Bird’s Eye view of the ‘Income deemed to be received in India’
| Concept of taxation | Non-Resident Taxation |
| Provision of Income Tax Act, 1961 | Section 7 |
| Provision deals with | Income deemed to be received in India |
Income Deemed to be received in India – Section 7 of Income Tax Act 1961
Income deemed to be received in India shall include the following income : –
- Contribution in excess of 12% of salary to recognized PF by the employer or interest credited in excess of 9.5% p.a. in a recognized Provident Fund.
- Contribution by Central Government or other employer under pension scheme of Section 80CCD
- Employer contribution and interest amount which is transferred from unrecognized Provident Fund to recognized Provident Fund
Meaning of Income Accruing and Arising
In order to arrive at a decision as to whether a particular income is taxable or not it is important to ascertain whether an income has accrued or not, or whether it is due or not
“Accrue” means the right to receive income is established, even though the right of payment may not have been due.
“Due” means the right to enforce payment of income has arisen.
In several cases, the income may accrue, although it may not be due.
Example 1 –
Mr. B has made certain fixed deposits of Rs 4,00,000 on March 1, 2020 for 90 days. In this case, one-month interest on fixed deposit will accrue on March 31, 2020, but such interest is not due for payment. Such interest will be due for payment after 90 days.
Example 2 –
Salary for work performed in November will accrue from day to day during all the days of the month, but it will bedew for payment, only on November 30thor 1stDecember, as per terms of employment.
Whether income taxed on accrual etc, can it be taxed on receipt – Explanation 2 to Section 5
In certain cases, an income may accrue in a particular year, even though it is not due for payment in that year.
Under the Indian tax laws, once an item of income is included in the assessee’s total income and subjected to tax on the ground that it has accrued/is deemed to accrue, it cannot again be included in the person’s total income and subjected to tax either in the same or in a subsequent year on the ground of its receipt (whether such receipt is actual or deemed) –
Explanation 2 to section 5
Income Deemed to be received in India – Example
Mr. Mohit is working as a guest lecturer in Indian University and earns consulting income of Rs. 50,000 per month. He has received consulting income of 11 months (from April-February) during the previous year 2019-20. Fee of March, 2020 was received in first week of April, 2020. While filing return of Income for Previous Year 2019-20, he has shown total consulting fee of Rs. 6,00,000 (after including the fee of March, 2020). Whether fee of March, 2020 would again be taxable in the previous year 2020-21 on receipt basis ?
Solution –
Where fee of March (i.e., Rs 50,000) has been included in the previous year 2019-20 on accrual basis, it shall not be included again in the previous year 2020-21 on receipt basis.
Income accruing arising outside India considered in a balance sheet in India – Explanation 1 to Section 5
Income which accrues or arises outside India, shall not be deemed to be received in India, merely because it is taken into account in a balance sheet prepared in India (Explanation 1 to section 5).
Income Deemed to be received in India – Example
During the year 2019-20, US Branch of ICO (an Indian Co.) receives income from consulting services provided in USA to a US resident. While preparing the Indian Financial Statement and balance sheet, ICO included the consulting income of its branch. Whether consulting income of Branch can be deemed to be received in India?
Solution –
Consulting income of Branch accrued or arise outside India (i.e., in USA) shall not be deemed to be received in India merely because it is taken into account by ICO in a balance sheet prepared in India. However, such income , being income of an Indian company, whose global income is liable to tax in India, may otherwise be taxable in India.
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