Section 9: income deemed to accrue or arise in India

What income this section covers

Section 9(1) states that the income referred to in sub-sections (2) to (8) is deemed to accrue or arise in India. Those sub-sections then deal with different categories of income in turn.

Business connection, property, assets and capital asset transfers (Section 9(2))

Income accruing or arising, directly or indirectly, through or from any asset or source of income in India, any property in India, any business connection in India, or the transfer of a capital asset situated in India, is deemed to accrue or arise in India.

Salaries (Section 9(3))

Salary income is deemed to accrue or arise in India if it is earned in India - which includes pay for services rendered in India, and pay for rest/leave periods that are preceded and followed by services rendered in India and form part of the employment contract. Salary payable by the Government to an Indian citizen for services rendered outside India is also deemed to accrue in India.

Dividends (Section 9(4))

Any dividend paid by an Indian company outside India is deemed to accrue or arise in India.

Interest, royalty and fees for technical services (Sections 9(5) to 9(7))

Interest, royalty, and fees for technical services (FTS) are each deemed to accrue or arise in India when payable by (a) the Government, (b) a resident (except where the payment relates to a business/profession carried on, or income earned, by that resident outside India), or (c) a non-resident, but only where the payment relates to a business/profession carried on, or income earned, by that non-resident in India.

Section 9(5)(b) additionally deems interest paid by an Indian permanent establishment of a non-resident bank to its own head office (or another part of itself) outside India to accrue or arise in India, chargeable in addition to income otherwise attributable to that permanent establishment.

"Royalty" under section 9(6)(b) is defined broadly to cover consideration for transfer/use of patents, inventions, designs, trademarks, secret formulas/processes, technical/industrial/commercial/scientific knowledge or information, use of industrial/commercial/scientific equipment (with a specific carve-out), copyright/literary/artistic/scientific works (including films and radio tapes), computer software, and related services - and specifically includes payments regardless of where the right/property/information is located or who exercises direct control over it.

"Fees for technical services" under section 9(7)(b) means consideration for managerial, technical or consultancy services (including provision of technical/other personnel), but excludes consideration for construction/assembly/mining-type projects and consideration that would be taxed as salary.

Certain deemed-dividend-type payments to non-residents (Section 9(8))

Income arising outside India, of the nature referred to in section 2(49)(u), paid by a resident to a non-resident (other than a company) or foreign company, or to a person not ordinarily resident in India under section 6(13), is deemed to accrue or arise in India.

"Business connection" and "significant economic presence" (Section 9(9))

"Business connection" includes business carried out in India where all or part of the operations are in India, and a "significant economic presence" in India. It expressly covers activity through an agent who habitually concludes contracts, maintains a stock of goods for delivery, or habitually secures orders mainly for the non-resident - subject to an exclusion for brokers/agents of independent status acting in the ordinary course of business, and for certain specific activities (export purchases, news collection for transmission abroad, display of uncut diamonds in a notified zone, and film shooting by certain non-resident individuals/firms/companies).

A non-resident has a "significant economic presence" in India where transactions in goods, services or property (including downloads of data or software) with any person in India exceed a prescribed payment threshold in the tax year, or where there is systematic and continuous soliciting of business or interaction with a prescribed number of users in India - regardless of where any agreement is signed or where the non-resident is based.

Only income reasonably attributable to Indian operations or to the significant-economic-presence transactions/activities is treated as accruing in India from a business connection; this attributable income also includes certain advertising, data-sale and goods/services-sale income tied to Indian residents or Indian IP addresses.

Indirect transfer of Indian assets (Section 9(10))

Shares or interests in a foreign company/entity are deemed to be situated in India, for the purposes of section 9(2), if they derive their value substantially from assets located in India - defined as the underlying Indian assets exceeding ₹10 crore in value and representing at least 50% of the value of all the company's/entity's assets, valued as on a "specified date".

Detailed rules fix the "specified date" and "accounting period" for this valuation, and the taxable income is restricted to the part reasonably attributable to the Indian assets where not all of the foreign entity's assets are Indian.

Specific carve-outs exclude gains from certain small/portfolio holdings - broadly, where a non-resident transferor (with associated enterprises) does not hold management/control rights and holds no more than 5% of the voting power, share capital or interest in the foreign company/entity (directly or indirectly), and certain Category I/II foreign portfolio investor holdings.

Fund managers in an International Financial Services Centre (Section 9(12))

Fund management activity carried out in India by an eligible fund manager on behalf of an eligible investment fund does not, by itself, constitute a business connection in India of that fund, nor make the fund resident in India under section 6, subject to conditions in Schedule I. The Central Government may relax these conditions for fund managers located in an International Financial Services Centre who commenced operations on or before 31 March 2030.

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