Section 9 of Income Tax Act |Income deemed to accrue or arise in India (2024)

9. (1) The following incomes shall be deemed to accrue orarise in India :-

(i) all income accruing or arising, whether directly orindirectly, through or from any business connection inIndia, or through or from any property in India, or throughor from any asset or source of income in India, or throughthe transfer of a capital asset situate in India.

Explanation 1.-
For the purposes of this clause-

(a) in the case of a business 8[, other than the businesshaving business connection in India on account ofsignificant economic presence,] of which all the operationsare not carried out in India, the income of the businessdeemed under this clause to accrue or arise in India shallbe only such part of the income as is reasonablyattributable to the operations carried out in India ;

(b) in the case of a non-resident, no income shall be deemedto accrue or arise in India to him through or fromoperations which are confined to the purchase of goods inIndia for the purpose of export ;

(c) in the case of a non-resident, being a person engaged inthe business of running a news agency or of publishingnewspapers, magazines or journals, no income shall be deemedto accrue or arise in India to him through or fromactivities which are confined to the collection of news andviews in India for transmission out of India ;

(d) in the case of a non-resident, being-

(1) an individual who is not a citizen of India ; or

(2) a firm which does not have any partner who is a citizenof India or who is resident in India ; or

(3) a company which does not have any shareholder who is acitizen of India or who is resident in India,

no income shall be deemed to accrue or arise in India tosuch individual, firm or company through or from operationswhich are confined to the shooting of any cinematograph filmin India;

(e) in the case of a foreign company engaged in the businessof mining of diamonds, no income shall be deemed to accrueor arise in India to it through or from the activities whichare confined to the display of uncut and unassorted diamondin any special zone notified by the Central Government inthe Official Gazette in this behalf.

Explanation 2.-
For the removal of doubts, it is hereby declared that"business connection" shall include any business activitycarried out through a person who, acting on behalf of thenon-resident,-

(a) has and habitually exercises in India, an authority toconclude contracts on behalf of the non-resident orhabitually concludes contracts or habitually plays theprincipal role leading to conclusion of contracts by thatnon-resident and the contracts are-

(i) in the name of the non-resident; or

(ii) for the transfer of the ownership of, or for thegranting of the right to use, property owned by thatnon-resident or that non-resident has the right to use; or

(iii) for the provision of services by the non-resident; or

(b) has no such authority, but habitually maintains in Indiaa stock of goods or merchandise from which he regularlydelivers goods or merchandise on behalf of the non-resident;or

(c) habitually secures orders in India, mainly or wholly forthe non-resident or for that non-resident and othernon-residents controlling, controlled by, or subject to thesame common control, as that non-resident:

Provided that such business connection shall not include anybusiness activity carried out through a broker, generalcommission agent or any other agent having an independentstatus, if such broker, general commission agent or anyother agent having an independent status is acting in theordinary course of his business :

Provided further that where such broker, general commissionagent or any other agent works mainly or wholly on behalf ofa non-resident (hereafter in this proviso referred to as theprincipal non-resident) or on behalf of such non-residentand other non-residents which are controlled by theprincipal non-resident or have a controlling interest in theprincipal non-resident or are subject to the same commoncontrol as the principal non-resident, he shall not bedeemed to be a broker, general commission agent or an agentof an independent status.

9[Explanation 2A.-
For the removal of doubts, it is hereby clarified that thesignificant economic presence of a non-resident in Indiashall constitute "business connection" in India and"significant economic presence" for this purpose, shallmean-

(a) transaction in respect of any goods, services orproperty carried out by a non-resident in India includingprovision of download of data or software in India, if theaggregate of payments arising from such transaction ortransactions during the previous year exceeds such amount asmay be prescribed; or

(b) systematic and continuous soliciting of businessactivities or engaging in interaction with such number ofusers as may be prescribed, in India through digital means:

Provided that the transactions or activities shallconstitute significant economic presence in India, whetheror not,-

(i) the agreement for such transactions or activities isentered in India; or

(ii) the non-resident has a residence or place of businessin India; or

(iii) the non-resident renders services in India:

Provided further that only so much of income as isattributable to the transactions or activities referred toin clause (a) or clause (b) shall be deemed to accrue orarise in India.]

