Rule 9: Determining a non-resident’s Indian-source income
Rule 9 addresses assessment where the Assessing Officer considers that the actual amount of a non-resident’s income from the specified Indian sources cannot be definitely ascertained. It provides three alternative calculation methods.
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Rule 9 - Determination of income in case of non-residents
In any case in which the Assessing Officer is of opinion that the actual amount of the income accruing or arising to any non-resident person, whether directly or indirectly, through or from — (a) any asset or source of income in India; or (b) any property in India; or (c) any business connection in India, cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax may be calculated — (i) at such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable; or (ii) on any amount which bears the same proportion to the total profits and gains of the business of such person (such profits and gains being computed in accordance with the provisions of the Act), as the receipts so accruing or arising bear to the total receipts of the business; or (iii) in such other manner as the Assessing Officer may deem suitable.
Introduction
The trigger is an ascertainment problem concerning the relevant income. The rule does not impose a single presumptive percentage on every non-resident or allow a taxpayer to choose a percentage without the assessment context.
Rule breakdown
When the calculation rule becomes relevant
Separate whether income falls within the Act from how its amount is computed. Rule 9 addresses the latter in the stated situation: income accruing or arising to a non-resident, directly or indirectly, through the specified Indian connections, whose actual amount cannot be definitely ascertained.
Keep available accounts, transaction records and allocation evidence. A foreign address or a cross-border receipt alone does not explain why an exact income amount cannot be ascertained.
Understand the three calculation alternatives
Clause (i) permits a percentage of the turnover so accruing or arising that the Assessing Officer considers reasonable. The rule itself supplies no fixed percentage.
Clause (ii) uses the proportion that the relevant accruing or arising receipts bear to total business receipts, applied to total profits and gains computed under the Act. Clause (iii) permits another manner the Officer considers suitable. The alternatives should not be described as three amounts that must all be added together.
Illustrative proportionate-profit calculation
Hypothetical: relevant receipts are ₹20 lakh, total business receipts ₹100 lakh and total profits computed under the Act ₹10 lakh. If clause (ii) is the applicable method on those assumed facts, ₹10 lakh × ₹20 lakh / ₹100 lakh gives ₹2 lakh. This is an illustration of that method, not a prescribed profit margin or a conclusion that the method applies to every non-resident.
Records that support the assessment
Reconcile relevant Indian receipts to total business receipts using a consistent period and explain the Act-based total profit computation. Keep contracts, invoices, accounts and a written allocation rationale together.
Where a percentage method is proposed, distinguish the turnover base from the percentage and document why each is considered appropriate. Where another manner is used, identify its underlying assumptions rather than disguising it as the proportionate-profit formula.
Practical sequence for a cross-border review
Identify the relevant source and non-resident; establish the ascertainment issue; identify the proposed clause; reconcile the numerator, denominator or turnover base; and review the resulting income with the applicable Act provisions and other relevant legal conditions. The rule alone does not settle a separate treaty or withholding question.
Key takeaways
Identify the Indian connection
The rule identifies an Indian asset or source, property in India, or a business connection in India.
Establish the trigger
The Officer must hold the stated opinion that the actual income amount cannot be definitely ascertained.
Three alternative methods
A reasonable turnover percentage, proportionate business profits, or another suitable manner may be used.
Practical checklist
- Reconcile Indian receipts and total business receipts.
- Document the ascertainment issue and the chosen method.
- Compute the profit base under the Act where clause (ii) applies.
Avoid
- Do not invent a statutory percentage absent from Rule 9.
- Do not substitute gross proceeds for Act-computed profits.
- Do not add the three alternative methods together.
FAQs
Does Rule 9 prescribe a fixed profit percentage?
No. Clause (i) refers to the percentage the Assessing Officer considers reasonable; the rule does not state a universal number.
Does it apply merely because a person is non-resident?
No. The specified Indian connection and the Officer’s opinion about inability to definitely ascertain the actual income amount are material conditions.
What is the proportion used in clause (ii)?
The relevant accruing or arising receipts divided by total business receipts, applied to the person’s total business profits and gains computed under the Act.
Glossary
- Ascertainment
- Determining the actual amount of the relevant income from the available facts and records.
- Proportionate-profit method
- The clause (ii) method relating relevant receipts to total receipts and Act-computed total business profits.