Taxability of an income depends on where the income was received or where it was earned /accrued, whether in India or abroad. Depending on this, income will be considered to have been earned in India which helps in determining its taxability. The below article helps us to understand the concept of income earned in India.
As per normal understanding, income earned in India is considered as Indian income and income earned outside India is considered as foreign income. However, understanding the classification of income as per Income Tax Act i.e. Indian income or foreign Income is important. For the purpose of taxation, income may be earned from salary, house property, business, capital gain or any other source. Classification of such sources of income into Indian or foreign income will be decided on the basis of place of earning/accrual of income and place of receipt of income. Following table will help us to understand when an income is considered to have been earned in India.
|Sr No.||Condition 1||Condition 2||Status of Income|
|1||Received In India||Earn/accrued In India||Indian Income|
|2||Received outside India||Earn/accrued In India||Indian Income|
|3||Earn/accrued in India||Received Outside India||Indian Income|
|4||Received outside India||Earn/accrued outside India||Foreign Income|
Any of the following three is an Indian income:
i) If income is received (or deemed to be received) in India during the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) in India during the previous year;
ii) If income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year;
iii) If income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or arise) in India during the previous year;
If the following conditions are satisfied, then such income is foreign income:
i) Income is not received (or not deemed to be received) in India; and
ii) Income does not accrue or arise (or does not deemed to accrue or arise) in India.
The provisions of residential status are tabulated as below:
INCIDENCE OF TAX FOR DIFFERENT TAXPAYERS
Incidence of tax in India for Individuals and Hindu Undivided Family (HUF)
Any other taxpayer (like company, firm, co-operative society, association of persons, body of individuals, etc):