×

New to site? Create an Account


Login

Lost password? (close)

Already have an account? Login


Signup

(close)
Our Expert | Our Services | Talk to Tax Professional | Contact Us |
Select

Income Deemed to be received in India – Section 7 of Income Tax Act 1961.

|

June 5, 2021 |

8 mins read

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

Income Deemed to be received in India - Section 7 of Income Tax Act 1961

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.

International Taxation Services

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.

For any queries, please write them in the Comment Section or Talk to our tax expert

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

LATEST ARTICLES

Deductions under Income Tax available for FY 2022-23

Deductions under Income Tax available for FY 2022-23: With a

Tax Returns and Clarifications under UAE Corporate Tax law

Introduction - Chapter 17 Tax Returns and Clarifications under UAE

Transfer of Tax Loss under UAE Corporate Tax Law

Introduction - Chapter 11- Transfer of Tax Loss under UAE

General Definitions under UAE Corporate Tax Law

Chapter 1: General Definitions under the UAE Corporate Tax Law

Imposition of Corporate Tax and Applicable Rates under UAE Corporate Tax

Introduction - Chapter 2 - Imposition of Corporate Tax and

Taxable Person and Corporate Tax Base under UAE’s Corporate Tax Law

Introduction - Chapter 4 Taxable Person and Corporate Tax Base

Our Services

  • International Taxation

    As an International Tax Consultants, we provide services for FDI, Inbound & Outbound Investment and Transfer Pricing

  • M&A Tax Consultant

    We enhance your corporate value by providing professional advice for M&A, foreign investment and corporate restructuring

  • Income Tax Consultant

    We provide services for Income Tax Return filing, Tax Audit & Transfer Price, Taxation and Compliances, Income Tax Assessment

  • UAE Tax Consultant

    As a UAE Tax Consultants, we provide services for UAE Corporate Tax, UAE Economic Substance regulations (ESR)