Following Explanation 2A shall be inserted in clause (i) ofsub-section (1) of section 9 by the Finance Act, 2020, w.e.f.1-4-2022 :

Explanation 2A.-
For the removal of doubts, it is hereby declared that thesignificant economic presence of a non-resident in Indiashall constitute "business connection" in India and"significant economic presence" for this purpose, shallmean-

(a) transaction in respect of any goods, services orproperty carried out by a non-resident with any person inIndia including provision of download of data or software inIndia, if the aggregate of payments arising from suchtransaction or transactions during the previous year exceedssuch amount as may be prescribed; or

(b) systematic and continuous soliciting of businessactivities or engaging in interaction with such number ofusers in India, as may be prescribed:

Provided that the transactions or activities shallconstitute significant economic presence in India, whetheror not-

(i) the agreement for such transactions or activities isentered in India; or

(ii) the non-resident has a residence or place of businessin India; or

(iii) the non-resident renders services in India:

Provided further that only so much of income as isattributable to the transactions or activities referred toin clause (a) or clause (b) shall be deemed to accrue orarise in India.

Explanation 3.-
Where a business is carried on in India through a personreferred to in clause (a) or clause (b) or clause (c) ofExplanation 2, only so much of income as is attributable tothe operations carried out in India shall be deemed toaccrue or arise in India.

Following Explanation 3A shall be inserted after Explanation3 to clause (i) of sub-section (1) of section 9 by theFinance Act, 2020, w.e.f. 1-4-2021 :

Explanation 3A.-
For the removal of doubts, it is hereby declared that theincome attributable to the operations carried out in India,as referred to in Explanation 1, shall include income from-

(i) such advertisem*nt which targets a customer who residesin India or a customer who accesses the advertisem*ntthrough internet protocol address located in India;

(ii) sale of data collected from a person who resides inIndia or from a person who uses internet protocol addresslocated in India; and

(iii) sale of goods or services using data collected from aperson who resides in India or from a person who usesinternet protocol address located in India.

Following proviso shall be inserted in Explanation 3A toclause (i) of sub-section (1) of section 9 by the FinanceAct, 2020, w.e.f. 1-4-2022 :

Provided that the provisions contained in this Explanationshall also apply to the income attributable to thetransactions or activities referred to in Explanation 2A.

Explanation 4.-
For the removal of doubts, it is hereby clarified that theexpression "through" shall mean and include and shall bedeemed to have always meant and included "by means of", "inconsequence of" or "by reason of".

Explanation 5.-
For the removal of doubts, it is hereby clarified that anasset or a capital asset being any share or interest in acompany or entity registered or incorporated outside Indiashall be deemed to be and shall always be deemed to havebeen situated in India, if the share or interest derives,directly or indirectly, its value substantially from theassets located in India:

Provided that nothing contained in this Explanation shallapply to an asset or capital asset, which is held by anon-resident by way of investment, directly or indirectly,in a Foreign Institutional Investor as referred to in clause(a) of the Explanation to section 115AD for an assessmentyear commencing on or after the 1st day of April, 2012 butbefore the 1st day of April, 2015:

Provided further that nothing contained in this Explanationshall apply to an asset or capital asset, which is held by anon-resident by way of investment, directly or indirectly,in Category-I or Category-II foreign portfolio investorunder the Securities and Exchange Board of India (ForeignPortfolio Investors) Regulations, 2014 10[prior to theirrepeal], made under the Securities and Exchange Board ofIndia Act, 1992 (15 of 1992):

10[Provided also that nothing contained in this Explanationshall apply to an asset or a capital asset, which is held bya non-resident by way of investment, directly or indirectly,in Category-I foreign portfolio investor under theSecurities and Exchange Board of India (Foreign PortfolioInvestors) Regulations, 2019, made under the Securities andExchange Board of India Act, 1992 (15 of 1992).]

