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Corporate Tax Planning

Notes (iii) income which accrues or arises outside India even if it is not received or brought into
India during the previous year.
In simpler terms, a resident and ordinarily resident has to pay tax on the total income
accrued or deemed to accrue, received or deemed to be received in or outside India.

2. Resident but not ordinarily resident: Under section 5(1), the computation of total income
of resident but not ordinarily resident is the same as in the case of resident and ordinarily
resident stated above except for the fact that the income accruing or arising to him outside
India is not to be included in his total income. However, where such income is derived
from a business controlled from or profession set up in India, then it must be included in
his total income even though it accrues or arises outside India.
3. Non-resident: A non-resident’s total income under section 5(2) includes:
(i) income received or deemed to be received in India in the previous year; and
(ii) income which accrues or arises or is deemed to accrue or arise in India during the
previous year.

Notes All assessees, whether resident or not, are chargeable to tax in respect of their
income accrued, arisen, received or deemed to accrue, arise or to be received in India
whereas residents alone are chargeable to tax in respect of income which accrues or arises
outside India.
1. Resident and Ordinarily Resident: Income received/deemed to be received/
accrued or arisen/deemed to accrue or arises in or outside India.
2. Resident but Not Ordinarily Resident: Income which is received or deemed to be
received/accrued or arisen/deemed to accrue or arise in India. And income which
accrues or arises outside India being derived from a business controlled from or
profession set up in India.

3. Non-Resident: Income received/deemed to be received/accrued or arisen/deemed
to accrue or arise in India.

Self Assessment

Fill in the blanks:
14. …………………..provides the scope of total income in terms of the residential status of the
assessee.
15. The scope of total income of an assessee depends upon the ………… of the assessee
16. Total income of a resident assessee would, under section 5(1) consist of Income received or
deemed to be received in ……………during the previous year.
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

In addition to the above mentioned criteria it must also be understood that 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

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