Chapter II
Basis of Charge
70[1] 4.71[2](1) Where
any Central Act enacts that income-tax shall be charged for any assessment year
at any rate or rates, income-tax at that rate or those rates shall be charged
for that year in accordance with, and 72[3] [subject to the provisions (including provisions for the
levy of additional income-tax) of, this Act] in respect of the total income of
the previous year 73[4] [* * *] of every person :
Provided that where by
virtue of any provision of this Act income-tax is to be charged in respect of
the income of a period other than the previous year, income-tax shall be
charged accordingly.
(2) In
respect of income chargeable under sub-section (1), income-tax shall be
deducted at the source or paid in advance, where it is so deductible or payable
under any provision of this Act.
74[5]5.75[6] (1)
Subject to the provisions of this Act, the total income of any previous
year of person who is a resident includes all income from whatever source
derived which—
(a) is received or is deemed to be received in
(b) accrues
or arises or is deemed to accrue or arise to him in
(c) accrues
or arises to him outside
Provided that, in the
case of a person not ordinarily resident in India within the meaning of
sub-section (6) *[7] of section 6, the income which accrues or arises to him
outside India shall not be so included unless 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 any previous year of a
person who is a non-resident includes all income from whatever source derived
which—
(a) is
received or is deemed to be received in
(b) accrues
or arises or is deemed to accrue or arise to him in
Explanation 1.—Income
accruing or arising outside
Explanation 2.—For the
removal of doubts, it is hereby declared that income which has been included in
the total income of a person on the basis that it has accrued or arisen or is deemed
to have accrued or arisen to him shall not again be so included on the basis
that it is received or deemed to be received by him in India.
76[8] [Apportionment of
income between spouses governed by Portuguese Civil Code.
5A.
(1) Where the husband and wife
are governed by the system of community of property (known under the Portuguese
Civil Code of 1860 as “COMMUNIAO DOS BENS”) in force in the State of Goa and in the Union territories of Dadra
and Nagar Haveli and Daman
and Diu, the income of the husband and of the wife
under any head of income shall not be assessed as that of such community of
property (whether treated as an association of persons or a body of
individuals), but such income of the husband and of the wife under each head of
income (other than under the head “Salaries”) shall be apportioned equally
between the husband and the wife and the income so apportioned shall be
included separately in the total income of the husband and of the wife
respectively, and the remaining provisions of this Act shall apply accordingly.
(2) Where
the husband or, as the case may be, the wife governed by the aforesaid system
of community of property has any income under the head “Salaries”, such income
shall be included in the total income of the spouse who has actually earned
it.]
Residence in
77[9]6. For the purposes of this
Act,—
(1) An
individual is said to be resident in
(a) is
in
(c)
having within the four years preceding that year been in India for a
period or periods amounting in all to three hundred and sixty-five days or
more, is in India for a period or periods amounting in all to sixty days or
more in that year.
79[11] [Explanation.—In the case of an individual,—
(a) being
a citizen of India, who leaves India in any previous year 80[12] [as a member of the crew of an 81[13]Indian ship as defined in clause (18) of section 3
of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of
employment outside India, the provisions of sub-clause (c) shall apply
in relation to that year as if for the words “sixty days”, occurring therein,
the words “one hundred and eighty-two days” had been substituted ;
(b) being
a citizen of India, or a person of Indian origin within the meaning of Explanation
to clause (e) of section 115C, who, being outside India, comes on a visit
to India in any previous year, the provisions of sub-clause (c) shall
apply in relation to that year as if for the words “sixty days”, occurring
therein, the words “one hundred and 82[14] [eighty-two] days” had been substituted.]
(2) A
Hindu undivided family, firm or other association of persons is said to be
resident in
(3) A
company is said to be resident in
(i) it is an Indian company ; or
(ii) during
that year, the control and management of its affairs is situated wholly in
(4) Every
other person is said to be resident in
(5) If
a person is resident in
(6) A
person is said to be “not ordinarily resident” in
(a) an
individual who has not been resident in India in nine out of the ten previous
years preceding that year, or has not during the seven previous years preceding
that year been in India for a period of, or periods amounting in all to, seven
hundred and thirty days or more ; or
(b) a
Hindu undivided family whose manager has not been resident in India in nine out
of the ten previous years preceding that year, or has not during the seven
previous years preceding that year been in India for a period of, or periods
amounting in all to, seven hundred and thirty days or more.
Income deemed to be
received.
