Scope of Total Income / Incidence of Tax [Section 5] under the Income Tax Act, 1961

Table of Contents

1. Statutory Framework

Section 5 defines the scope of total income based on the taxpayer’s residential status, which determines whether income earned within or outside India is taxable. The provision categorizes taxpayers into three classes:

Resident and Ordinarily Resident (ROR)
Resident but Not Ordinarily Resident (RNOR)
Non-Resident (NR).

2. Taxability Based on Residential Status

The table below summarizes the scope of income chargeable to tax for each category:

INCOME TYPE	ROR	RNOR	NR
Received/Deemed Received in India	Taxable	Taxable	Taxable
Accrues/Arises/Deemed in India	Taxable	Taxable	Taxable
Foreign Income (Business Controlled in India)	Taxable	Taxable	Not Taxable
Foreign Income (Business Outside India)	Taxable	Not Taxable	Not Taxable
Past Untaxed Foreign Income Remitted to India	Not Taxable	Not Taxable	Not Taxable

Key Notes:

RORsare taxed on global income.
RNORs/NRsare taxed only on India-sourced income (except for RNORs with foreign income from India-controlled businesses) .
Past untaxed foreign incomeremitted to India is exempt for all categories .

3. Key Concepts

Income “Received” in India:

Includes income physically receivedin India (e.g., salary credited to an Indian bank account) .
Deemed receipt: Income accrued abroad but repatriated to Indiais taxable for RORs .

Income “Accruing/Arising” in India:

Covers income from Indian assets, services, or businesses(e.g., rent from property in Mumbai) .
Deemed accrual: Royalties from Indian patents or technical services used in India .

Exceptions for NRIs/RNORs:

NRIsare exempt on foreign dividends unless remitted to India.
RNORsexempt foreign income unless derived from an India-controlled business .

4. Practical Examples

ROR Example:
A (ROR) earns ₹10L salary in India + ₹5L dividends from US stocks. Total taxable income: ₹15L .
RNOR Example:
B (RNOR) has ₹8L rental income in India + ₹3L from a UK business (not India-controlled). Taxable income: ₹8L .
NR Example:
C (NR) earns ₹12L from an Indian client but lives abroad. Taxable income: ₹12L .

5. Special Provisions

Indian Citizens Earning >₹15L:
Even if they fail the 182-day residency test, they may be deemed RNORsif:
- Their Indian incomeexceeds ₹15L, and
- They are not tax-liablein any other country .
60-Day Rule Exception:
For Indian citizens leaving for employment abroad, the 60-day threshold extends to 182 days