
residential status is to be determined for a particular year and not for a
particular income.
5.) A person may be resident in more than one country in the same year. There are
365/366 days in a year. A person may become resident in India by staying for
182 days in India and for rest of the year he may stay in another country and
may become resident of that country also. So, it would be wrong to say that a
person who is resident in India is non-resident in all other countries.
6.) Stay in India need not be continuous.
7.) Stay need not be at the same place in India, it could be at any place or places of
India.

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SUMMARY FOR SCOPE OF TOTAL INCOME

As we discussed at the beginning, that the tax incidence of an assesses, depends upon
his/her residential status, let us now understand the tax implication of an income of an
assesses under different residential status, namely, Resident and Ordinarily Resident
(R.O.R.), Resident but not Ordinarily Resident (R.N.O.R.) and Non-Resident (N.R.). This can
be better explained with the help of the following table:-

Particulars
1.) INDIAN INCOME

R.O.R.
Taxable

R.N.O.R.
Taxable

N.R.
Taxable

Taxable

Taxable

Not Taxable

Taxable

Not Taxable

Not Taxable

2.)FOREIGN INCOME :
a) Income from Business
controlled from India or a
Profession set up in India
b) Other Foreign Incomes

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Indian Income means the following:

1.) An Income received in India, but has accrued or is deemed to have accrued, or has
arisen or is deemed to have arisen outside India,
OR
2.) An Income received outside India, but has accrued or is deemed to have accrued or
has arisen or is deemed to have arisen in India,
OR
3.) An Income received in India, as well as has accrued or is deemed to have accrued,
or has arisen or is deemed to have arisen in India.

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Foreign Income means the following:

An Income which is received outside India, as well as accrued or deemed to have
accrued or has arisen or is deemed to have arisen outside India.
If one observes the meaning of Indian Income as well as Foreign Income, then one
will find that the line of distinction between the two depends upon two things, namely, i.)
Place of Receipt of income and ii.) Place of accrual of income. The meaning of both the terms
can be better understood with the help of the following :PLACE OF ACCRUAL

PLACE OF RECEIPT

INDIAN/FOREIGN
INCOME

In India

Outside India

Indian Income

Outside India

In India

Indian Income

In India

In India

Indian Income

Outside India

Outside India

Foreign Income

Therefore, an income is a foreign income only if the place of accrual, as well as the
place of its receipt both are outside India, otherwise, it will be an Indian income, if either of
them is in India.

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Note :
A.) Receipt of Income: In order to decide whether an income is received in India or
abroad, only the first place of receipt shall be considered. In other words, subsequent
remittance to India shall be ignored. For e.g.: If an income is received by Mr. X in
U.S.A. and later on remitted by him to his family members in India, then such income
will be considered to have been received in U.S.A. only and not in India.
B.) Accrual of Income: Place of accrual of income depends upon the location of source
of income. If source is located in India, then income has accrued in India, but if
source is located in foreign country, then income is said to have accrued outside India.
As per section 9 of the Act, the source of an income depends upon the type of
income, which is as follows:INCOME

LOCATION OF SOURCE OF INCOME

1. Income from Salaries

Location of Place of Employment (Job)

2. Income from House Property

3. Income from Business/Profession
4. Capital Gains

Location of House Property

Place of set up of Business/Profession
Location of Asset in case of an Immoveable
asset or Place of exchange of an asset in

5. Interest on Debentures/Bonds
6. Income from Bank Interest
7. Dividend

case asset is a Moveable asset

Location of company paying it
Location of Bank Account
Location of company paying it

Income deemed to accrue or arise in India to a non-resident by way of interest, royalty

and fee for technical services to be taxed irrespective of territorial nexus
Income by way of interest, royalty or fee for technical services which is deemed to
accrue or arise in India by virtue of clauses (v), (vi) and (vii) of section 9(1), shall be included
in the total income of the non-resident, whether or not

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(i)

The non-resident has a residence or place of business or business connection in India;

or

(ii)

The non-resident has rendered services in India.

In effect, the income by way of fee for technical services, interest or royalty, from

services utilized in India would be deemed to accrue or arise in India in case of a non-resident
and be included in his total income, whether or not such services were rendered in India.

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BIBLIOGRAPHY
1. Dr. Ainapure Varsha M., (2013) Direct Tax: M.com. Part II: Semester III, Manan
Prakashan.
2. http://biyanisanjay.blogspot.in/2011/01/scope-of-total-income-and-residential.html
3. http://taxguru.in/income-tax/residential-status-scope-total-income.html
4. http://www.du.ac.in/fileadmin/DU/Academics/course_material/TM_02.pdf
5. http://www.incometaxmanagement.com/Pages/Taxation-System/Basic-Conceptson-Tax-Systems-in-India.html
6. http://www.indialiaison.com/residential_status.htm

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