Determination of the type of income is very important for the purpose of taxability of income. For that purpose income is broadly divided into two categories:
(1) Indian Income.
(2) Foreign Income.
Indian Income
Indian income is called by various words and includes income from various ways. These are:
(i) Income earned in India.
(ii) Income accrues and arises in India.
(iii) Income received or deemed to be received in India.
(iv) Income payable in India. This includes income which may have been earned in a foreign country but it is payable in India.
(v) Income earned (or accrues) in India but is is received or payable outside India.
2. Foreign Income
Following types of incomes are called foreign incomes :
(i) Income earned (or accrues) outside India and also received outside India.
(ii) Any income which is not earned or accrues or arises in India.
Now let us understand the meaning of various terms used in the above discussion
(A) Meaning of 'Income received in India'
Receipt of a particular income in India attracts tax liability. The main fact is that a person must receive income in India during the relevant previous year. The income may be received by the assessee himself or by his agent, banker or broker on his behalf in India. For Income-tax purposes, the 'receipt of income' implies the first occasion of receipt either by the assessee himself or by his agent. It is not essential that a person must receive income either from business or salary. Assessee may receive income from any source. If an income is first received in India and is then transferred/ sent/brought/remitted to India afterwards, it is called as remittance of income to India and such income shall not be treated as income received in India.
All persons are assessable on income received in India during the relevant previous year irrespective of the residential status.
(B) Meaning of 'Income deemed to be received in India'
These income includes income which are not actually received by a person, but law considers them as receipt or incomes, are called incomes deemed to be received in India. The term 'Statutory receipts' can be easily used to cover this term. Following incomes are deemed to be received :
(i) Tax deducted at source is income deemed to be received by a person even though he never receives such income (u/s 198).
(ii) Section 7 considers the following incomes as deemed to be received by an assessee:
(a) Employer's contribution to Recognised provident fund in excess of 12% of salary of employee [Section 7(i)].
(b) Interest accrued on recognised provident fund balance in excess of 9.5% p.a. [Section 7(i)]
(c) Taxable portion of transferred balance of URPF to RPF [Section 7(ii)].
(d) The contribution made, by the Central Government in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD [Section 7(iii)].
(iii) Transfer of income without transfer of assets is deemed to be the income of transferor u/s 60 and 61.
(iv) Under section 8, the dividend distributed or deemed to be distributed u/s 2(22) will be deemed to be distributed in the previous year.
(v) Income from undisclosed sources (Sections 68, 69, 69 69B, 69C and 69D].
(C) Meaning of 'Income which 'Accrues' or 'Arises' in India'
Income can be held to accrue or arise to an assessee only when the assessee obtains a right to receive that income. No amount can be said to accrue unless it is actually due.
Accrue means "to fall as natural growth or increment, to come as an accretion or advantage' and arise means "to spring up, to come into existence' according to Oxford dictionary. As regards salaries, income accrues or arises in India if it is earned in India.
- Income accrues or arises to a person, who is entitled to demand and receive the income.
- Income accrues or arises at a time or date when it ripens into a debt, i.e., at that moment when assessee acquires a right to receive it.
(iii) In the case of salaried employees, the salary is earned in India if the person renders services in India. Income earned in India obviously arises in India.
(iv) In case of dealer of goods, if the purchases and sales of goods take place in India, the profits out of such sales arise in India.
(v) Profit from such transaction where goods are manufactured outside India but are sold in India will be split up into manufacturing profits and only mercantile profits, i.e., accruing from sale transaction will be income arising in India.
(D) Meaning of 'Income deemed to Accrue or Arise in India'
Under section 9(1) of the Indian Income-tax Act, the following incomes are deemed to accrue or arise in India :
- Income arising from business connection in India [Section 9(1)(i)] Any income accruing or arising outside India due to a business connection in India is deemed to accrue or arise in India and shall be taxable in case of all assessees irrespective of their residential status.
- Income from any property held in India and assets or sources of income located in India.
- Income from transfer of capital assets situated in India.
- Salaries for government services outside India.
- Dividend paid abroad by Indian Company.
- Income arising outside to a non resident
- Income by way of royalty, interest or technical services by government.
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