Explanation 6.-
For the purposes of this clause, it is hereby declared that-

(a) the share or interest, referred to in Explanation 5,shall be deemed to derive its value substantially from theassets (whether tangible or intangible) located in India,if, on the specified date, the value of such assets-

(i) exceeds the amount of ten crore rupees; and

(ii) represents at least fifty per cent of the value of allthe assets owned by the company or entity, as the case maybe;

(b) the value of an asset shall be the fair market value ason the specified date, of such asset without reduction ofliabilities, if any, in respect of the asset, determined insuch manner as may be prescribed;

(c) "accounting period" means each period of twelve monthsending with the 31st day of March:

Provided that where a company or an entity, referred to inExplanation 5, regularly adopts a period of twelve monthsending on a day other than the 31st day of March for thepurpose of-

(i) complying with the provisions of the tax laws of theterritory, of which it is a resident, for tax purposes; or

(ii) reporting to persons holding the share or interest,

then, the period of twelve months ending with the other dayshall be the accounting period of the company or, as thecase may be, the entity:

Provided further that the first accounting period of thecompany or, as the case may be, the entity shall begin fromthe date of its registration or incorporation and end withthe 31st day of March or such other day, as the case may be,following the date of such registration or incorporation,and the later accounting period shall be the successiveperiods of twelve months:

Provided also that if the company or the entity ceases toexist before the end of accounting period, as aforesaid,then, the accounting period shall end immediately before thecompany or, as the case may be, the entity, ceases to exist;

(d) "specified date" means the-

(i) date on which the accounting period of the company or,as the case may be, the entity ends preceding the date oftransfer of a share or an interest; or

(ii) date of transfer, if the book value of the assets ofthe company or, as the case may be, the entity on the dateof transfer exceeds the book value of the assets as on thedate referred to in sub-clause (i), by fifteen per cent.

Explanation 7.-
For the purposes of this clause,-

(a) no income shall be deemed to accrue or arise to anon-resident from transfer, outside India, of any share of,or interest in, a company or an entity, registered orincorporated outside India, referred to in the Explanation5,-

(i) if such company or entity directly owns the assetssituated in India and the transferor (whether individuallyor along with its associated enterprises), at any time inthe twelve months preceding the date of transfer, neitherholds the right of management or control in relation to suchcompany or entity, nor holds voting power or share capitalor interest exceeding five per cent of the total votingpower or total share capital or total interest, as the casemay be, of such company or entity; or

(ii) if such company or entity indirectly owns the assetssituated in India and the transferor (whether individuallyor along with its associated enterprises), at any time inthe twelve months preceding the date of transfer, neitherholds the right of management or control in relation to suchcompany or entity, nor holds any right in, or in relationto, such company or entity which would entitle him to theright of management or control in the company or entity thatdirectly owns the assets situated in India, nor holds suchpercentage of voting power or share capital or interest insuch company or entity which results in holding of (eitherindividually or along with associated enterprises) a votingpower or share capital or interest exceeding five per centof the total voting power or total share capital or totalinterest, as the case may be, of the company or entity thatdirectly owns the assets situated in India;

(b) in a case where all the assets owned, directly orindirectly, by a company or, as the case may be, an entityreferred to in the Explanation 5, are not located in India,the income of the non-resident transferor, from transferoutside India of a share of, or interest in, such company orentity, deemed to accrue or arise in India under thisclause, shall be only such part of the income as isreasonably attributable to assets located in India anddetermined in such manner as may be prescribed;

(c) "associated enterprise" shall have the meaning assignedto it in section 92A;

(ii) income which falls under the head "Salaries", if it isearned in India.

