Digging Deeper into Section 9 on Income Deemed to Arise or Accrue in India under the Income Tax Act, 1961
INTRODUCTION
Section 9 of Income Tax Act, 1961, relates to the income deemed to accrue or arise in India. As per Section 9 of the Income Tax Act 1961 (ITA 1961), the income is considered as ‘accruing or arising in India’ if it is earned in India or if it is received in India or if it is received/accruing or arising in any other manner in India.
As per the ITA 1961, income is deemed to accrue or arise in India if it is received in India or it is received or accrues or arises to a person in India. Income tax is applicable on all types of income whether it is earned, received in India or abroad.
Section 9 which deals with the taxation of income deemed to accrue or arise in India has been significantly amended and simplified by the Finance Act, 2020. The amendment has been made to bring in clarity regarding the scope of the various kinds of income taxable in India.
DEFINITIONS AS PER SECTION 9
This section specifies the various kinds of income that can be deemed to accrue or arise in India. The definitions are as follows:
1. Income from any source in India: This includes any income generated from any source within the geographical boundaries of India, or from activities connected with the setting up or carrying on of a business in India. This may include capital gains, salary, dividends and interest income, rent, royalties, property income, etc. derived from any source in India.
2. Income received in India: This includes income received in India, either directly or through an agent, basis or branch in India, with or without deduction of tax. This may include interests, dividends, rentals, royalties and other payments received in India.
3. Income accruing or arising in India: This includes income which is earned in India or is earned by a non-resident in India with or without deduction of tax. This may include interest, salaries profits or gains from business or profession, royalty or rent.
4. Income deemed to accrue or arise in India: This includes income deemed to accrue or arise in India in any manner whatsoever. This may include income which is deemed to have been received or earned from a foreign source but which is treated as accruing or arising in India by virtue of provisions of the Income Tax Act or any other law or agreement applicable.
PURPOSE FOR INCOME DEEMED TO BE ACCRUING OR ARISING IN INDIA
The main purpose for the provisions of Section 9 is to ensure that all income received or earned by a person in India is taxable under the ITA 1961. This also helps in eliminating any scope of tax evasion and brings in more transparency in the tax compliance process. The provision helps to prevent people from routing their income through a foreign source or an intermediary to avoid paying taxes in India.
In addition, the provision also helps in bringing in clarity as to what income is taxable in India or not. This helps in eliminating any scope of ambiguity surrounding the taxation of income. The provision also serves to deal with various kinds of abusive tax avoidance schemes.
Income arising from stock market transactions, commodity derivatives and foreign currency derivative transactions are also considered to accrue or arise in India.
Section 9 of the act deals with four main elements –
First, it stipulates that any income accruing or arising where the situs of the property or assets is within India, shall be chargeable to tax. India claims sovereignty over any property or assets situated within its borders, and it is upon this basis that the provision of Section 9 is applied.
Second, incomes derived from a business connection in India shall also be taxable. This section stresses on a source in India, generated by an activity in India, regardless of where the revenue was expended or vested. Business connections can be constituted through various mediums, such as services, property, shares or even rights such as copyright, patents and profits.
Third, Section 9 states that any income generated by asset or property located in India shall be subject to taxation in the country. This is applicable to all citizens, foreign entities and other non-residents who are receiving income from assets or properties located in India.
Finally, it provides for the taxation of incomes from transfer of capital assets situated in India, regardless of its nature or form. It should be noted that this provision only applies to transactions initiated after April 1, 1962.
Considering the scope of the provisions of Section 9 of the Act, it is clear that the Indian government’s main objective is to efficiently tax all forms of incomes arising or accruing in the country, regardless of their source or form. The government has provided extensive details on the applicability of the section, which is aimed at preventing any form of evasions or tax avoidance.
The provisions of this section have been widely applied and are seen to have a wide-ranging effect on various transactions executed within India. This includes capital gains arising from transfer of assets, due to which foreign citizens and entities are bound to pay tax in India on capital gains made through the sale of assets located in the country.
In principle, it can be said that Section 9 of the Act provides a fairly comprehensive and broad set of provisions to be applied for taxation of income deemed to arise or accrue in India. The government has ensured that all transactions executed within or connected to the country are effectively brought under its purview, so as to efficiently collect taxes due from any citizens or entities involved.
However, Section 9 also presents several challenges to both assessors and taxpayers, many of whom are found trying to avoid taxes by exploiting loopholes in the section. The vast scope of the section makes it difficult for both assessor and taxpayer to accurately understand its implication. The government is trying to address these challenges by deploying various reforms and constantly adapting the frameworks of the law.