7. The following incomes shall
be deemed to be received in the previous year :—
(i) the annual accretion in the previous
year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6
of Part A of the Fourth Schedule ;
(ii) the
transferred balance in a recognised provident fund,
to the extent provided in sub-rule (4) of rule 11 of Part A of the Fourth
Schedule.
Dividend income.
8. 83[15] [For the purposes of 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 sub-clause (a) or sub-clause (b) or sub-clause (c) or
sub-clause (d) or sub-clause (e) of clause (22) of section
2 shall be deemed to be the income of the previous year in which it is so
declared, distributed or paid, as the case may be ;
84[16] [(b)
any interim dividend shall be deemed to be the income of the previous
year in which the amount of such dividend is unconditionally made available by
the company to the member who is entitled to it.]
Income deemed to accrue or
arise in
85[17]9.86[18] (1) The
following incomes shall be deemed to accrue or arise in
87[19](i) all income accruing or arising,
whether directly or indirectly, through or from any business connection in
India, or through or from any property in India, or through or from any asset
or source of income in India, 88[20] [* * *] or through the transfer of a capital asset situate
in India.
Explanation.—For the
purposes of this clause—
(a) in
the case of a business of which all the operations are not carried out in
India, the income of the business deemed under this clause to accrue or arise
in
(b) in
the case of a non-resident, no income shall be deemed to accrue or arise in
90[22][(c)
in the case of a non-resident, being a person engaged in the business of
running a news agency or of publishing newspapers, magazines or journals, no income
shall be deemed to accrue or arise in India to him through or from activities
which are confined to the collection of news and views in India for
transmission out of India ;]
91[23] [(d) in
the case of a non-resident, being—
(1) an
individual who is not a citizen of
(2) a
firm which does not have any partner who is a citizen of
(3) a
company which does not have any shareholder who is a citizen of India or who is
resident in India, no income shall be deemed to accrue or arise in India to
such individual, firm or company through or from operations which are confined
to the shooting of any cinematograph film in India ;]
(ii) income
which falls under the head “Salaries”, if it is earned in
92[24] [Explanation.—For the removal of doubts, it is
hereby declared that income of the nature referred to in this clause payable
for service rendered in India shall be regarded as income earned in India ;]
The following Explanation shall be substituted for the
existing Explanation to clause (ii) of sub-section (1) of section 9 by the
Finance Act, 1999, w.e.f. 1-4-2000:
Explanation.—For the removal of doubts, it is hereby
declared that the income of the nature referred to in this clause payable for—
(a) service rendered in
(b) 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 ;
(iii) income
chargeable under the head “Salaries” payable by the Government to a citizen of
(iv) a
dividend paid by an Indian company outside
93[25] [(v) income
by way of interest payable by—
(a) the
Government ; or
(b) a
person who is a resident, except where the interest is payable in respect of
any debt incurred, or moneys borrowed and used, 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
(c) a
person who is a non-resident, where the interest is payable in respect of any
debt incurred, or moneys borrowed and used, for the purposes of a business or
profession carried on by such person in India ;
(vi) income
by way of royalty payable by—
(a) the
Government ; or
(b) a
person who is 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 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
(c) a
person who is a non-resident, where the royalty is payable in respect of any
right, property or information used or services utilised
for the purposes of a business or profession carried on by such person in
Provided that nothing
contained in this clause shall apply in relation to so much of the income by
way of royalty as consists of lump sum consideration for the transfer outside
India of, or the imparting of information outside India in respect of, any
data, documentation, drawing or specification relating to any patent,
invention, model, design, secret formula or process or trade mark or similar
property, if such income is payable in pursuance of an agreement made before
the 1st day of April, 1976, and the agreement is approved by the Central
Government :
94[26] [Provided further that nothing contained in this
clause shall apply in relation to so much of the income by way of royalty as
consists of lump sum payment made by a person, who is a resident, for the
transfer of all or any rights (including the granting of a licence)
in respect of computer software supplied by a non-resident manufacturer along
with a computer or computer-based equipment under any scheme approved under the
Policy on Computer Software Export, Software Development and Training, 1986 of
the Government of India.]
