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 2020-21, then if you have spent >60 days in India between 1st April 2020 and 31st March 2021 and a total of >365 days during 1st April 2017-31st March 2021.
  3. The following person will be treated as resident only if their period of stay in India is fulfilled as mentioned below:
  4. a) Indian Citizen who leaves India as a member of crew of an Indian Ship or for the purpose of employment outside India then their period of stay should be 182 days or more in aggregate during the previous year.
  5. b) Indian Citizen or Person of Indian Origin within the meaning of Explanation to clause (e) of Section 115C who, being outside India, comes on visit to India then their period of stay should be 182 days or more in aggregate during the previous year.
  6. c) Indian Citizen or Person of Indian Origin having total income, other than income from foreign sources, exceeding Rs 15 Lakh then their period of stay should be 120 days or more in aggregate during the previous year. (Inserted by Finance Act,2020) [Period of stay exceeds 120 days but does not exceeds 182 days then he is said to be “Resident but not ordinarily resident”. If period of stay exceeds 182 days then he is said to be “Ordinary Resident” for the relevant year.]

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:-

  1. a) Has been a non-resident in India in nine out of ten years preceding the year of assessment.
  2. 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.

*****

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

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9 Comments

  1. amit tyagi says:

    i am working in a foreign shipping company from last 10 year my salary is in dollars, i used to be on 9 month on ship. My question is do i have to file itr or not, there is no source of income in india other than my nre saving acc interest.

  2. 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…

  3. 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

  4. 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.

  5. 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

  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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