# Income Deemed to Accrue or Arise in India [Section 9]

Certain incomes are deemed to accrue or arise in India even if they actually arise outside India — bringing them within the source principle and taxable even for non-residents.

## A. Business Connection / Property / Capital Asset [Section 9(1)(i)]

1. Business Connection — Income accruing/arising anywhere outside India, directly or indirectly, through or from a business connection in India, is deemed to accrue in India.

Exceptions (for Non-Residents) — NOT deemed to accrue in India despite a business connection:

(a) Operations partly outside India [Expl. 1(a)]: Only income reasonably attributable to operations in India is taxable; income from operations outside India is not.
(b) Purchase of goods for export [Expl. 1(b)]: No income deemed to accrue if the NR's operations are confined to purchasing goods in India for export.
(c) News collection [Expl. 1(c)]: News agencies/publishers confined to collecting news & views in India for transmission outside India — not deemed to accrue.
(d) Shooting of films [Expl. 1(d)]: No income deemed to accrue for shooting films if the NR is: an individual who is not an Indian citizen; a firm with no Indian-citizen/resident partners; or a company with no Indian-citizen/resident shareholders.
(e) Rough diamonds in SNZs [Expl. 1(e)]: A foreign diamond-mining company displaying uncut/unassorted diamonds in notified Special Notified Zones — not deemed to accrue.

2. Property in India: Income through/from property (movable, immovable, tangible, intangible), assets or sources in India is deemed to accrue in India (e.g., rent, interest on deposits with Indian companies).

3. Capital Gains on Transfer: Income from capital gains on transfer of a capital asset situated in India is deemed to accrue in India, irrespective of asset type or place of payment.

## B. Salary Earned in India [Section 9(1)(ii)]

Salary for services rendered in India is deemed to accrue in India.
Includes salary for leave/rest period related to services rendered in India, provided it forms part of the service contract.

## C. Salary Paid by Government for Services Outside India [Section 9(1)(iii)]

Salary payable by the Government to Indian citizens for services rendered outside India is deemed to accrue in India (resident or non-resident).
If paid to a non-Indian-citizen, this section does not apply → not taxable.
Allowances/perquisites paid outside India by the Government are exempt under Section 10(7).

## D. Dividends [Section 9(1)(iv)]

Dividends paid by Indian companies outside India are deemed to accrue in India and taxable for shareholders.

## E. Interest [Section 9(1)(v)]

Deemed to accrue in India if payable by:

(i) the Government;
(ii) a Resident — except where the borrowed money is used for a business/profession outside India or for earning income from any source outside India;
(iii) a Non-resident — only for debts used in a business/profession in India; not taxable if debts are used outside India or used in India for a non-business/profession purpose.

## F. Royalty [Section 9(1)(vi)]

Deemed to accrue in India if payable by:

(i) the Government;
(ii) a Resident — except where the right/property/information is used for a business/profession outside India or to earn income from any source outside India;
(iii) a Non-resident — only where the royalty is for a business/profession carried on in India or to earn income from any source in India.

Lump-sum royalty exclusion: A lump-sum royalty paid by a resident to a non-resident for transfer of rights in computer software supplied along with computer hardware, under a scheme approved by the Government, is not deemed to accrue in India.

Worked example

### Example 1

Example — Operations partly in India: A non-resident manufactures abroad and sells partly through operations in India. Only the income reasonably attributable to the Indian operations is deemed to accrue in India.

### Example 2

Example — Purchase for export: A non-resident's only activity in India is buying handicrafts to export abroad. No income is deemed to accrue in India under Expl. 1(b).

### Example 3

Example — Government salary abroad: An Indian citizen employed by the Government of India serves in its embassy abroad. His salary is deemed to accrue in India under 9(1)(iii), but his allowances/perquisites paid outside India are exempt under Section 10(7).

### Example 4

Example — Interest exception: A resident borrows money and uses it entirely for a business carried on OUTSIDE India. Interest paid by him is NOT deemed to accrue in India.

### Example 5

Example — Royalty for software with hardware: A resident pays a non-resident a lump-sum royalty for software supplied along with the hardware under a Government-approved scheme. This is NOT deemed to accrue in India.

⚠️ Common exam mistakes

Taxing a non-resident on the entire global income of a business with a business connection in India — only income attributable to Indian operations is taxable.
Forgetting the carve-outs (purchase for export, news collection, film shooting, rough diamonds in SNZ).
Treating Government salary paid to a NON-Indian citizen for services abroad as deemed to accrue in India — Section 9(1)(iii) needs an Indian citizen.
For interest/royalty paid by a resident, forgetting the exception when funds/rights are used for a business/profession or source OUTSIDE India.
Including the lump-sum software-with-hardware royalty (under an approved scheme) as deemed to accrue in India.
Forgetting that allowances/perquisites paid abroad by Government are exempt under Section 10(7).

Bare-Act text Section 9(1) · Income-tax Act, 1961 · click to expand

Section 9(1): The following incomes shall be deemed to accrue or arise in India:— (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India; (ii) income which falls under the head "Salaries", if it is earned in India; (iii) income chargeable under the head "Salaries" payable by the Government to a citizen of India for service outside India; (iv) a dividend paid by an Indian company outside India; (v) income by way of interest payable by the Government / a resident / a non-resident in the circumstances specified; (vi) income by way of royalty payable by the Government / a resident / a non-resident in the circumstances specified.

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Income Deemed to Accrue or Arise in India — Section 9

Worked example

⚠️ Common exam mistakes