• Jul
  • 29
  • 2009

What makes an Income Accrue or Arise in India although earned outside India?

A look at what constitutes as Income on Indian soil and what is not from the perspective of the IT department. The IT department defines certain incomes as Accruing or Arising in India. This is the basis of calculating your income and income tax. Let’s know more. The IT department says that for any company or individual (resident or non-resident) who also has business in geographical locations outside India, only the part of income which can be reasonably attributed to have been earned in operations happening in India will be considered for calculation of Income tax.

RESIDENTIAL MATTERS:

There arises a question of who/what is a Resident of India and who/what is not a resident of India. The IT department has defined these entities. An Individual is defined as a resident in India in the previous year if he/she satisfies one of the following conditions:

1. He/she has spent a total of 182 or more days in India in the assessment year.

2. If he/she has spent a total of 60 days or more in the assessment year and has spent a total of 365 days in the previous four years. For example in case the assessment year is 2008-09, then if you have spent >60 days in India between 1st April 2008 and 31st March 2009 and a total of >365 days during 1st April 2004-31st March 2008.

3. For anyone who is in the merchant navy (but, on an Indian Ship) or has gone out of the country for employment, the above clause will become 182 days in the assessment year and 365 days in preceding four years. The IT department also states very clearly that if a person is deemed resident for one source of income, then, he will be counted as resident for all incomes in that particular year. A person is said to be not ordinarily resident in India if that person satisfies any one of the following criteria:-

a) Has been a non-resident in India in nine out of ten years preceding the year of assessment.

b)Has spent less than 792 days combined during a period of 7 years prior to the assessment year. Now that we have suitably understood who is defined as a Resident Indian for the purposes of Income tax, let’s look at which of their income is deemed Indian. The following are considered to be income accrued in India. Any income which is gained from or through any business connection in India. This could be directly or indirectly. Incomes which are received from a property which is situated inside Indian borders. Through or from any source based in India and from the sale of a capital asset inside India. Thus what the IT department says is that if they can clearly define that the source of the income is in India then the Income too is accrued in India. To put the above discussion into clearer terms:

1). Any salary paid in India is deemed to have accrued in India. Even any charges which are collected as payable for a service rendered in India is regarded as income earned in India.

2). If a government employee or citizen of India is reimbursed by the Government for rendering any service outside India then it is deemed as accrued in India.

3). Any dividend which is paid by an Indian company outside India to a resident as defined earlier will be considered as an income earned in India.

4). Interest payable by the government is considered as accrued in India. This would apply for all kinds of government securities and saving instruments like bonds.

5). Any interest received from a resident except if that person has borrowed money from you to pursue business activities outside India. The logic behind this could be that this would ensure positive cash flow into India.

6). If the interest is paid by a non-resident to you then it will be added to your income except if that person has used the money borrowed from you to use for business activities in India. The logic behind this would be to boost investments in India.

7). The same concepts of point 4, 5 and 6 are applicable for any income generated from Royalties or copyrights.

8). For any income from fees for technical services provided the IT department uses the yardsticks as mentioned in points 4, 5 and 6. Although at a cursory glance some of the ideas discussed above might sound to be the stuff that our Auditor/Financial Planner should be concerned with and not us, it is imperative that we understand the philosophy behind them so that we are more in control of our income tax assessments. With the increasing benefits of technology the tax man is becoming more and more competent in keeping track of your activities vis-à-vis your income tax implications. Thus it is highly advisable that we are very clearly aware of all the rules and regulation and ensure 100% compliance. After all it’s our hard earned money that will work hard for the Indian economy.


8 Responses to “What makes an Income Accrue or Arise in India although earned outside India?”

  1. Raj Pandya says:

    I am in merchant navy. I am expecting to join ship in the month of november so i will not be able to complete my NRI status for this year 2012-2013. I hav been completing NRI status from last 3 years i.e 2009-10, 2010-11, 2011-12. So will my income be taxable this year. My company is a foreign company…

  2. seshu says:

    can u clarifty the tax exemption as NRI,as I am worked in foreign sea water earned foreign currency from 21-7-2011 to 20-10-2011 , shall i pay the income tax in india on the above earnings and interest on NRI saving account. what is the diffrence less than 60 days subsittued less than 182 days.

    thank u

  3. V Swaminath says:

    I was out of india for more than 180 days during FY-10-11 and earned salary outside india for more than 120 days. My total stay in India during FY-10-11 is less than 180 days.

    My salary could not be repatriated from china so i got the same coverted to usd and brought to india and depsoited in my account in india.

    i also deposited some cash allowances earned in china converting the same to usd.

    As the amount earned was not taxable i did not pay any tax in China. I did not earn salary from my indian companyfor 120 days when i was employed in china.

    Will my earnings earned in China will be taxable in India for the year FY-10-11. Can i declare the income as not taxable in it return. what should i mention so as to avoid litigation from it authorities.

  4. Kersy Hodiwalla says:

    Dear Sirs,
    My son is working as an officer in the merchant navy ship foreign flag. As per the present rules if he stays outside India for more than 182 days in a year than his entire salary is tax free.
    According to the new DTC (To be approved)will he be taxed
    even if he is outside India for more than 182 days?
    Does section 80RRA apply to him or its now obsolete ?
    I shall be very grateful to hear yr reply.
    Best Regards

    reply email: Teenagepranks@yahoo.com

  5. Sreepada H.R. says:

    If a person was on the employment of an Indian Company for less than 182 days in India and on employment of foreign company outside India during the year 2009-10 (Moved out of India by 28 Sep, 09) & receiving tax-free salary there, which is being repatriated to India in Foreign currency to his bank a/c, is the Income earned outside India taxable in India for that year?. Since there was TDS on the salary earned in India, while filing IT Returns, whether it needs to be mentioned as Resident or NRI, since 2nd condition for Non Resident is not fulfilled (60 days in previous yr. & total 365 days in 4 yrs. preceding the previous yr.

  6. Divya Govil says:

    So, a person working on L1 visa with the subsidiary of the India company and getting his salary in U.S. as well as paying taxes in U.S. would be required to file the return in India ?

    He has no income in India which exceeds the exemption limits and was only for 2 weeks in assessment year in question.

  7. V Swaminath says:

    If an person is seconded by a indian company for working outside india for another company indirectly related to the indian company, and such indian company is providing house facilities for the family of such employees.

    Will that tantamount to perquisite, though no salary is paid to the employee by the indian company for the period he is seconded for outside india.

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