Taxation · Residential Status and Scope of Total Income

Income Deemed to Be Received, Accrued or Arisen in India

Updated 4 October 2026 · Fact-checked

Income deemed to be received, accrued or arisen in India is income the Act treats as Indian even if the money is earned or paid abroad. Non-residents are taxed on it. To solve, find the type of income, check the deeming rule or place of receipt, then include only the part linked to India.

Understand Income Deemed to Be Received, Accrued or Arisen in India

Every person is taxed on income that falls in the scope of total income. For a non-resident, that scope is narrow. It covers income that is received in India, income that accrues or arises in India, and income that the Act deems to be received or to accrue or arise in India. So this topic decides what a non-resident (and, for some items, a not-ordinarily-resident) must pay tax on.

Start with three words. Receipt is when the money first comes into your control or the control of someone on your behalf. Accrue is when you get a right to the income. Arise is when the income comes into existence. In exams, treat accrue and arise as one idea: the income has its source in India. Receipt is about where the money lands. Accrual is about where the income is earned. A test on one does not answer the other.

The place-of-receipt test works like this. Income first received in India is taxable for everyone. Income first received outside India, and also accruing outside India, is not taxable for a non-resident. It is also not taxable for an RNOR, with one exception: income accruing or arising outside India that is derived from a business controlled in India or a profession set up in India is taxable for an RNOR. It is taxable because it accrues or arises from that Indian-controlled business or Indian-set-up profession, not because it is later remitted to India. A non-resident gets no such exception. If income already received abroad is later brought into India, it is not taxed again as a receipt, because the first receipt was abroad. A resident and ordinarily resident is taxed on world income, so this test matters little for that person.

The Act also lists cases where income is deemed to accrue or arise in India even though you may think it is foreign. The main ones are: income through a business connection in India; income through or from a property, asset or source of income in India; income from transfer of a capital asset situated in India; salary for services rendered in India; salary paid by the Government to an Indian citizen for services outside India; dividend paid by an Indian company; and interest, royalty and fees for technical services paid by the Government or by a resident, or by a non-resident. Where the payer is a non-resident, these are deemed Indian only if the payment is used for a business or profession carried on in India, or for earning income from a source in India. Where the payer is a resident, interest, royalty and fees for technical services are not deemed Indian if the payment is used for a business or profession carried on outside India or for earning income from a source outside India.

Rent from a house in India is taxable because it actually accrues or arises in India, as the property is located in India. It is also covered by the property limb of the deeming list above, so either route gives the same result. The place where the rent is received does not matter.

Business connection means a real link between a non-resident's business and India. A person acting for the non-resident in India creates the link if that person habitually has and uses authority to conclude contracts for the non-resident, or keeps stock from which goods are delivered regularly for the non-resident, or habitually secures orders mainly or wholly for the non-resident. Only the income reasonably attributable to the Indian operations is deemed to accrue in India. A mere purchase of goods in India for export does not create a business connection. This attribution is the apportionment the exam asks about.

Key rules to remember

Scope for a non-resident: Taxable = income received or deemed received in India + income accrued, arisen or deemed to accrue or arise in India; Income that is both received and accrues outside India is not taxable for a non-resident. For an RNOR, it is taxable only if it accrues or arises from a business controlled in India or a profession set up in India.
Place of receipt rule: First received in India → taxable. First received outside India (and accrues outside India) → not taxable for NR; not taxable for RNOR unless it accrues or arises from a business controlled in India or a profession set up in India; Later remittance to India of income already received abroad is not taxed again. For an RNOR, income from an Indian-controlled business or Indian-set-up profession is taxed because it accrues from that business or profession, not because it is remitted.
Business connection apportionment: Taxable business income in India = Total profit × share reasonably attributable to Indian operations; Use the ratio the question gives, such as sales, assets or expenses. Do not tax the whole profit.
Salary deemed to accrue in India: Salary for services rendered in India = taxable in India, wherever paid; Includes pay for a rest period or leave that falls between services rendered in India. Government salary to an Indian citizen for foreign service is also deemed Indian.
Dividend, interest, royalty and fees: Dividend by Indian company → India. Interest, royalty, technical fees paid by Government or resident → India, unless used for a business or profession carried on outside India or for earning income from a source outside India; Where the payer is a non-resident, the payment is deemed Indian only if it is used for a business or profession carried on in India, or for earning income from a source in India.
No business connection: Purchase of goods in India for export ≠ business connection; Operations confined to such purchase do not create deemed accrual of income in India.