Explanation 1.—For the
purposes of the 95[27] [first] proviso, an agreement made on or after the 1st day
of April, 1976, shall be deemed to have been made before that date if the
agreement is made in accordance with proposals approved by the Central Government
before that date; so, however, that, where the recipient of the income by way
of royalty is a foreign company, the agreement shall not be deemed to have been
made before that date unless, before the expiry of the time allowed under
sub-section (1) or sub-section (2) of section 139(1) (whether fixed originally
or on extension) for furnishing the return of income for the assessment year
commencing on the 1st day of April, 1977, or the assessment year in respect of
which such income first becomes chargeable to tax under this Act, whichever
assessment year is later, the company exercises an option by furnishing a
declaration in writing to the 96[28] [Assessing] Officer (such option being final for that
assessment year and for every subsequent assessment year) that the agreement
may be regarded as an agreement made before the 1st day of April, 1976.
Explanation 2.—For the
purposes of this clause, “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—
(i) the transfer
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, commercial or scientific
knowledge, experience or skill ;
(v) the
transfer of all or any rights (including the granting of a 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 ; or
(vi) the
rendering of any services in connection with the activities referred to in
sub-clauses (i) to (v).
97[29] [Explanation 3.—For the purposes of this clause,
the expression “computer software” shall have the meaning assigned to it in
clause (b) of the Explanation to section 80HHE ;]
(vii) income by way of fees for technical services payable by—
(a) the
Government ; or
(b) a
person who is a resident, except where the fees are payable in respect of
services utilised in 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
(c) a
person who is a non-resident, where the fees are payable in respect of services
utilised in a business or profession carried on by
such person in
98[30] [Provided that nothing contained in this clause
shall apply in relation to any income by way of fees for technical services
payable in pursuance of an agreement made before the 1st day of April, 1976, and
approved by the Central Government.]
99[31] [Explanation 1.—For the purposes of the foregoing
proviso, an agreement made on or after the 1st day of April, 1976, shall be
deemed to have been made before that date if the agreement is made in
accordance with proposals approved by the Central Government before that date.]
Explanation 1[32][2].—For the purposes of this clause, “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 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”.]
(2) Notwithstanding
anything contained in sub-section (1), any pension payable outside India to a
person residing permanently outside India shall not be deemed to accrue or
arise in India, if the pension is payable to a person referred to in article
314 of the Constitution or to a person who, having been appointed before the
15th day of August, 1947, to be a Judge of the Federal Court or of a High Court
within the meaning of the Government of India Act, 1935, continues to serve on
or after the commencement of the Constitution as a Judge in India.
[1]See also Circular No. 142, dated 1-8-1974, Circular No. 447, dated 22-1-1986, Circular No. 573, dated 21-8-1990, Letter No. 75/19/191/62-ITJ, dated 24-8-1966 and Instruction No. 747 [F. No. 288/29/74-IT(A-II)], (relevant extracts), dated 30-8-1974.
[3]Substituted for “subject to the provisions of this Act” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
[4]“or previous years, as the case may be,” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
[5]See also Circular No. 369, dated 17-9-1983.
[7]Should be clause 6.
[8]Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963.
[10]Omitted by the Finance Act, 1982, w.e.f. 1-4-1983.
[11]Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. Original Explanation, as inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and later amended by the Finance Act, 1982, w.e.f. 1-4-1983, read as under :
‘Explanation.—In the case of an individual, being a citizen of India,—
(a) who leaves India in any previous year for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted ;
(b) who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “ninety days” had been substituted.’
[12]Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.
[13]Clause (18) of section 3 of the Merchant Shipping Act, 1958, defines “Indian ship” as follows :
‘(18) “Indian ship” means a ship registered as such under this Act and includes any ship registered at any port in India at the commencement of this Act which is recognised as an Indian ship under the proviso to sub-section (2) of section 22 ;’
[14]Substituted for “fifty” by the Finance Act, 1994, w.e.f. 1-4-1995.
[15]Substituted for “For the purposes of inclusion in the total income of an assessee, any dividend” by the Finance Act, 1965, w.e.f. 1-4-1965.
[16]. Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.
[17]See also Circular No. 23, dated 23-7-1969, Circular No. 163, dated 29-5-1975, Circular No. 35(XXXIII-7) of 1956, dated 3-9-1956, Circular No. 4, dated 20-2-1969 and Circular No. 382, dated 4-5-1984.
[19]See rule 10 for manner of computation of income of non-residents in certain cases.
[20].
“or through or from any money lent at interest and brought into
[21]Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964.
[22]Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1962.
[23]Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1982.
[24]. Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979.
[25]Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w.e.f. 1-6-1976.
[26]. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
[27]Substituted for “foregoing”, by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
[28]Substituted
for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.
1-4-1988.
[29]Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
[30]. Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.
[31]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.
[32]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.