Section 5 of Income Tax Act 1961

Section 5 of Income Tax Act 1961-Scope of total income

Section 5(1) of Income Tax Act 1961

Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which—

 (a) is received or is deemed to be received in India in such year by or on behalf of such person; or

 (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or

 (c) accrues or arises to him outside India during such year :

Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) 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.

Section 5(2) of Income Tax Act 1961

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 India in such year by or on behalf of such person ; or

 (b) accrues or arises or is deemed to accrue or arise to him in India during such year.

Explanation 1.—Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

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.

Related FAQ(s)

Q. What incomes are deemed to have accrued or arisen in India?

Ans:- The following incomes are treated as incomes deemed to have accrued or arisen in India:

• Capital gain arising on transfer of property situated in India.
• Income from business connections in India.
• Income from salary in respect of services rendered in India.
• Salary received by an Indian national from the Government of India in respect of service rendered outside India. However, allowances and perquisites are exempt in this case.
• Income from any property, asset, or other source of income located in India.
• Dividends paid by an Indian company.
• Interest received from the Government of India.
• Interest received from a resident is treated as income deemed to have accrued or arisen in India in all cases, except where such interest is earned in respect of funds borrowed by the resident and used by a resident for carrying on business/profession outside India or is in respect of funds borrowed by the resident and is used for earning income from any source outside India.
• Interest received from a non-resident is treated as income deemed to accrue or arise in India if such interest is in respect of funds borrowed by the non-resident for carrying on any business/profession in India.
• Royalty/fees for technical services received from the Government of India.
• Royalty/fees for technical services received from resident is treated as income deemed to have accrued or arisen in India in all cases, except where such royalty/fees relate to business/profession/other source of income carried on by the payer outside India.
• Royalty/fees for technical services received from non-resident is treated as income deemed to have accrued or arisen in India if such royalty/fees is for business/profession/other sources of income carried by the payer in India.

Income arising outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of section 2, paid on or after 05-07-2019 by a person resident in India to a non-resident.​

Q. Which incomes are charged to tax in India in the hands of a taxpayer?

Ans:- The following chart highlights the tax incidence in the case of different persons:

  (*)  ROR means resident and ordinarily resident.

        RNOR means resident but not ordinarily resident.

        NR means non-resident.​