Income-tax Bare Act & Rules Series | Chapter II
Basis of Charge
Sections 4–10 and Rules 8–13, decoded for practitioners, finance leaders, students and taxpayers. This chapter answers four foundational questions: who is taxable, on what income, in which tax year, and on what Indian nexus.
Act amended by Finance Act, 2026Rules effective 1 April 2026Full statutory textOld-Act mappingProfessional edition
Executive architecture
The seven-step charge and jurisdiction test
1. Person
Identify taxable person
2. Tax year
Select governing period
3. Residence
Apply section 6
4. Receipt/accrual
Apply sections 5, 7 and 9
5. Character
Head and special provisions
6. Treaty
Apply section 159
7. Compute/collect
Rates, TDS/TCS, advance tax
Resident
Broad worldwide scope, except the restricted RNOR rule.
Non-resident
Indian receipt and Indian accrual/deemed-accrual scope.
Treaty overlay
Domestic charge is tested first, then treaty eligibility and more-beneficial treatment.
Professional rule: Never answer a cross-border tax question from section 9 alone. The minimum pathway is sections 4 → 5 → 6 → 9 → 159, followed by character, computation, withholding and procedure.
Bare Act + professional decode
Section 4 — Charge of Income-tax
1961 Act section 44. (1) Where any Central Act enacts that income-tax shall be charged for any
tax year at any rate or rates, income-tax for such tax year shall be charged at
that rate or those rates in accordance with and subject to the provisions of this Act.
(2) The charge of income-tax under sub-section (1) shall be on the total income of
the tax year of every person as per the provisions of this Act.
(3) Income-tax shall also include any additional income-tax, by whatever name
called, levied under this Act.
(4) If this Act provides that income-tax is to be charged in respect of income of a
period other than the tax year, it shall be charged accordingly.
(5) For the income chargeable under this section, income-tax shall be deducted or
collected at source or paid in advance as provided under this Act.
Paragraph-by-paragraph decoding
4(1) Annual charging authority
The Act supplies the charging framework, but the relevant annual Finance Act supplies the rate or rates for the tax year. Both must be read together.
4(2) Tax base
The charge is on the total income of every person, computed under the Act. Gross receipts or accounting profit are not automatically the tax base.
4(3) Additional income-tax
A levy called additional income-tax remains income-tax for the Act, so machinery provisions can apply unless the context says otherwise.
4(4) Exceptional period
Where another provision taxes income for a period other than the normal tax year, that special period controls.
4(5) Collection architecture
TDS, TCS and advance tax are collection mechanisms for the section 4 charge; they do not independently decide final taxable income.
Practical example: A person has ₹18 lakh accounting profit but the Act allows depreciation and a brought-forward set-off. Section 4 charges the total income computed after those provisions, not the ₹18 lakh book figure.
Exception / high-risk point: A Finance Act rate cannot be applied without the Act’s computation framework; conversely, the charging section does not itself supply all annual rates.
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Section 5 — Scope of total income
1961 Act section 55. (1) Subject to the provisions of this Act, the total income of any tax year
of a person, who is a resident, includes all income from whatever source derived,
which—
(a) is received or deemed to be received in India in that year by or on behalf
of such person;
(b) accrues or arises, or is deemed to accrue or arise, to such person in India
in that year; or
(c) accrues or arises to such person outside India in that year, but when
such person is “not ordinarily resident” in India under section 6(13),
such income shall be included only when it is derived from a business
controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of a tax year of a person,
who is a non-resident, includes all income from whatever source derived, which—
(a) is received or deemed to be received in India in that year by or on behalf
of such person; or
(b) accrues or arises, or is deemed to accrue or arise, to such person in India
in that year.
(3) Income accruing or arising outside India shall not be deemed to be received in
India under this section by reason only of the fact that it is taken into account in a
balance sheet prepared in India.
(4) If an income has been included in a person’s total income on the basis that it—
(a) has accrued or arisen; or
(b) is deemed to have accrued or arisen,
to such person, it shall not again be included on the basis that it is received or
deemed to be received by that person in India.
Paragraph-by-paragraph decoding
5(1) Resident
A resident is generally taxable on Indian receipts, Indian accruals/deemed accruals and foreign accruals. For an RNOR, foreign accruals enter the base only when derived from a business controlled in or profession set up in India.
5(2) Non-resident
A non-resident is taxable on income received/deemed received in India and income accruing/arising or deemed to accrue/arise in India.
5(3) Indian balance sheet
Recording foreign income in accounts prepared in India does not by itself make the income received in India.
5(4) No double inclusion
The same income is not included again merely because it is later received after already being taxed on accrual/deemed-accrual basis.
Practical example: A non-resident consultant performs and uses all services outside India for a foreign project, but receives payment into an Indian bank account. Receipt in India can independently bring the amount within section 5, subject to treaty and other provisions.
Exception / high-risk point: Receipt, accrual and deemed accrual are alternative jurisdictional hooks. Do not count the same income twice.
Bare Act + professional decode
Section 6 — Residence in India
1961 Act section 66. (1) For the purposes of this Act, residential status in India in a tax year of
a person shall be determined as per the provisions of this section.
(2) An individual shall be resident in India in a tax year, if he—
(a) is in India for a total period of one hundred and eighty-two days or more
in that tax year; or
(b) is in India cumulatively for sixty days or more during that year and has
been in India cumulatively for three hundred and sixty-five days or more
in the four years preceding such tax year.
(3) The provisions of sub-section (2)(b) shall not apply in the case of an individual
who is a citizen of India and leaves India in any tax year—
(a) as a member of the crew of an Indian ship, as defined in section 3(18)
of the Merchant Shipping Act, 1958 (44 of 1958); or
(b) for the purposes of employment outside India.
(4) The provisions of sub-section (2)(b) shall not apply, subject to the provisions of
sub-section (5), in the case of an individual—
(a) who is a citizen of India or a person of Indian origin; and
(b) who being outside India, comes on a visit to India in any tax year.
(5) Where the person referred to in sub-section (4) has a total income exceeding
fifteen lakh rupees during the tax year referred therein (other than the income from
foreign sources), sub-section (2)(b) shall apply as if the words “sixty days” had been
substituted with “one hundred and twenty days”.
(6) For the purposes of sub-section (2), if the individual is—
(a) a citizen of India; and
(b) a member of the crew of a foreign-bound ship leaving India,
the total number of days in India, in respect of that voyage, shall be determined in
such manner and subject to such conditions, as may be prescribed.
(7) Irrespective of the provisions of sub-sections (2) to (6), an individual shall be
deemed to be resident in India for a tax year, if he—
(a) is a citizen of India;
(b) is not liable to tax in any other country or territory due to his domicile,
residence, or similar criteria; and
(c) has total income exceeding fifteen lakh rupees during such tax year (other
than the income from foreign sources).
(8) Sub-section (7) shall not apply to an individual, who is resident in India for a
tax year under sub-sections (2) to (6).
(9) A Hindu undivided family, firm or other association of persons shall be resident
in India in any tax year unless the control and management of its affairs is situated
wholly outside India during such tax year.