Explanation.-
For the removal of doubts, it is hereby declared that theincome of the nature referred to in this clause payable for-

(a) service rendered in India; and

(b) the rest period or leave period which is preceded andsucceeded by services rendered in India and forms part ofthe service contract of employment,

shall be regarded as income earned in India ;

(iii) income chargeable under the head "Salaries" payable bythe Government to a citizen of India for service outsideIndia ;

(iv) a dividend paid by an Indian company outside India ;

(v) income by way of interest payable by-

(a) the Government ; or

(b) a person who is a resident, except where the interest ispayable in respect of any debt incurred, or moneys borrowedand used, for the purposes of a business or professioncarried on by such person outside India or for the purposesof making or earning any income from any source outsideIndia ; or

(c) a person who is a non-resident, where the interest ispayable in respect of any debt incurred, or moneys borrowedand used, for the purposes of a business or professioncarried on by such person in India.

Explanation.-
For the purposes of this clause,-

(a) it is hereby declared that in the case of anon-resident, being a person engaged in the business ofbanking, any interest payable by the permanent establishmentin India of such non-resident to the head office or anypermanent establishment or any other part of suchnon-resident outside India shall be deemed to accrue orarise in India and shall be chargeable to tax in addition toany income attributable to the permanent establishment inIndia and the permanent establishment in India shall bedeemed to be a person separate and independent of thenon-resident person of which it is a permanent establishmentand the provisions of the Act relating to computation oftotal income, determination of tax and collection andrecovery shall apply accordingly;

(b) "permanent establishment" shall have the meaningassigned to it in clause (iiia) of section 92F;

(vi) income by way of royalty payable by-

(a) the Government ; or

(b) a person who is a resident, except where the royalty ispayable in respect of any right, property or informationused or services utilised for the purposes of a business orprofession carried on by such person outside India or forthe purposes of making or earning any income from any sourceoutside India ; or

(c) a person who is a non-resident, where the royalty ispayable in respect of any right, property or informationused or services utilised for the purposes of a business orprofession carried on by such person in India or for thepurposes of making or earning any income from any source inIndia :

Provided that nothing contained in this clause shall applyin relation to so much of the income by way of royalty asconsists of lump sum consideration for the transfer outsideIndia of, or the imparting of information outside India inrespect of, any data, documentation, drawing orspecification relating to any patent, invention, model,design, secret formula or process or trade mark or similarproperty, if such income is payable in pursuance of anagreement made before the 1st day of April, 1976, and theagreement is approved by the Central Government :

Provided further that nothing contained in this clause shallapply in relation to so much of the income by way of royaltyas consists of lump sum payment made by a person, who is aresident, for the transfer of all or any rights (includingthe granting of a licence) in respect of computer softwaresupplied by a non-resident manufacturer along with acomputer or computer-based equipment under any schemeapproved under the Policy on Computer Software Export,Software Development and Training, 1986 of the Government ofIndia.

Explanation 1.-
For the purposes of the first proviso, an agreement made onor after the 1st day of April, 1976, shall be deemed to havebeen made before that date if the agreement is made inaccordance with proposals approved by the Central Governmentbefore that date; so, however, that, where the recipient ofthe income by way of royalty is a foreign company, theagreement shall not be deemed to have been made before thatdate unless, before the expiry of the time allowed undersub-section (1) or sub-section (2) of section 139 (whetherfixed originally or on extension) for furnishing the returnof income for the assessment year commencing on the 1st dayof April, 1977, or the assessment year in respect of whichsuch income first becomes chargeable to tax under this Act,whichever assessment year is later, the company exercises anoption by furnishing a declaration in writing to theAssessing Officer (such option being final for thatassessment year and for every subsequent assessment year)that the agreement may be regarded as an agreement madebefore the 1st day of April, 1976.

