• Harmehak Kaur Anand

Section 5 of the Income Tax Act, 1961 - Scope of total income

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Section 5 of the Income Tax Act, 1961 provides for the scope of total income in respect of an Indian resident who may or may not ordinarily reside in India as well as for non-resident Indians.


1. Indian resident ordinarily residing in India

For an Indian resident ordinarily residing in India the total income includes all of the following:

  • Income received or deemed to be received in India in the relevant year by or on behalf of the person

  • Income accrued or deemed to be accrued to him in India during the relevant year

  • Income accrued to him outside India during the relevant year

2. Indian resident not ordinarily residing in India

For an Indian resident not ordinarily residing in India, total income includes all of the above with the only difference that income accrued to him outside India during the relevant year must have been received from either a business managed in India or a profession established in India.


3. Non-resident Indian

For a non-resident Indian total income includes:

  • Income received or deemed to be received in India in the relevant year by or on behalf of the person

  • Income accrued or deemed to be accrued to him in India during the relevant year


Explanations

Section 5 has two explanations attached to them for better understanding the provision. According to the first explanation, simply because income accrued or arisen outside India has been accounted for in a balance sheet made in India, it will not be deemed to be received in India. Further, to clear up any confusion, explanation 2 states that income that has been included in a person's total income on the basis that it has accrued, arisen, or is deemed to have accrued or arisen to him shall not be included on the basis that it is received, or is deemed to be received by him in India.


Summary of Scope of Total Income under Section 5


Nature of income

Residential status

Resident and Ordinarily Resident

(ROR)

Resident but Not Ordinarily Resident

(RNOR)

Non-Resident

(NR)

Income which accrues or arises in India

Taxed

Taxed

Taxed

Income which is deemed to accrue or arise in India

Taxed

Taxed

Taxed

Income which is received in India

Taxed

Taxed

Taxed

Income which is deemed to be received in India

Taxed

Taxed

Taxed

Income accruing outside India from a business controlled from India or from a profession set up in India

Taxed

Taxed

Not taxed

Income other than above (i.e., income which has no relation with India)

Taxed

Not taxed

Not taxed

Incomes Deemed to Accrue or Arise in India

1. Capital gain resulting from the transfer of property in India.

2. Income from business connection in India.

3. Salary received in exchange for services provided in India.

4. The salary that an Indian national has received from the Indian government for services provided outside of India. Allowances and perquisites, however, are excluded in this situation.

5. Income from any Indian-based assets, properties, or other sources of income.

6. Dividend that is paid by an Indian company.

7. Income arising outside India, being any sum of money referred to in Section 2 (24) (xviia), paid either on or after 05-07-2019 by a resident to a non-resident.

8. Interest

  • Received from Government of India.

  • Received from a resident is treated as income that is deemed to have accrued or arisen in India with the exception of situations where the interest is earned on money that the resident borrowed and used to conduct business or practise any profession outside of India or to earn income from any source outside of India.

  • Received from a non-resident for money they borrowed to run a business or practise any profession in India.

9. Royalty

  • For technical services received from Government of India.

  • For technical services received from residents with the exception of situations where royalty relates to a business, profession, or other source of income that the payer is engaged in outside of India.

  • For technical services received from non-residents that are used in their business, profession, or other source of income in India.

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