(10)(a) A company is said to be a resident in India in any tax year, if—
(i) it is an Indian company; or
(ii) its place of effective management is in India in that tax year;
(b) for the purposes of this sub-section, “place of effective management” means a
place where key management and commercial decisions necessary for the conduct
of business of the company as a whole are, in substance, made.
(11) Every other person is resident in India in any tax year unless during that tax
year the control and management of the affairs of such person is situated wholly
outside India.
(12) If a person is resident in India in a tax year for any source of income, he shall
be deemed to be resident in India in that tax year for each of his other sources of
income.
(13) A person is not ordinarily resident in India in any tax year, if that person is—
(a) an individual who has been, or a Hindu undivided family, whose manager
has been—
(i) a non-resident in India in nine out of the ten tax years preceding
that year; or
(ii) in India cumulatively for seven hundred and twenty-nine days or
less in seven tax years preceding that year; or
(b) a citizen of India or a person of Indian origin,—
(i) whose total income excluding income from foreign sources exceeds
fifteen lakh rupees during the tax year, as mentioned in sub-section
(5); and
(ii) who has been in India cumulatively for one hundred and twenty
days or more but less than one hundred and eighty-two days during
the tax year; or
(c) a citizen of India who is deemed to be resident in India under sub-section
(7).
(14) For the purposes of this section, “income from foreign sources” means the
income, which accrues or arises outside India (except income derived from a
business controlled in or a profession set up in India) and which is not deemed to
accrue or arise in India.
Paragraph-by-paragraph decoding
6(2) Basic individual tests
Resident if present in India for at least 182 days in the tax year, or for at least 60 days in that year plus at least 365 days in the preceding four tax years—subject to special overrides.
6(3) Citizen leaving India
For an Indian citizen leaving as crew of an Indian ship or for employment outside India, the 60-day limb does not apply; the 182-day test is the operative ordinary test.
6(4)-(5) Citizen/PIO visiting India
For an eligible visitor, the 60-day limb is ordinarily switched off. If Indian-source total income exceeds ₹15 lakh, 120 days replaces 60 days; the 365-day look-back still matters.
6(6) Foreign-bound ship crew
Rule 8 excludes the eligible voyage period recorded in the Continuous Discharge Certificate when computing stay.
6(7)-(8) Deemed resident
An Indian citizen with Indian-source total income above ₹15 lakh who is not liable to tax elsewhere because of domicile/residence or similar criteria can be deemed resident, unless already resident under the physical-presence tests.
6(9) HUF, firm and AOP
Resident unless control and management is wholly outside India. Partial Indian control can therefore be enough for residence.
6(10) Company and POEM
An Indian company is resident. A foreign company is resident when its place of effective management—the place where key management and commercial decisions for the business as a whole are substantively made—is in India.
6(11)-(12) Other persons/source rule
Other persons are resident unless control and management is wholly outside India. Residence for one source makes the person resident for all sources for that tax year.
6(13)-(14) RNOR
RNOR includes specified individuals/HUFs with the historic non-residence or 729-day tests, qualifying 120–181 day visitors, and deemed residents. “Income from foreign sources” excludes income from a business controlled in or profession set up in India and Indian deemed-accrual income.
Practical example: An Indian citizen visiting India for 135 days has Indian-source total income of ₹18 lakh and was present for 390 days in the preceding four years. The 120-day rule can make the person resident; section 6(13)(b) may then classify the person as RNOR, subject to exact facts.
Exception / high-risk point: “Not liable to tax” is not automatically the same as paying zero tax. Use the statutory definition, foreign law and tax-residency evidence.
Bare Act + professional decode
Section 7 — Income deemed to be received and dividend deemed to be income in a tax year
1961 Act sections 7 and 87. (1) The following incomes shall be deemed to be received in the tax year:—
(a) the annual accretion in that year to the balance at the credit of an employee
participating in a recognised provident fund, to the extent provided in
paragraph 6 of Part A of Schedule XI;
(b) the transferred balance in a recognised provident fund, to the extent
provided in paragraph 11(4) and (5) of Part A of Schedule XI;
(c) the contribution made by the Central Government or any other employ-
er in that year to the account of an employee under a pension scheme
mentioned in section 124.
(2) For inclusion in the total income of an assessee,—
(a) any dividend declared by a company or distributed or paid by it within
the meaning of section 2(40)(a) to (e) shall be deemed to be the income
of the tax year in which it is so declared, distributed or paid, as the case
may be;
(b) any interim dividend shall be deemed to be the income of the tax year
in which the amount of such dividend is unconditionally made available
by the company to the member who is entitled to it.
Income on receipt of capital asset or stock-in-trade by specified person from
specified entity.
Paragraph-by-paragraph decoding
7(1) Deemed receipts
Specified provident-fund accretions/transferred balances and employer/Central Government pension-scheme contributions are deemed received in the relevant tax year to the extent the linked provisions provide.
7(2)(a) Final dividend timing
A dividend within section 2(40)(a)–(e) is income in the tax year in which it is declared, distributed or paid, as the relevant limb requires.
7(2)(b) Interim dividend timing
Interim dividend is income when it is unconditionally made available to the entitled member—not merely when the board discusses it.
Practical example: A company declares a final dividend on 20 March and pays it in April. The exact section 2(40) limb and section 7 timing rule determine the tax year; an interim dividend instead turns on unconditional availability.
Exception / high-risk point: Dividend character and dividend timing are separate questions. First establish that the amount is a dividend under section 2(40).
Bare Act + professional decode
Section 8 — Income on receipt of capital asset or stock-in-trade by specified person from specified entity
1961 Act section 9B8. (1) Where a specified person receives during the tax year any capital asset or
stock-in-trade, or both, from a specified entity in connection with the dissolution
or reconstitution of such specified entity, then the specified entity shall be deemed
to have transferred such capital asset or stock-in-trade, or both, to the specified
person in the year in which such capital asset or stock-in-trade, or both, are received
by the specified person.
(2) Any profits and gains arising from the deemed transfer mentioned in sub-section
(1) by the specified entity shall be—
(i) deemed to be the income of such specified entity of the tax year in which
such capital asset or stock-in-trade, or both, were received by the specified
person; and
(ii) chargeable to income-tax as income of such specified entity under the
head “Profits and gains of business or profession” or under the head
“Capital gains”.
(3) For the purposes of this section, fair market value of the capital asset or stock-
in-trade, or both, on the date of its receipt by the specified person shall be deemed
to be the full value of the consideration received or accruing as a result of such
deemed transfer mentioned in sub-section (1).
(4) If any difficulty arises in giving effect to the provisions of this section and section
67(10), the Board may, with the previous approval of the Central Government, issue
guidelines for removing the difficulty.
(5) Every guideline issued by the Board under sub-section (4) shall be laid before
each House of Parliament while it is in session for a total period of thirty days which
may be comprised in one session or in two or more successive sessions, and if,
before the expiry of the session immediately following the session or the successive
sessions aforesaid, both houses agree in making any modification in such guideline
or both Houses agree that the guideline, should not be issued, the guideline shall
thereafter have effect only in such modified form or be of no effect, as the case may
be; so, however, that any such modification or annulment shall be without prejudice
to the validity of anything previously done under that guideline.
