Chapter II - Income-tax
Section 5
Section 5: scope of total income
Section 5 sets out exactly which income is included in a person's "total income" for a tax year, and this differs depending on whether the person is a resident or a non-resident (as determined under section 6). It is the section that operationalises the basic idea that residents are taxed on worldwide income while non-residents are taxed only on India-linked income.
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Need advice on Section 5?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Subject to the provisions of this Act, the total income of any tax year of a person, who is a resident, includes all income from whatever source derived, which— (a) is received or deemed to be received in India in that year by or on behalf of such person; (b) accrues or arises, or is deemed to accrue or arise, to such person in India in that year; or (c) accrues or arises to such person outside India in that year, but when such person is ‘not ordinarily resident’ in India under section 6(13), such income shall be included only when it is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of a tax year of a person, who is a non-resident, includes all income from whatever source derived, which— (a) is received or deemed to be received in India in that year by or on behalf of such person; or (b) accrues or arises, or is deemed to accrue or arise, to such person in India in that year.
(3) Income accruing or arising outside India shall not be deemed to be received in India under this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.
(4) If an income has been included in a person’s total income on the basis that it— (a) has accrued or arisen; or (b) is deemed to have accrued or arisen, to such person, it shall not again be included on the basis that it is received or deemed to be received by that person in India.
Introduction
Section 5 determines which Indian and foreign receipts or accruals enter total income after residential status is set. Residents generally include worldwide income, with a narrower foreign-income rule for not-ordinarily-resident persons; non-residents include the stated Indian-source income.
Key takeaways
Resident's income
A resident's total income can include income received or arising in India and income arising outside India, subject to the Act's exceptions.
Not ordinarily resident
Foreign income of a not ordinarily resident person is included under the foreign-income limb only when it comes from a business controlled in, or a profession set up in, India.
Non-resident's income
For a non-resident, Section 5 includes income received or deemed received in India, or accruing, arising or deemed to accrue or arise in India.
No double inclusion
The same income cannot be included again merely because it is later received after already being included on an accrual basis.
Total income of a resident
Under Section 5(1), a resident's total income for a tax year includes all income from whatever source derived, which is (a) received or deemed to be received in India in that year, (b) accrues or arises, or is deemed to accrue or arise, to the person in India in that year, or (c) accrues or arises to the person outside India in that year.
However, if the resident is "not ordinarily resident" in India under section 6(13), foreign income under (c) is included only if it is derived from a business controlled in, or a profession set up in, India.
Total income of a non-resident
Under Section 5(2), a non-resident's total income for a tax year includes only income which is (a) received or deemed to be received in India in that year, or (b) accrues or arises, or is deemed to accrue or arise, to the person in India in that year. Purely foreign-sourced, foreign-received income of a non-resident falls outside the scope of Indian total income under this section.
Other rules in this section
Section 5(3) clarifies that income accruing or arising outside India is not treated as "received" in India merely because it is reflected in a balance sheet prepared in India.
Section 5(4) prevents double-counting: if income has already been included in total income on the basis that it accrued or arose (or is deemed to have accrued or arisen), it cannot be included again on the basis that it was received or deemed to be received in India.
Step-by-step flow for applying Section 5
- 1
What is the person's residential status for the tax year?
Determine it under Section 6: resident (ordinarily or not ordinarily) or non-resident.
- Non-resident: Only income received or deemed received in India, or accruing or deemed to accrue in India, is included (Section 5(2)).
- Resident: Go to the next step.
- 2
Is the income received or deemed received in India, or does it accrue or arise (or is it deemed to) in India?
- Yes: Included in total income under Section 5(1)(a) or (b).
- No - it accrues outside India: Go to the next step.
- 3
Is the person not ordinarily resident under Section 6(13)?
- No (ordinarily resident): Foreign income is included under Section 5(1)(c).
- Yes: Include it only if it is derived from a business controlled in, or a profession set up in, India.
- 4
Avoid double inclusion
Under Section 5(3), showing foreign income in a balance sheet prepared in India does not by itself make it received in India. Under Section 5(4), income already included on accrual is not included again when received in India.
Practical checklist
Do
- Determine residence under Section 6 before classifying each receipt's place of receipt and accrual.
- Check the not-ordinarily-resident foreign business/profession limitation and avoid counting the same income again when received later.
Avoid
- Do not treat an Indian balance-sheet entry alone as deemed Indian receipt of foreign income.
- Do not include a non-resident's foreign-source income without the Section 5 Indian nexus.
Illustrative example
Worked example: the same income mix under different statuses
Hypothetical facts (illustration only, not a real taxpayer): For a tax year, Mr. Menon has (i) interest of ₹50,000 accruing on a deposit with a bank in India, (ii) rent of ₹3,00,000 from a house abroad, accruing and received outside India, and (iii) fees of ₹2,00,000 earned outside India from a consultancy profession set up in India, also received outside India.
If he is resident and ordinarily resident
All three items are included under Section 5(1): ₹50,000 + ₹3,00,000 + ₹2,00,000 = ₹5,50,000.
If he is resident but not ordinarily resident
The Indian interest is included. Of the foreign items, only the fees derived from a profession set up in India are included; the foreign rent is not. Amount = ₹50,000 + ₹2,00,000 = ₹2,50,000.
If he is non-resident
Section 5(2) includes only income received or accruing (or deemed so) in India. On these facts, and subject to any deeming under Section 9, the amount is ₹50,000.
Later remittance
Showing the foreign rent in a balance sheet prepared in India does not make it received in India (Section 5(3)), and income already included on accrual is not included again on receipt (Section 5(4)).
Outcome
- Residential status under Section 6 must be settled first; it decides how much of the same income enters total income.
- These are scope figures only; computation under each head applies afterwards.
Glossary
- Accrual
- Income arising or becoming due, which may precede actual receipt.
- Not ordinarily resident
- A resident status with the foreign-income limitation stated in Section 5 and defined in Section 6.
Frequently asked questions
Is a resident taxed on income earned outside India?
Generally yes, a resident's total income includes income accruing or arising outside India. The exception is a person who is "not ordinarily resident" under section 6(13) - for such a person, foreign income is included only if it comes from a business controlled in, or profession set up in, India.
What income is a non-resident taxed on in India?
Only income that is received or deemed to be received in India, or that accrues/arises or is deemed to accrue/arise in India - not income that is both earned and received entirely outside India.
Can the same income be taxed twice under Section 5, once as accrued and again as received?
No - Section 5(4) specifically prevents income already included on an accrual basis from being included again on a receipt basis.
Need help applying this provision to your situation?
Get help determining your taxable income in IndiaLast updated 9 October 2026