Think of Section 5 as the gatekeeper of your tax return — it decides which of your incomes even enter the calculation. Before you can compute tax, you need to know: does India have the right to tax this particular income? That answer depends entirely on your residential status.
There are three residential buckets. A Resident and Ordinarily Resident (ROR) — your typical salaried person who lives and works in India — pays tax on everything: income earned in India, income received in India, AND income earned abroad. Global income, full stop. A Non-Resident (NR) — say, Mr. Rajesh who moved to the US two years ago — pays tax only on income that is received or accrues in India. His US salary? Not India's concern. Now the tricky middle ground: a Not Ordinarily Resident (NOR). This person is technically a 'resident' but was abroad for many years before returning. They get taxed like an NR on foreign income except when that foreign income comes from a business controlled in India or a profession set up in India. If Ms. Iyer is an NOR who runs a Mumbai-based consulting firm but sits in Dubai, her Dubai billings are still taxable in India because the business is controlled here.
The law uses two key trigger words you must memorise: 'received' (money lands in your Indian bank account) and 'accrues or arises' (you've earned the right to receive it, even if payment hasn't happened yet). Section 5 also has two important Explanations to prevent double-counting: just because foreign income appears in an Indian balance sheet doesn't make it 'received in India', and once an income is taxed on accrual basis, it won't be taxed again when cash is actually received. This is frequently tested as a 4-mark or 6-mark question — expect a scenario where you're given an NOR or NR and asked to identify which incomes are includible in total income.