(6) For the purposes of this section,—
(a) “specified entity” means a firm or other association of persons or body
of individuals (not being a company or a co-operative society);
(b) “specified person” means a person, who is a partner of a firm or mem-
ber of other association of persons or body of individuals (not being a
company or a co-operative society) in any tax year;
(c) “reconstitution of the specified entity” means, where—
(i) one or more of its partners or members, of such specified entity
ceases to be partners or members; or
(ii) one or more new partners or members are admitted in such speci-
fied entity in such circumstances that one or more of the persons
who were partners or members, of the specified entity, before the
change, continue as partner or partners or member or members
after the change; or
(iii) all the partners or members, of such specified entity continue with
a change in their respective share or in the shares of some of them.
Paragraph-by-paragraph decoding
8(1) Trigger
When a partner/member receives a capital asset or stock-in-trade from a specified entity on dissolution or reconstitution, the entity is deemed to transfer it in the year of receipt.
8(2) Head and year
The resulting profit is income of the entity in that year and is taxed under business income or capital gains, depending on the asset.
8(3) Consideration
Fair market value on the date the specified person receives the asset is deemed full value of consideration.
8(4)-(5) Guidelines
CBDT may issue difficulty-removal guidelines with prior Central Government approval; parliamentary laying safeguards apply.
8(6) Definitions
Specified entity covers a firm/AOP/BOI other than a company or co-operative society; specified person is its partner/member. Reconstitution includes exit, admission with continuity, or a change in sharing ratios.
Practical example: A partner receives land with FMV ₹75 lakh from a reconstituted firm. The firm is deemed to transfer the land on receipt, and FMV is deemed consideration. The connected section 67(10) computation must also be tested—section 8 is not the entire answer.
Exception / high-risk point: New section 8 corresponds to old section 9B—not old section 45(4). The separate money/asset reconstitution formula must be read through section 67(10).
Bare Act + professional decode
Section 9 — Income deemed to accrue or arise in India
1961 Act section 99. (1) The income referred to in sub-sections (2) to (8) shall be deemed to
accrue or arise in India.
(2) The income accruing or arising, directly or indirectly, through or from—
(a) any asset or source of income in India; or
(b) any property in India; or
(c) any business connection in India; or
(d) the transfer of a capital asset situated in India,
shall be deemed to accrue or arise in India.
(3) Any income falling under the head “Salaries” shall be deemed to accrue or arise
in India, if it is—
(a) earned in India, and any income payable for,—
(i) services rendered in India; and
(ii) the rest period or leave period which is preceded and succeeded by
services rendered in India and forms part of the service contract of
employment,
shall be regarded as income earned in India;
(b) payable by the Government to an Indian citizen for services rendered
outside India.
(4) Any dividend paid by an Indian company outside India shall be deemed to accrue
or arise in India.
(5)(a) Income by way of interest payable by—
(i) the Government;
(ii) a resident, except where it is payable in respect of any debt incurred, or
moneys borrowed and used, for the purpose of—
(A) a business or profession carried on by such resident outside India;
or
(B) making or earning any income by such resident from any source
outside India; or
(iii) a non-resident, if it is in respect of any debt incurred, or moneys bor-
rowed and used, for the purposes of a business or profession carried on
by such non-resident in India,
shall be deemed to accrue or arise in India;
(b) for the purposes of clause (a),—
(i) any interest payable by the permanent establishment in India of a
non-resident person engaged in the business of banking, to the head
office or any other permanent establishment or any other part of such
non-resident outside India shall be deemed to accrue or arise in India
and shall be chargeable to tax in addition to any income attributable to
such permanent establishment in India;
(ii) such permanent establishment in India shall—
(A) be deemed to be a person separate from, and independent of, the
non-resident person of which it is a permanent establishment; and
(B) the provisions of this Act relating to computation of total income,
determination of tax and collection and recovery shall apply,
accordingly;
(iii) “permanent establishment” shall have the meaning assigned to it in
section 173(c).
(6)(a) Income by way of royalty payable by—
(i) the Government;
(ii) a resident, except where the royalty is payable in respect of any right,
property or information used or services utilised for the purposes of—
(A) a business or profession carried on by such resident outside India;
or
(B) making or earning any income by such resident from any source
outside India; or
(iii) a non-resident, if the royalty is payable in respect of any right, property
or information used or services utilised for the purposes of—
(A) a business or profession carried on by such non-resident in India;
or
(B) making or earning any income by such non-resident from any
source in India,
shall be deemed to accrue or arise in India;
(b) in this sub-section, “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 the following—
(i) the transfer or grant of all or any rights (including the granting of a
licence) in respect of a patent, invention, model, design, secret formula
or process or trade mark or similar property;
(ii) 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;
(iii) the use of any patent, invention, model, design, secret formula or process
or trade mark or similar property;
(iv) the imparting of any information concerning technical, industrial, com-
mercial or scientific knowledge, experience or skill;
(v) the use or right to use any industrial, commercial or scientific equipment
except the amounts referred in section 61(2) (Table: Sl. No. 5);
(vi) the transfer or grant of all or any rights (including the granting of a
licence) in respect of any copyright, literary, artistic or scientific work
including—
(A) films or video tapes for use in connection with television; or
(B) tapes for use in connection with radio broadcasting;
(vii) the rendering of services in connection with the activities referred to in
sub-clauses (i) to (vi);
(c) for the purposes of clause (b),—
(i) the transfer or grant of all or any rights in respect of any right, property or
information includes transfer or grant of all or any right for use or right
to use a computer software (including granting of a licence) irrespective
of the medium through which that right is transferred;
(ii) royalty includes consideration in respect of any right, property or infor-
mation, whether or not—
(A) the possession or control of that right, property or information is
with the payer;
(B) that right, property or information is used directly by the payer;
(C) the location of that right, property or information is in India;
(iii) the expression “process” includes transmission by satellite (including
up-linking, amplification, conversion for down-linking of any signal),
cable, optic fibre or by any other similar technology, whether or not that
process is secret;
(iv) the expression “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 customised electronic
data.
(7)(a) Income by way of fees for technical services payable by—
(i) the Government;
(ii) a resident, except where it is payable in respect of services utilised for—
(A) a business or profession carried on by such resident outside India;
or
(B) making or earning any income by such resident from any source
outside India; or
(iii) a non-resident, if it is payable in respect of services utilised for—
(A) a business or a profession carried on by such non-resident in India;
or
(B) making or earning any income by such non-resident from any
source in India,
shall be deemed to accrue or arise in India;
(b) in this sub-section, “fees for technical services” means any consideration
(including any lump sum consideration) for the rendering of any managerial,
technical or consultancy services (including the provision of services of technical
or other personnel) but does not include consideration—
(i) for any construction, assembly, mining or like project undertaken by the
recipient; or
(ii) which would be income of the recipient chargeable under the head
“Salaries”.
(8) Income arising outside India, in the nature of a sum referred to in section
2(49)(u), paid by a person resident in India,—
(a) to a non-resident, not being a company, or to a foreign company; or
(b) to a person not ordinarily resident in India under section 6(13),
shall be deemed to accrue or arise in India.
