# Income Deemed to be Earned (Accrue or Arise) in India [Section 9]

Section 9 deems certain incomes (which may legally accrue outside India) to accrue/arise in India — making them Indian income for all assessees, including Non-Residents.

## Section 9(1)(i) — Income from Business Connection, Property, Asset, Source or Transfer of Capital Asset in India

Any income that accrues/arises outside India to any assessee, through or from:

1. Any Business Connection in India

2. Any property, asset or source of income in India

3. Transfer of a Capital Asset situated in India

→ shall be deemed to be earned in India.

### (1) Business Connection in India

Business income earned by a Non-Resident from a business connection in India is deemed to arise in India.

No Business Connection (i.e., income NOT deemed to arise in India) in the following cases:

Purchase of goods in India for the purpose of export.
Collection of news in India for transmission outside India.
Shooting of films in India by a Non-Resident non-citizen.
Activities relating to display of uncut & unassorted diamonds in a Special Notified Zone (SNZ) by a foreign company.

### (2) Property, Asset, or Source of Income in India

Example: Rent received outside India for a building located in India — deemed to arise in India.

### (3) Transfer of Capital Asset in India

Example: Mr. Sam (NR) sells his land situated in India to Mr. Ricky (NR), and the transfer takes place outside India. Capital gain is deemed to arise in India.

## Section 9(1)(ii) — Salary for Services Rendered in India

Salary income for services rendered in India is deemed to accrue in India (irrespective of where paid).

## Section 9(1)(iii) — Salary by Indian Government to Indian Citizen Abroad

Salary payable by the Indian Government to an Indian Citizen for services rendered outside India is deemed to be earned in India.

Note: Allowances & Perquisites paid outside India to such an employee are exempt under Section 10(7).

## Section 9(1)(iv) — Dividend by Indian Company

Dividend paid by an Indian Company outside India is deemed to be earned in India.

## Section 9(1)(v) — Interest Income

Interest income is deemed to arise in India if it is payable by:

Payer	Condition
Government	Always deemed to arise in India
Resident	Unless borrowed amount is used for business/profession OR earning any source of income outside India
Non-Resident	Only if borrowed amount is used for business/profession in India

In short — for Residents, interest paid is deemed Indian income unless the loan funds an outside-India activity. For NRs, interest paid is deemed Indian income only if loan funds an in-India business.

## Section 9(1)(vi) — Royalty

Royalty is deemed to arise in India if payable by:

Payer	Condition
Government	Always
Resident	Unless services/rights utilised in business/profession OR earning source of income outside India
Non-Resident	Only if services/rights utilised in business/profession OR source of income in India

Royalty = consideration for:

Use of assets or information, OR
Transfer of any right.

## Section 9(1)(vii) — Fees for Technical Service (FTS)

Same rules as Royalty — by Government always; by Resident unless utilised outside India; by NR only if utilised in India.

FTS = rendering of any managerial, technical or consultancy service.

## Section 9(1)(viii) — Gift in Money by Resident to Non-Resident

Gift in money paid by a Resident to a Non-Resident is deemed to arise in India if aggregate amount exceeds ₹50,000.

Note: Only money gifts. Movable and immovable property are NOT covered under this clause.

Worked example

### Example 1

Business Connection — SNZ Diamond Exception

A foreign company displays uncut & unassorted diamonds in a Special Notified Zone in Mumbai for inspection by buyers. No actual sales occur in India.

→ No business connection deemed → Not taxable in India (specifically excluded).

If the same company also does cutting/polishing/selling in India, that activity would create a business connection.

### Example 2

Capital Asset Transfer Outside India

Mr. Sam (NR) sells a plot in Delhi to Mr. Ricky (NR). They execute the sale deed and exchange money in Dubai.

→ Asset is situated in India → Capital gains deemed to accrue in India → Taxable in India even though both parties are NR and transaction happened abroad.

### Example 3

Salary by Indian Govt to Indian Citizen Abroad

Mr. R, Indian Citizen, posted as Indian Ambassador in France. Salary of ₹15 lakh paid by Indian Government and ₹5 lakh paid as foreign allowance.

→ Salary ₹15 lakh: deemed to arise in India under Section 9(1)(iii) → Taxable.

→ Foreign allowance ₹5 lakh: Exempt under Section 10(7).

### Example 4

Interest Paid by Resident

Mr. A (Resident) borrows ₹50 lakh from Mr. B (NR) and uses it for his business in India. Interest of ₹5 lakh is paid to Mr. B in Dubai.

→ Resident-payer, money used for Indian business → Interest deemed to arise in India → Taxable in India in Mr. B's hands.

If Mr. A had used the loan for his Dubai branch, interest would not be deemed Indian income.

### Example 5

Royalty / FTS by NR

Mr. X (NR) pays royalty to Mr. Y (NR) for use of a patent. Mr. X uses the patent in his factory in Pune.

→ NR payer, patent utilised in India → Royalty deemed to arise in India → Taxable in Mr. Y's hands.

### Example 6

Gift in Money to NR

Mr. P (Resident) gifts ₹2,00,000 in cash to his nephew Mr. Q (NR).

→ Money gift > ₹50,000 by Resident to NR → Deemed Indian income for Mr. Q → Taxable in India.

If Mr. P had gifted property worth ₹2,00,000 instead → Not covered by Section 9(1)(viii).

### Example 7

No Business Connection — Purchase for Export

A foreign company sends agents to purchase Indian handicrafts solely for export.

→ No business connection → Profit not deemed to arise in India.

⚠️ Common exam mistakes

Treating purchase of goods in India for export as creating a business connection — it specifically does NOT.
Treating film shooting in India by ANY non-resident as exempt — only NR non-citizens are excluded; resident citizen shooting is fine but NR citizens shooting WOULD have business connection.
Forgetting Section 9(1)(iii) requires BOTH conditions: Indian Government as payer AND Indian Citizen as employee. Foreign government salary or Indian Government salary to a non-citizen is not covered.
Forgetting the Section 10(7) exemption for allowances/perquisites of Indian citizens posted abroad.
Reversing the Resident vs NR rule for interest/royalty/FTS — for Residents, default IS deemed Indian (unless used outside India); for NR, default is NOT deemed Indian (unless used in India).
Including gifts of movable or immovable property under Section 9(1)(viii) — only money gifts are covered.
Applying the ₹50,000 threshold per transaction instead of aggregate — it is on the AGGREGATE amount.
Forgetting that capital gains on transfer of an Indian asset are deemed Indian even when both parties are NR and the deed is signed abroad.
Forgetting that dividend by Indian company paid abroad is still deemed Indian income (relevant for taxability in NR's hands).

Reference: Section 9 — Income Tax Act, 1961

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Income Deemed to Accrue or Arise in India

Worked example

⚠️ Common exam mistakes