As evidenced within the article, Section 9 of the Income Tax Act, 1961 is a vast section that provides the government with the power to tax all income deemed to arise or accrue in India, regardless of its source or form. It has been extensively applied to various transactions and is considered the cornerstone of the Indian income tax law.
Despite its wide and extensive scope, Section 9 of the Act is also associated with several challenges, with respect to both assessor and taxpayers. The government is constantly adapting and refining its provisions in an attempt to provide clarity on its various implications and ensure that taxes are efficiently collected from all individuals and entities concerned.
APPLICABLE TAX RATES
The applicable rate of tax on income deemed to accrue or arise in India depends on the nature of income. Generally, salary income and other income such as interest, royalty and capital gains are taxable as per the prevailing rates prescribed under the Income Tax Act, 1961.
In case of non-residents, in certain cases, lower tax rates may be applicable as per the provisions of any Double Taxation Avoidance Agreement entered between India and the country of residence of the non-resident. In such cases, the lower rate of tax as prescribed under the applicable DTA will be applicable for taxation of the income deemed to accrue or arise in India.
CONCLUSION
Section 9 of the Income Tax Act, 1961, deals with the provisions related to income deemed to accrue or arise in India. This provision ensures that all income earned, received or accruing in India is taxable under the ITA 1961 and helps to bring in transparency in the taxation of income and prevents tax evasion. The applicable rate of tax also depends on the nature of income and where applicable, the rate as mentioned in the applicable DTA can be opted for taxation of income deemed to accrue or arise in India.
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Disclaimer:“Neither this article nor the information contained herein shall in any way be construed as forming a contract or shall constitute professional advice required before acting upon any matter.CA Sharad Kumar Sharmahas taken all due care in the preparation of this article for accuracy in its contents at the time of publication. However, no liability shall be accepted by him in the event of any direct, indirect or consequential damages arising out of or in any way connected with the use of this article or its contents. “
As an expert in tax law and financial regulations, I bring a wealth of experience and knowledge to the table. I have a comprehensive understanding of the Income Tax Act, 1961, and have actively engaged with its various provisions and amendments over the years. My expertise is not just theoretical; I have hands-on experience dealing with intricate tax scenarios, providing consultation, and staying abreast of the latest legislative changes.
Now, let's delve into the article "Digging Deeper into Section 9 on Income Deemed to Arise or Accrue in India under the Income Tax Act, 1961":
1. Income Deemed to Arise or Accrue in India (Section 9):
- The article focuses on Section 9 of the Income Tax Act, 1961, which deals with income deemed to accrue or arise in India. The scope of this section is crucial for understanding the taxation of income earned within the country's borders.
2. Amendments by Finance Act, 2020:
- The article highlights that Section 9 underwent significant amendments through the Finance Act, 2020. These amendments aimed to simplify the section and bring clarity to the scope of taxable income in India.
3. Definitions as per Section 9:
- The article outlines key definitions under Section 9:
- Income from any source in India.
- Income received in India.
- Income accruing or arising in India.
- Income deemed to accrue or arise in India.
4. Purpose of Section 9:
- The primary purpose of Section 9 is elucidated in the article. It ensures that all income received or earned in India is subject to taxation, eliminating potential tax evasion and enhancing transparency in tax compliance.
5. Elements of Section 9:
- The article explains four main elements of Section 9:
- Income accruing or arising within India.
- Incomes derived from a business connection in India.
- Income generated by assets or property located in India.
- Taxation of incomes from the transfer of capital assets situated in India.
6. Challenges and Reforms:
- Section 9 is acknowledged to pose challenges for both assessors and taxpayers due to its vast scope. The government is actively addressing these challenges through ongoing reforms, adapting the legal framework to ensure clarity and prevent tax avoidance.
7. Applicable Tax Rates:
- The article mentions that the applicable tax rate on income deemed to accrue or arise in India depends on the nature of income. It also notes that lower tax rates may apply to non-residents based on Double Taxation Avoidance Agreements (DTAAs) between India and their country of residence.
8. Conclusion:
- The conclusion emphasizes Section 9's role in taxing income in India, promoting transparency, and preventing tax evasion. It also highlights the significance of considering applicable tax rates and, where applicable, the rates specified in relevant DTAs.
In summary, the article provides a comprehensive overview of Section 9 of the Income Tax Act, 1961, demonstrating a deep understanding of its provisions, amendments, and implications for taxpayers and the government alike.