(9)(a) For the purposes of this section, “business connection” in India shall include—
(i) any business carried out in India in the case of which all or part of
operation are carried out in India; or
(ii) a significant economic presence in India;
(b) in clause (a), a business carried out in India shall include—
(i) business activity carried out through a person who, acting on behalf of
the non-resident,—
(A) has and habitually exercises in India, an authority to conclude
contracts on behalf of the non-resident or habitually concludes
contracts or habitually plays the principal role leading to conclusion
of contracts by that non-resident and the contracts are—
(I) in the name of the non-resident; or
(II) for the transfer of the ownership of, or for the granting of
the right to use, property owned by that non-resident or that
non-resident has the right to use; or
(III) for the provision of services by the non-resident; or
(B) 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; or
(C) habitually secures orders in India, mainly or wholly for the non-res-
ident, or for that non-resident and other non-residents controlling,
controlled by, or subject to the same common control, as that
non-resident;
(ii) a business activity carried out through a person who is a broker, general
commission agent or any other agent, through whom such activity is
carried out, and who is working mainly or wholly on behalf of—
(A) a non-resident (referred to as the principal non-resident); or
(B) such non-resident and other non-residents who—
(I) are controlled by the principal non-resident; or
(II) have a controlling interest in the principal non-resident; or
(III) are subject to the same common control as the principal
non-resident,
and such person shall not be deemed as having an independent status;
(c) in clauses (a) and (b), a business carried out in India shall not include any business
activity or operations of the non-resident—
(i) carried out through a broker, general commission agent or any other
agent having an independent status, if such broker, general commission
agent or any other agent is acting in the ordinary course of his business;
or
(ii) which are confined to any of the following—
(A) the purchase of goods in India for the purposes of export out of
India; or
(B) the collection of news and views in India for transmission out of
India, in the case where such non-resident is engaged in the business
of running a news agency or of publishing newspapers, magazines
or journals; or
(C) the display of uncut and unassorted diamond in any special zone
notified by the Central Government, in the case where such non-
resident is a foreign company engaged in the business of mining
of diamonds; or
(D) the shooting of any cinematographic film in India, in the case where
such non-resident is a person being—
(I) an individual who is not an Indian citizen; or
(II) a firm which does not have a partner who is an Indian citizen
or who is resident in India; or
(III) a company which does not have a shareholder who is an
Indian citizen or who is resident in India;
(d) a non-resident shall have a significant economic presence in India, where there
is—
(i) transaction in respect of any goods, services or property carried out by
such non-resident with any person in India including provision of down-
load of data or software in India, if the aggregate of payments arising
from such transaction or transactions during the tax year exceeds such
amount as may be prescribed; or
(ii) systematic and continuous soliciting of business activities or engaging
in interaction with such number of users in India, as may be prescribed,
irrespective of whether the agreement for such transactions or activities is entered
in India, or the non-resident has a residence or place of business in India, or the
non-resident renders any services in India;
(e) the provisions of clause (d) shall not apply to the transactions or activities which
are confined to the purchase of goods in India for the purpose of export;
(f) in this section, only the income which is reasonably attributable to—
(i) operations carried out in India, when all operations of the business are
not carried out in India;
(ii) transactions or activities referred to in clause (d),
shall be deemed to accrue or arise in India from any business connection;
(g) the income attributable to operations of any business or significant economic
presence in this section shall also include income from—
(i) such advertisement which targets a customer who resides in India or
a customer who accesses the advertisement 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.
(10) In sub-section (2),—
(a) an asset or a capital asset, being any share of, or interest in, a company
or entity registered or incorporated outside India shall be deemed to be
situated in India, if the share or interest derives, directly or indirectly,
its value substantially from the assets (whether tangible or intangible)
located in India;
(b) the share or interest, referred to in clause (a), shall be deemed to derive
its value substantially from the assets (whether tangible or intangible)
located in India, if on the specified date, the value of such assets,—
(i) exceeds the amount of ten crore rupees; and
(ii) represents at least 50% of the value of all the assets owned by the
company or entity, as the case may be;
(c) the value of an asset shall be the fair market value on the specified date of
such asset without reduction of liabilities, if any, in respect of the asset,
determined in the manner, as may be prescribed;
(d) the expression “specified date” in clause (c) means—
(i) the date on which the accounting period of the company or, as the
case may be, the entity ends preceding the date of transfer of a
share or an interest; or
(ii) the date of transfer, if the book value of the assets of the company
or, as the case may be, the entity on the date of transfer exceeds the
book value of the assets as on the date referred to in sub-clause (i),
by 15%;
(e) the expression “accounting period” in clause (d) means—
(i) each period of twelve months ending with the 31st March;
(ii) each period of twelve months ending with a date other than the
31st March, in a case where a company or an entity, referred to in
clause (a), regularly adopts a period of twelve months ending on a
day other than the 31st March for—
(A) complying with the provisions of the tax laws of the territory,
of which it is a resident, for tax purposes; or
(B) reporting to persons holding the share or interest;
(iii) the period beginning with the date of registration or incorporation
of a company or entity and ending with the 31st March or such
other day referred to in sub-clause (ii), in a case where a company
or entity comes into existence and the later accounting period shall
be the successive periods of twelve months; or
(iv) the period beginning with the 1st April or such other day as
applicable in sub-clause (ii) and ending with the date immediately
preceding the date on which the company or entity ceases to exist,
in a case where the company or the entity ceases to exist before the
end of the accounting period;
(f) in case of assets mentioned in clause (a), if—
(i) there is a transfer outside India of any share of, or interest in, a
company or an entity registered or incorporated outside India by
a non-resident transferor; and
(ii) all the assets owned, directly or indirectly, by that company or entity
are not located in India,
then, the income referred to in sub-section (2) shall be only such part of
the income as is reasonably attributable to assets located in India and
determined in the manner, as may be prescribed;
(g) the income referred to in sub-section (2) shall not include income from
transfer, outside India, of any share of, or interest in, a company or an
entity registered or incorporated outside India,—
(i) if such share of, or interest in, a company or an entity registered
or incorporated outside India is held by a non-resident by way of
investment, directly or indirectly,—
(A) in Category I or Category II foreign portfolio investor under
the Securities and Exchange Board of India (Foreign Portfolio
Investors) Regulations, 2014, prior to their repeal, made under
the Securities and Exchange Board of India Act, 1992 (15 of
1992);
(B) in Category I foreign portfolio investor under the Securities
and Exchange Board of India (Foreign Portfolio Investors)
Regulations, 2019, made under the Securities and Exchange
Board of India Act, 1992 (15 of 1992);
(ii) if such company or entity directly owns the assets situated in
India and the transferor (whether individually or along with its
associated enterprises), at any time in the twelve months preceding
the date of transfer,—
(A) does not hold the right of management or control in relation
to such company or the entity; and
(B) does not hold voting power or share capital or interest
exceeding 5% of the total voting power or total share capital
or total interest, as the case may be, of such company or
entity; or
(iii) if such company or entity indirectly owns the assets situated in
India and the transferor (whether individually or along with its
associated enterprises), at any time in the twelve months preceding
the date of transfer,—
(A) does not hold the right of management or control in relation
to such company or the entity;
(B) does not hold any right in, or in relation to, such company
or entity which would entitle it to the right of management
or control in the company or entity which directly owns the
assets situated in India; and
(C) does not hold such percentage of voting power or share capital
or interest in such company or entity which results in holding
of (either individually or along with associated enterprises)
a voting power or share capital or interest exceeding 5% of
the total voting power or total share capital or total interest,
as the case may be, of the company or entity, which directly
owns the assets situated in India;
(iv) in this clause, “associated enterprises” shall have the meaning
assigned to it in section 162.
