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Budget 2023: Extending deeming provision under section 9 to gift to not-ordinarily resident

Under the Act, income which, inter-alia, is deemed to accrue or arise in India during a year is chargeable to tax. Sub-section (1) of section 9 of the Act is a deeming provision providing the types of income deemed to accrue or arise in India.

2. Finance (No. 2) Act, 2019 inserted clause (viiii) to sub-section (1) of section 9 of the Act to provide that the any sum of money exceeding fifty thousand rupees, received by a non-resident without consideration from a person resident in India, on or after the 5th day of July, 2019, shall be income deemed to accrue or arise in India. Sum of money is referred to in sub-clause (xviia) of clause (24) of section 2 of the Act.

3. The above amendment was introduced as an anti-abuse provision, as certain instances were observed where gifts were being made by persons residents in India to non-residents and were claimed to be non-taxable in India by such non-residents.

4. It has come to notice that certain persons being not ordinarily residents are receiving the gifts from persons resident in India and not paying tax on it.

5. In view of the above, it is proposed to amend clause (viii) of sub-section (1) of section 9 of the Act so as to extend this deeming provision to sum of money exceeding fifty thousand rupees, received by a not ordinarily resident, without consideration from a person resident in India.

6. This amendment will take effect from 1st April, 2024 and will accordingly apply to assessment year 2024-25 and subsequent assessment years.

[Clause 4]

Extract of relevant clause of Finance Bill 2023

Clause 4 seeks to amend section 9 of the Income-tax Act relating to income deemed to accrue or arise in India.

Sub-section (1) of the said section provides for incomes which shall be deemed to accrue or arise in India.

It is proposed to substitute clause (viii) of the said sub-section so as to provide that income deemed to accrue or arise in India shall include income arising outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of section 2, paid by a person resident in India ––

(a) on or after the 5th day of July, 2019 to a non-resident, not being a company, or to a foreign company; or

(b) on or after the 1st day of April, 2023 to a person not ordinarily resident in India within the meaning of clause (6) of section 6.

This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.

Extract of Relevant Amendment Proposed by Finance Bill, 2023

4. Amendment of section 9.

4. In section 9 of the Income-tax Act, in sub-section (1), for clause (viii), the following clause shall be substituted with effect from the 1st day of April, 2024, namely:––

“(viii) income arising outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of section 2, paid by a person resident in India ––

(a) on or after the 5th day of July, 2019 to a non­resident, not being a company, or to a foreign company; or

(b) on or after the 1st day of April, 2023 to a person not ordinarily resident in India within the meaning of clause (6) of section 6.”.

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Source : Finance Bill 2023 / Union Budget 2023

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