Explanation 2.-
For the purposes of this clause, "royalty" meansconsideration (including any lump sum consideration butexcluding any consideration which would be the income of therecipient chargeable under the head "Capital gains") for-

(i) the transfer of all or any rights (including thegranting of a licence) in respect of a patent, invention,model, design, secret formula or process or trade mark orsimilar property ;

(ii) the imparting of any information concerning the workingof, or the use of, a patent, invention, model, design,secret formula or process or trade mark or similar property;

(iii) the use of any patent, invention, model, design,secret formula or process or trade mark or similar property;

(iv) the imparting of any information concerning technical,industrial, commercial or scientific knowledge, experienceor skill ;

(iva) the use or right to use any industrial, commercial orscientific equipment but not including the amounts referredto in section 44BB;

(v) the transfer of all or any rights (including thegranting of a licence) in respect of any copyright,literary, artistic or scientific work including films orvideo tapes for use in connection with television or tapesfor use in connection with radio broadcasting 11[, but notincluding consideration for the sale, distribution orexhibition of cinematographic films] ; or

(vi) the rendering of any services in connection with theactivities referred to in sub-clauses (i) to (iv), (iva) and(v).

Explanation 3.-
For the purposes of this clause, "computer software" meansany computer programme recorded on any disc, tape,perforated media or other information storage device andincludes any such programme or any customized electronicdata.

Explanation 4.-
For the removal of doubts, it is hereby clarified that thetransfer of all or any rights in respect of any right,property or information includes and has always includedtransfer of all or any right for use or right to use acomputer software (including granting of a licence)irrespective of the medium through which such right istransferred.

Explanation 5.-
For the removal of doubts, it is hereby clarified that theroyalty includes and has always included consideration inrespect of any right, property or information, whether ornot-

(a) the possession or control of such right, property orinformation is with the payer;

(b) such right, property or information is used directly bythe payer;

(c) the location of such right, property or information isin India.

Explanation 6.-
For the removal of doubts, it is hereby clarified that theexpression "process" includes and shall be deemed to havealways included transmission by satellite (includingup-linking, amplification, conversion for down-linking ofany signal), cable, optic fibre or by any other similartechnology, whether or not such process is secret;

(vii) income by way of fees for technical services payableby-

(a) the Government ; or

(b) a person who is a resident, except where the fees arepayable in respect of services utilised in a business orprofession carried on by such person outside India or forthe purposes of making or earning any income from any sourceoutside India ; or

(c) a person who is a non-resident, where the fees arepayable in respect of services utilised in a business orprofession carried on by such person in India or for thepurposes of making or earning any income from any source inIndia :

Provided that nothing contained in this clause shall applyin relation to any income by way of fees for technicalservices payable in pursuance of an agreement made beforethe 1st day of April, 1976, and approved by the CentralGovernment.

Explanation 1.-
For the purposes of the foregoing proviso, an agreement madeon or after the 1st day of April, 1976, shall be deemed tohave been made before that date if the agreement is made inaccordance with proposals approved by the Central Governmentbefore that date.

Explanation 2.-
For the purposes of this clause, "fees for technicalservices" means any consideration (including any lump sumconsi-deration) for the rendering of any managerial,technical or consultancy services (including the provisionof services of technical or other personnel) but does notinclude consideration for any construction, assembly, miningor like project undertaken by the recipient or considerationwhich would be income of the recipient chargeable under thehead "Salaries";

12[(viii) income arising outside India, being any sum ofmoney referred to in sub-clause (xviia) of clause (24) ofsection 2, paid on or after the 5th day of July, 2019 by aperson resident in India to a non-resident, not being acompany, or to a foreign company.]

(2) Notwithstanding anything contained in sub-section (1),any pension payable outside India to a person residingpermanently outside India shall not be deemed to accrue orarise in India, if the pension is payable to a personreferred to in article 314 of the Constitution or to aperson who, having been appointed before the 15th day ofAugust, 1947, to be a Judge of the Federal Court or of aHigh Court within the meaning of the Government of IndiaAct, 1935, continues to serve on or after the commencementof the Constitution as a Judge in India.

Explanation.-
For the removal of doubts, it is hereby declared that forthe purposes of this section, income of a non-resident shallbe deemed to accrue or arise in India under clause (v) orclause (vi) or clause (vii) of sub-section (1) and shall beincluded in the total income of the non-resident, whether ornot,-

(i) the non-resident has a residence or place of business orbusiness connection in India; or

(ii) the non-resident has rendered services in India.