(11) In sub-sections (5), (6) and (7), income of a non-resident shall be deemed to
accrue or arise in India and shall be included in his total income, whether or not,—
(a) the non-resident has a residence or place of business or business con-
nection in India; or
(b) the non-resident has rendered services in India.
(12) (a) In this section, the fund management activity carried out by an eligible
investment fund through an eligible fund manager acting on behalf of such fund,
shall not constitute business connection in India of that fund;
(b) the eligible investment fund mentioned in clause (a) shall not be said to be resident
in India under section 6 merely because the eligible fund manager, undertaking fund
management activities on its behalf, is situated in India;
(c) nothing contained in this section shall apply to exclude any income from the
total income of the eligible investment fund, which would have been so included
irrespective of whether the activity of the eligible fund manager constituted the
business connection in India of such fund or not;
(d) nothing contained in this section shall have any effect on the scope of total
income or determination of total income in the case of the eligible fund manager;
(e) the conditions for being an eligible investment fund or an eligible fund manager,
or furnishing of requisite statements shall be as per the provisions of Schedule I;
(f) the Central Government may, by notification, specify that any one or more of
the conditions as referred to in clause (e) shall not apply, or shall apply, with such
modifications, as specified, in case of an eligible investment fund and its eligible
fund manager, if—
(i) the eligible fund manager is located in an International Financial Ser-
vices Centre; and
(ii) has commenced its operations on or before the 31st March, 2030.
(13) For the purposes of this section, the expression “through” shall mean and
include “by means of”, “in consequence of” or “by reason of”.
Apportionment of income between spouses governed by Portuguese Civil
Code.
Paragraph-by-paragraph decoding
9(1)-(2) Core source rule
Income with the listed Indian nexus—asset, source, property, business connection or transfer of an Indian capital asset—is deemed to accrue or arise in India.
9(3) Salary
Salary is Indian-source when earned for services in India; connected rest/leave periods can be included. Government salary to an Indian citizen for services outside India is also deemed to accrue in India.
9(4) Indian-company dividend
Dividend paid by an Indian company outside India is deemed to accrue or arise in India.
9(5) Interest
Government interest is Indian-source. Resident-payer interest is generally Indian-source unless the borrowing is used for an outside-India business/profession or foreign source. Non-resident-payer interest is Indian-source where borrowing is used for Indian business. Special bank-branch rules deem Indian-PE payments to foreign head office/PE taxable.
9(6) Royalty
Royalty source generally follows payer and use. The definition is broad and covers rights, licences, information, equipment and connected services, with specific clarifications for software, possession/control, location and transmission processes.
9(7) Fees for technical services
Managerial, technical and consultancy services—including technical personnel—are covered, except recipient-run construction/assembly/mining or like projects and amounts taxable as salary. Payer/use exceptions must be tested.
9(8) Certain money/property receipts
Specified money or property receipts under section 92(2)(m), though arising outside India, can be deemed Indian-source when paid by a resident to a non-resident/foreign company or RNOR.
9(9) Business connection and SEP
Agency nexus, dependent-agent activity and significant economic presence can create business connection. Independent agents acting ordinarily and specified confined activities receive exclusions. Rule 13 sets the SEP thresholds at ₹2 crore of payments or 3,00,000 users.
9(10) Indirect transfer
A foreign share/interest can be deemed situated in India when it derives substantial value from Indian assets: the Indian-asset value must exceed ₹10 crore and represent at least 50% of total asset value on the specified date. Rules 10–12 govern definitions, FMV and attribution; minority/FPI exclusions require exact conditions.
9(11) No physical-presence defence
For interest, royalty and FTS, deemed accrual can apply even without the non-resident having a residence, place of business/business connection or rendering services in India.
9(12) Eligible fund manager safe harbour
Qualifying offshore funds are not treated as having business connection/residence merely because of an eligible Indian fund manager, subject to Schedule I conditions and notified IFSC relaxations.
9(13) “Through”
The word is expressly widened to include “by means of”, “in consequence of” and “by reason of”.
Practical example: A foreign digital platform receives ₹2.4 crore from Indian customers without an office in India. Rule 13’s payment threshold can satisfy SEP, but attribution, treaty protection, permanent-establishment rules and compliance consequences still require separate analysis.
Exception / high-risk point: Domestic source rules are only one layer. Section 159(4) generally allows a notified treaty to apply where more beneficial, subject to statutory overrides and treaty eligibility.
Bare Act + professional decode
Section 10 — Apportionment of income between spouses governed by Portuguese Civil Code
1961 Act section 5A10. If a husband and wife are governed by the community of property system
(known as “COMMUNIAO DOS BENS” under the Portuguese Civil Code of
1860) in force in the State of Goa and the Union Territories of Dadra and Nagar
Haveli and Daman and Diu, then—
(a) their income under any head of income shall not be assessed together as
that of such community of property (whether treated as an association
of persons or a body of individuals);
(b) the income mentioned in clause (a) under each head of income other
than “Salaries” shall be divided equally between the husband and the
wife;
(c) the income so divided shall be included separately in the total income
of the husband and the wife respectively, and the remaining provisions
of this Act shall apply accordingly; and
(d) where either the husband or the wife, has any income under the head
“Salaries”, that income shall be included in the total income of the spouse
who has actually earned it.
Paragraph-by-paragraph decoding
10(a) No community assessment
Eligible spouses under the specified Portuguese community-of-property regime are not assessed together as an AOP/BOI merely for community income.
10(b)-(c) Equal split
Income under each head other than salary is divided equally and included separately in each spouse’s total income.
10(d) Salary exception
Salary remains taxable to the spouse who actually earned it.
Practical example: Spouses governed by the specified Goa community-property regime earn ₹8 lakh of rent jointly and one spouse earns ₹12 lakh salary. The rent is ordinarily split ₹4 lakh each; salary stays with the earning spouse.
Exception / high-risk point: The provision is narrowly tied to the named community-property system and locations; ordinary joint ownership by spouses does not invoke section 10.
Income-tax Rules, 2026
Connected Rules 8–13
Rules 8–13 operationalise crew-day computation, non-resident attribution, indirect-transfer valuation and significant-economic-presence thresholds.
Rule 8 — Crew stay computation
Section 6(6)8. Computation of period of stay in India for an Indian citizen, being a member of the crew of a foreign bound
ship.— (1) For the purposes of section 6(6), in case of an individual, being a citizen of India and a member of the
crew of a foreign bound ship, the period or periods of stay in India in respect of an eligible voyage, shall not include
the period computed under sub-rule (2).
(2) The period referred to in sub-rule (1) shall be the period beginning on the date entered into the Continuous
Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the
date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in
respect of such voyage.
