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Income Tax Laws – I

Notes 17. …………………… has to pay tax on the total income accrued or deemed to accrue, received
or deemed to be received in or outside India.

2.5 Deemed Receipt and Accrual of Income in India

The taxability of a certain item as income would also depend upon the method of accounting
followed by the assessee. This is because under the cash system of accounting an income would
be taxable only when it is received by the assessee himself or on his behalf. But under the
mercantile system it would be taxable once the assessee gets the legal right to claim the amount.
However, it has been specifically provided that in the case of income from salaries, the liability
to tax arises immediately when the income is due to the assessee irrespective of the method of
accounting followed. Likewise, in the case of dividends, the income would be included in total
income of the shareholder under section 8 in the year in which the final dividend is declared and,
in the case of interim dividend, in the year in which they are made unconditionally available to
the shareholders.
Thus at this point of time to understand the incidence of tax efficiently it is essential to understand,
which are the income that are deemed to be received in India, the meaning of income accruing
or arising in India and the income deemed to accrue or arise in India.
Income accrued in India is chargeable to tax in all cases irrespective of residential status of an
assessee. The words “accrue” and “arise” are used in contradistinction to the word “receive”.
Income is said to be received when it reaches the assessee; when the right to receive the income
becomes vested in the assessee, it is said to accrue or arise.

2.5.1 Meaning of “Income Received or Deemed to be Received”

All assesses are liable to tax in respect of the income received or deemed to be received by them
in India during the previous year irrespective of:
(i) their residential status, and
(ii) the place of its accrual.
Income is to be included in the total income of the assessee immediately on its actual or deemed
receipt. The receipt of income refers to only the first occasion when the recipient gets the money
under his control. Therefore, when once an amount is received as income, remittance or
transmission of that amount from one place or person to another does not constitute receipt of
income in the hands of the subsequent recipient or at the place of subsequent receipt.

Income Deemed to be Received
Under section 7, the following shall be deemed to be received by the assessee during the previous
year irrespective of whether he had actually received the same or not -

(i) The annual accretion in the previous year to the balance to the credit of an employee
participating in a Recognised Provident Fund (RPF). Thus, the contribution of the employer
in excess of 12% of salary or interest credited in excess of 9.5% p.a. is deemed to be received
by the assessee.
(ii) The taxable transferred balance from unrecognized to recognized provident fund (being
the employer’s contribution and interest thereon).
(iii) The contribution made by the Central Government or any other employer in the previous
year to the account of an employee under a pension scheme referred to under section
80CCD.

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