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Unit 2: Residential Status and Taxation

(ii) Income, which falls under the head “Salaries”, if it is earned in India. Any income under the Notes
head “Salaries” payable for rest period or leave period which is preceded and succeeded
by services rendered in India, and forms part of the service contract of employment, shall
be regarded as income earned in India.
(iii) Income from ‘Salaries’ which is payable by the Government to a citizen of India for services
rendered outside India. However, allowances and perquisites paid outside India by the
Government are exempt.
(iv) Dividend paid by an Indian company outside India.
(v) Interest.
(vi) Royalty.

(vii) Fees for technical services.
The above mentioned categories of different of income which are deemed to accrue or arise in
India are further explained in the subsequent section. Thus the categorisation of income which is
deemed to accrue or arise in India can be summarised as below:
Table 2.4: Categorisation of Income Deemed to Accrue in India

Nature of income Whether income is
deemed to accrue
or arise in India
Income from business connection in India Yes
Income from any property, asset or source of income in India Yes
Capital gain on transfer of a capital asset situated in India Yes
Income from salary if service is rendered in India Yes
Income from salary (not being perquisite/allowance) if service is Yes
rendered outside India (provided the employer is Government of India
and the employee is a citizen of India)
Income from salary if service is rendered outside India (not being a No
case stated above)
Dividend paid by the Indian company Yes

Example: For the assessment year 2006-07 (previous year 2005-06), X is employed in
India and receives ` 24,000 as salary. His income from other sources includes:
Dividend received in London on June 3, 2005: ` 31,000 from a foreign company; share of profi t
received in London on December 15, 2005 from a business situated in Sri Lanka but controlled
from India:

` 60,000; remittance from London on January 15, 2006 out of past untaxed profit of 2003-04 earned

and received there: ` 30,000 and interest earned and received in India on May 11, 2006: ` 76,000.
Find out his gross total income, if he is (a) resident and ordinarily resident, (b) resident but not
ordinarily resident, and (c) non-resident for the assessment year 2006-07.
If X is resident and ordinarily resident, his gross total income will be ` 1,15,000 (i.e., ` 24,000 +
` 31,000 + ` 60,000). If X is resident but not ordinarily resident, his gross total income will work
out to be ` 84,000 (i.e., ` 24,000 + ` 60,000). If X is non-resident, his gross total income will come
to ` 24,000.

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