(3) For the purposes of this rule, —
(a) ―Continuous Discharge Certificate‖ shall have the same meaning as assigned to it in the Merchant
Shipping (Continuous Discharge Certificate-cum-Seafarer's Identity Document) Rules, 2001 made under the
Merchant Shipping Act, 1958 (44 of 1958);
(b) ―eligible voyage‖ shall mean a voyage undertaken by a ship engaged in the carriage of passengers
or freight in international traffic, where —
(i) for the voyage having originated from any port in India, has as its destination any port
outside India; and
(ii) for the voyage having originated from any port outside India, has as its destination any
port in India.
Simple decode: Uses Continuous Discharge Certificate joining/sign-off dates for an eligible international voyage.
Rule 9 — Non-resident income estimation
Section 9 attribution9. Determination of income in case of non-residents.— In any case in which the Assessing Officer is of opinion
that the actual amount of the income accruing or arising to any non-resident person, whether directly or indirectly,
through or from —
(a) any asset or source of income in India; or
(b) any property in India; or
(c) any business connection in India,
cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax may be
calculated —
(i) at such percentage of the turnover so accruing or arising as the Assessing Officer may consider to
be reasonable; or
(ii) on any amount which bears the same proportion to the total profits and gains of the business of such
person (such profits and gains being computed in accordance with the provisions of the Act), as the receipts
so accruing or arising bear to the total receipts of the business; or
(iii) in such other manner as the Assessing Officer may deem suitable.
Simple decode: Where actual Indian-nexus income cannot be definitely ascertained, the AO may use a reasonable turnover percentage, proportionate profits, or another suitable method.
Rule 10 — Definitions for indirect-transfer valuation
Rules 11–1210. Definition of terms for rules 11 and 12.— For the purposes of rules 11 and 12, —
(a) ―accountant‖ —
(i) means an accountant referred to in section 515(3)(b), who fulfils the following conditions: —
(A) if he is pursuing the profession of accountancy individually or is a valuer then —
(I) he has professional experience of not less than ten years; and
(II) his annual receipt in the year preceding the year in which valuation is undertaken, from the
exercise of profession, exceeds fifty lakh rupees;
(B) if he is a member or partner in any entity engaged in rendering accountancy or valuation services
then, the annual receipt of the entity in the year preceding the year in which valuation is undertaken exceeds
three crore rupees;
(ii) includes any valuer recognised for undertaking similar valuation by the government of the country, where
the foreign company or the entity is registered or incorporated or any of its agencies, who fulfils the
following conditions: —
(A) the condition referred to in items (A) and (B) of clause (a)(i);
(B) if he is a member or partner in any entity engaged in rendering accountancy or valuation services then,
the entity or its affiliates have presence in more than two countries;
(b) ―balance sheet‖, —
(i) (A) in relation to an Indian company, means the balance-sheet of such company (including the notes
annexed thereto and forming part of the accounts) as drawn up on the specified date which has been audited
under the laws relating to companies in force; and
(B) in any other case, it means the balance-sheet of the company or the entity (including the notes
annexed thereto and forming part of the accounts) as drawn up on the specified date and submitted to the
relevant authority outside India under the laws in force of the country in which the foreign company or the
entity is registered or incorporated; and
(ii) where, —
(A) finalisation of accounts is pending as on specified date for the purposes of items (A) and (B) of sub-
clause (i), it means an interim balance-sheet drawn up as on the specified date and approved by the
board of directors of the company or an equivalent body in case of any other entity; and
(B) the specified date is the date referred to in section 9(10)(d)(ii), it means the balance sheet as drawn up on
the specified date and certified by an accountant;
(c) ―book value of the liabilities‖ means the value of liabilities as shown in the balance-sheet of the company or
the entity, as the case may be, excluding the paid-up capital in respect of equity shares or members' interest and the
general reserves and surplus and security premium related to the paid-up capital;
(d) ―connected person‖ shall have the meaning assigned to it in section 184(5);
(e) ―foreign company or entity‖ means a company or entity registered or incorporated outside India;
(f) ―observable price‖ in respect of a share quoted on a stock exchange shall be the higher of the following: —
(i) the average of the weekly high and low of the closing prices of the shares quoted on the said stock
exchange during the six months period preceding the specified date; or
(ii) the average of the weekly high and low of the closing price of the shares quoted on the said stock
exchange during the two weeks preceding the specified date;
(g) ―right of management or control‖ shall include the right to appoint majority of the directors or to control the
management or policy decision exercisable by a person or persons acting individually or together, directly or
indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements
or in any other manner;
(h) ―specified date‖ shall have the meaning assigned to it in section 9(10)(d);
(i) ―telegraphic transfer buying rate‖ shall have the meaning assigned to it in rule 207; and
(j) the expressions ―merchant banker‖ and ―recognised stock exchange‖ shall have the meaning respectively
assigned to them in rule 56.
Simple decode: Defines accountant, connected person, balance sheet, observable price, specified date and related valuation concepts.
Rule 11 — Fair market value of assets
Section 9(10)11. Fair market value of assets in certain cases.— (1) The fair market value of asset, tangible or intangible, as on
the specified date, held directly or indirectly by a foreign company or entity, for the purposes of section 9(10) shall be
computed as per this rule with reference to the specified date.
(2) Where the asset is a share of an Indian company listed on a recognised stock exchange on the specified date, the
fair market value of the share shall be the observable price of such share on the stock exchange so, however, that —
(a) if the share is held as part of the shareholding which confers, directly or indirectly, any right of
management or control in the said company, the fair market value of the share shall be determined using the
following formula: —
Fair market value = (A+B)/C
Where, —
A = the market capitalisation of the company on the basis of observable price of its shares quoted
on the recognised stock exchange;
B = the book value of liabilities of the company; and
C = the total number of outstanding shares; or
(b) if, on the specified date, the share is listed on more than one recognised stock exchange, the
observable price of the share shall be computed with reference to the recognised stock exchange which
records the highest volume of trading in the share during the tax year.
(3) Where the asset is a share of an Indian company not listed on a recognised stock exchange on the specified date,
the fair market value of the share shall be —
(a) the fair market value as determined by a merchant banker or an accountant as per any
internationally accepted valuation methodology for valuation of shares on arm's length basis; and
(b) increased by the liability, if any, considered in such determination as per clause (a).
(4) Where the asset is an interest in a partnership firm or an association of persons, its fair market value shall be
determined in the following manner: —
(a) the value of such firm or association of persons, shall be determined by a merchant banker or an
accountant as per any internationally accepted valuation methodology as increased by the liability, if any,
considered in such determination;
(b) the value so computed in clause (a), as is equal to the amount of its capital, shall be allocated among
its partners or members in the same proportion in which the capital has been contributed by them;
(c) the residue of the value shall be allocated among the partners or members as per the agreement of
partnership firm or association of persons for distribution of assets in the event of dissolution of the firm or
association;
(d) in the absence of agreement, as specified in clause (c), the residual value shall be allocated in
proportion in which the partners or members are entitled to share profits; and
(e) the sum total of the amount so allocated as per clauses (a) to (d) to a partner or member shall be
treated as the fair market value of the interest of that partner or member in the firm or the association of
persons, as the case may be.
(5) The fair market value of the asset other than those referred to in sub-rules (2), (3) and (4) shall be the price it
would fetch, if sold in the open market as determined by a merchant banker or an accountant and increased by the
liability, if any, considered in such determination.
(6) The fair market value of all the assets of a foreign company or an entity on the specified date, if conditions
specified in column B of the following Table are fulfilled, shall be determined as per column C thereof: —
Table
Sl. Conditions Fair Market Value
No.
A B C
1. Where the transfer of share Fair market value of all assets = A+B
of, or interest in, the foreign
company or entity is
between the persons who Where, —
are not connected persons,
for the purpose of such A = Market capitalisation of the foreign company or entity computed on
the basis of the full value of consideration for transfer of the share or
transfer. interest; and
B = book value of the liabilities of the company or the entity as on the
specified date as certified by a merchant banker or an accountant.
2. Where the share of the Fair market value of all the assets = A+B
foreign company or entity is
listed on a stock exchange
on the specified date. Where, —
A = Market capitalisation of the foreign company or entity computed on
the basis of the observable price of the share on the stock exchange where
the share of the foreign company or the entity is listed; and
B = book value of the liabilities of the company or the entity as on the
specified date.
3. Where the share is listed on Fair market value of all the assets = A+B
more than one stock
exchange on the specified
date. Where, —
A = Market capitalisation of the foreign company or entity computed on
the basis of the observable price of the share on the stock exchange which
records the highest volume of trading in the share during the period
considered for determining the price; and
B = book value of the liabilities of the company or the entity.
4. Where the share in the Fair market value of all the assets = A+B
foreign company or entity is
not listed on a stock
exchange on the specified Where, —
date.
A = fair market value of the foreign company or the entity as on the
specified date as determined by a merchant banker or an accountant as per
the internationally accepted valuation methodology; and
B = value of liabilities of the company of the entity if any, considered for
the determination of fair market value in A.
(7) Where fair market value has been determined on the basis of any interim balance sheet referred to in rule 10(b)(ii),
then the fair market value shall be appropriately modified after finalisation of the relevant financial statement as per
the applicable laws and all the provisions of this rule and rules 12 and 235 shall apply accordingly.
(8) For determining the fair market value of any asset located in India, being a share of an Indian company or interest
in a partnership firm or association of persons, all the assets and business operations of the said company or
partnership firm or association of persons shall be taken into account whether such assets or business operation are
located in India or outside.
(9) The rate of exchange for calculation in foreign currency, of the value of assets located in India and expressed in
rupees shall be the telegraphic transfer buying rate of such currency as on the specified date.
Simple decode: Prescribes FMV methods for listed/unlisted shares, interests, other assets and total foreign-company/entity assets.
Rule 12 — Income attributable to Indian assets
Section 9(10)(f)12. Determination of income attributable to assets in India.— (1) The income from transfer outside India of a
share of, or interest in, a company or an entity referred to in section 9(10)(a) attributable to assets located in India,
shall be determined with reference to the specified date, by the following formula: —
B
A X
C
Where, —
A = Income from the transfer of the share of, or interest in, the company or the entity computed as per the provisions
of the Act, as if, such share or interest is located in India;
B = fair market value of assets located in India as on the specified date from which the share or interest referred to in
A derives its value substantially, computed as per rule 11; and
C = fair market value of all the assets of the company or the entity as on the specified date, computed as per rule 11.
(2) If the transferor of the share of, or interest in, the company or the entity referred to in sub-rule (1) fails to provide
the information required for the application of the formula in the said sub-rule, then the income from the transfer of
such share or interest shall be determined in such manner as the Assessing Officer may deem suitable.
(3) The transferor of the share of, or interest in, a company or an entity referred to in sub-rule (1), shall obtain and
furnish along with the return of income a report in Form No. 4 duly signed and verified by an accountant providing
the basis of the apportionment as per the formula and certifying that the income attributable to assets located in India
has been correctly computed.
Simple decode: Apportionment formula: total transfer income × Indian-asset FMV ÷ total-asset FMV; Form 4 accountant report accompanies the return.
Rule 13 — SEP thresholds
Section 9(9)(d)13. Threshold for purposes of significant economic presence.— (1) For the purposes of section 9(9)(d)(i), the
aggregate amount of payments from transactions carried out by a non-resident with any person in India, in respect of
any goods, service or property including provision for download of data or software in India during the tax year, shall
be two crore rupees.
(2) For the purposes of section 9(9)(d)(ii), the number of users with whom systematic and continuous business
activities are solicited or who are engaged in interaction shall be ₹ 300000.
Simple decode: ₹2 crore payment threshold and 3,00,000-user threshold.
Valuation control: Rules 10–12 use defined professionals, specified dates, FMV methods and Form 4 certification. A spreadsheet approximation without the statutory valuation inputs is not a compliant conclusion.
Notifications, circulars and international layer
Treaty and interpretive controls
Section 159(4)
For an eligible assessee covered by a notified agreement, the Act applies to the extent more beneficial, subject to specific statutory overrides, treaty entitlement, beneficial ownership, limitation-of-benefits and anti-abuse conditions.
POEM guidance
CBDT Circular No. 6 of 2017 remains an important legacy interpretive source for POEM, but its continued application should be recorded through the 2025 Act’s saving/consistency framework and tested against later law.
Section 8 guidelines
Old-law section 9B/45(4) guidelines and circular material are relevant to the new structure only after mapping each proposition to sections 8 and 67(10) and confirming it has not become inconsistent or superseded.
SEP versus treaty PE
SEP can create domestic business connection, but an applicable treaty may still require a permanent establishment before business profits are taxable. Character-specific treaty articles can produce a different route.
Evidence pack: travel calendar and passports; foreign tax-residency/liability records; board and management evidence; contract and payer/use analysis; IP/service deliverables; customer/user and payment data; valuation reports; treaty forms and beneficial-ownership records.
Comparison with repealed law
2025 Act versus 1961 Act
| Topic | 2025 Act | 1961 Act | Transition insight |
|---|
| Charge | Section 4 | Section 4 | Same charging architecture, redrafted around tax year. |
| Scope | Section 5 | Section 5 | Core residence/source matrix retained; terminology modernised. |
| Residence | Section 6 | Section 6 | Tests substantially carried forward and consolidated. |
| Deemed receipt/dividend timing | Section 7 | Sections 7 and 8 | Two old sections consolidated. |
| Asset/stock distribution by entity | Section 8 | Section 9B | Critical mapping: not old section 45(4). |
| Indian deemed accrual | Section 9 | Section 9 | Reorganised into a single structured provision. |
| Portuguese community property | Section 10 | Section 5A | Renumbered and simplified. |
| Treaty-more-beneficial rule | Section 159(4) | Section 90(2) | Treaty interaction continues under new numbering. |
| Tax period language | Tax year | Previous year / assessment year | Use old labels for saved earlier years and new labels prospectively. |
Transition caution: A return, appeal, reassessment or dispute handled after 1 April 2026 can still be governed by the 1961 Act if it concerns a saved earlier assessment year/proceeding. Filing date alone does not select the law.
CA / finance / professional application
Exam and advisory case studies
The returning founder
Facts: A citizen returns to India for 128 days, has ₹22 lakh Indian-source income and 410 days of stay in the prior four years. Determine residence, RNOR status and worldwide-income scope.
Answer framework: Apply section 6(5) using 120 days, then section 6(13)(b). Do not jump directly from “resident” to worldwide taxation.
The stateless high-income citizen
Facts: A citizen lives across multiple low-tax jurisdictions, is not liable to tax anywhere because of residence/domicile criteria, and has ₹30 lakh Indian-source income.
Answer framework: Test section 6(7), the statutory meaning of liable to tax, section 6(8), and RNOR treatment under section 6(13)(c).
The foreign board with Indian execution
Facts: A foreign company holds formal board meetings abroad, but strategic pricing, financing and market decisions are substantively made by senior leadership in India.
Answer framework: POEM is substance-based. Gather decision calendars, board packs, delegation matrices, email trails and actual decision evidence; apply saved POEM guidance cautiously.
Payment recorded twice
Facts: Foreign consulting income is taxed on accrual and remitted to India next year.
Answer framework: Section 5(4) prevents a second inclusion merely on receipt. Preserve the first-year computation and remittance trail.
Partner receives a building
Facts: A retiring partner receives a building from the firm; book value is ₹30 lakh and FMV ₹90 lakh.
Answer framework: Section 8 deems transfer at FMV by the firm. Determine business/capital character and separately compute section 67(10).
Cloud platform without an office
Facts: A foreign platform earns ₹2.2 crore from Indian users and continuously interacts with 3.5 lakh Indian users.
Answer framework: Both Rule 13 thresholds may be relevant. Then test reasonable attribution, treaty PE, character of income, equalisation/digital provisions if relevant, and compliance.
Foreign loan used abroad
Facts: An Indian company borrows from a foreign lender but uses the funds entirely in an overseas branch business.
Answer framework: Section 9(5) resident-payer exception may apply if use and tracing are proved. Review treaty and withholding documentation.
Remote consultancy
Facts: An Indian company uses a foreign consultancy report for its Indian operations; all work is performed abroad.
Answer framework: Domestic FTS deemed-accrual can apply despite offshore performance. Check treaty definition/make-available clause, beneficial ownership and section 159.
Sale of offshore holding company
Facts: A foreign investor sells shares of an offshore company whose Indian assets are ₹80 crore and global assets ₹140 crore.
Answer framework: Both ₹10 crore and 50% tests are met. Apply specified date, Rules 10–12, attribution and any 5%/FPI exclusion.
Goa community property
Facts: Eligible spouses own investments under the specified regime; one spouse alone earns salary.
Answer framework: Split non-salary head-wise equally; tax salary to the earner. Verify the governing civil-law regime and evidence.
Finin2min summary
One-page decision logic
Individual residence
182 days OR 60+365 → apply leaving/visitor exceptions → 120-day rule → deemed residence → RNOR classification.
Entity residence
HUF/firm/AOP: control and management. Company: Indian incorporation or POEM. Other persons: control and management.
Tax scope
Resident: Indian receipt + Indian accrual + foreign accrual. RNOR: restricted foreign accrual. NR: Indian receipt + Indian accrual/deemed accrual.
Section 9 route
Asset/source/property/business connection/Indian asset → salary/dividend/interest/royalty/FTS → SEP → indirect transfer → attribution.
Memory line: Charge → residence → scope → source → treaty → computation → collection. A conclusion is incomplete until each applicable layer is documented.
Q&A
Chapter II - Questions and Answers
What is the basic charge of income-tax under the Income-tax Act, 2025?
Section 4 charges income-tax at the rate or rates enacted for the tax year on the total income of every person, subject to the Act.
Is a resident always taxed on worldwide income?
An ordinarily resident person is generally within the worldwide scope in section 5. An RNOR has a restricted foreign-income scope, and exemptions, treaties and special provisions must still be applied.
What is the 182-day test for Indian tax residence?
An individual is resident if present in India for at least 182 days in the tax year, subject to the full section 6 framework.
When does the 120-day India residence rule apply?
It applies to a visiting Indian citizen or person of Indian origin whose Indian-source total income exceeds ₹15 lakh, provided the associated 365-day look-back condition is met.
What is deemed residence for an Indian citizen?
A citizen with Indian-source total income above ₹15 lakh who is not liable to tax elsewhere because of domicile, residence or similar criteria can be deemed resident, unless already resident under the physical-presence rules.
What is RNOR under the 2025 Act?
Section 6(13) covers specified historic non-residence/stay cases, qualifying 120–181 day visitors and deemed residents.
When is a foreign company resident in India?
When its place of effective management is in India in that tax year. This is where key management and commercial decisions for the business as a whole are substantively made.
Does booking foreign income in Indian accounts mean receipt in India?
No. Section 5(3) says foreign accrual is not deemed received merely because it is taken into account in a balance sheet prepared in India.
When is interim dividend taxable?
In the tax year in which it is unconditionally made available to the entitled member.
What does section 8 tax on partnership reconstitution?
It deems the specified entity to transfer capital assets/stock-in-trade received by a partner/member, using FMV as consideration. Connected section 67(10) must also be checked.
What is significant economic presence in India?
It is a business-connection nexus based on prescribed payment or user interaction thresholds, even without a conventional physical office.
What are the SEP thresholds under the 2026 Rules?
Rule 13 prescribes ₹2 crore of relevant payments and 3,00,000 users.
When is interest paid by an Indian resident not deemed to accrue in India?
Broadly, where the debt or borrowing is used for a business/profession outside India or for earning income from a source outside India, subject to the precise facts.
What is royalty under section 9?
A broad category covering specified rights, licences, information, equipment use and connected services, with express clarifications for software and transmission processes.
Does technical service have to be performed in India?
Section 9(11) can deem FTS income to accrue in India even without services being rendered in India; payer/use rules and any applicable treaty must be tested.
What is the indirect-transfer threshold?
Indian assets must exceed ₹10 crore and represent at least 50% of total asset value on the specified date, with Rules 10–12 and exclusions then applied.
Does an applicable tax treaty override section 9?
Under section 159(4), the Act generally applies only to the extent more beneficial to the eligible assessee, subject to anti-avoidance/statutory overrides and treaty conditions.
How is Goa community-property income taxed?
For spouses governed by the specified Portuguese community-property system, non-salary income is generally split equally; salary remains with the earning spouse.
Primary-source discipline
Official source register
Income-tax Act, 2025 as amended by Finance Act, 2026Income Tax Department / CBDT consolidated textOfficial statutory source for sections 4–10 and section 159.
Income-tax Rules, 2026 — G.S.R. 198(E), 20 March 2026Official Gazette / Income Tax DepartmentRules 8–13 and connected forms.
Notification No. 64/2026 / G.S.R. 286(E), 16 April 2026Official corrigendum to the 2026 Rules package.
Income-tax Act, 1961 as amended by Finance Act, 2026Official text used for section mapping and saved earlier-year law.
CBDT Circular No. 6 of 2017Official POEM guiding principles; use subject to current-law mapping and savings.
CBDT FAQs on Interplay and Transition, June 2026Official transition guidance for the 1961 and 2025 Acts.