How to solve Income Deemed to Be Received, Accrued or Arisen in India questions

Use this method for any question that asks whether an income of a non-resident or RNOR is taxable in India.

1Note the residential status first. For a resident and ordinarily resident, world income is taxable and this topic rarely limits it.
2List each income separately. Do not decide on the total.
3For each item, ask where it was first received. If in India, mark it taxable.
4If it was received abroad, ask whether it accrued or arose in India, actually or by a deeming rule. Check salary for Indian services, Indian property, Indian capital asset, dividend from an Indian company, and interest, royalty or fees from Indian payers.
5For an RNOR, also check whether the foreign income comes from a business controlled in India or a profession set up in India. If it does, it is taxable.
6For business income, test for a business connection. Look for an agent who habitually concludes contracts, keeps stock for delivery or secures orders mainly for the non-resident.
7If a business connection exists, apportion. Tax only the part attributable to operations in India.
8Check the exceptions: purchase for export, payments used for business outside India, and income received abroad that also accrued abroad.
9Add the taxable items and state the conclusion in a short line for each item with the reason.

Quickest way: Two-question filter with a one-line reason per item

When to use it: Use it in MCQs and in the first minutes of a long written answer when many incomes are listed.

Ask question one: was it first received in India? Yes means taxable.
Ask question two: does the source sit in India, or is a deeming rule triggered? Yes means taxable.
If both answers are no, it is not taxable for a non-resident. For an RNOR, also check for a business controlled in India or a profession set up in India.
In MCQs, watch for options that tax foreign interest received abroad or the whole profit despite a business connection. These are usually the wrong ones.
In written answers, write each item as: provision, facts, conclusion. For example, 'Salary for services rendered in India is deemed to accrue in India. Mr X worked in Pune. Taxable in India even though paid abroad.' This earns step marks even if the total is wrong.

Common mistakes in Income Deemed to Be Received, Accrued or Arisen in India

Treating income paid abroad as not taxable in India.
Students focus only on the place of receipt and forget that income can accrue in India.
Fix: Always run both tests. Salary for Indian services and dividend from an Indian company are deemed to accrue in India wherever they are paid. Rent from a house in India actually accrues in India (and also falls under the property limb), so it is taxable wherever received.
Taxing the whole profit of a non-resident with a business connection.
Students stop once they find a business connection.
Fix: Only the portion reasonably attributable to Indian operations is deemed to accrue in India. Apply the given ratio.
Treating a purchase of goods in India for export as a business connection.
Any Indian activity looks like a connection.
Fix: Operations confined to purchase for export do not create a business connection. Check what the agent actually does.
Taxing foreign income again when it is brought into India.
Students confuse remittance with receipt.
Fix: If it was first received abroad and accrued abroad, bringing it to India later does not make it taxable for a non-resident. The same holds for an RNOR. The only exception is income that accrues or arises from a business controlled in India or a profession set up in India. That income is taxable for an RNOR on accrual, not because it is remitted to India.
Mixing up accrue and receipt as the same event.
Both words sound like 'getting' income.
Fix: Receipt is where the money first lands. Accrual or arising is where the right to income is created, which is the source. Write which test you are applying.
Missing the exception for interest, royalty or fees used for business outside India.
Students remember only that resident payers make the income Indian.
Fix: Check the purpose of the payment. If a resident pays it for a business or profession carried on outside India, or for earning income from a source outside India, it is not deemed to accrue in India. If a non-resident pays it, it is deemed Indian only when used for a business or profession in India or to earn income from a source in India.

Worked examples

Example 1

Mr Lee is a non-resident for the tax year 2026-27. He has these incomes: (a) salary ₹6,00,000 for services rendered in Pune, received in Singapore; (b) interest ₹50,000 on a bank deposit in Singapore, received in Singapore; (c) dividend ₹30,000 from an Indian company, paid in London; (d) rent ₹2,40,000 from a house in Mumbai, received in Dubai. State which incomes are taxable in India and the gross total of them.

Show the solution

Item (a): salary for services rendered in India is deemed to accrue in India. The place of payment does not matter. Taxable: ₹6,00,000.
Item (b): the interest is on a foreign deposit, received abroad, and its source is outside India. No deeming rule applies. Not taxable.
Item (c): dividend paid by an Indian company is deemed to accrue in India even if paid abroad. Taxable: ₹30,000.
Item (d): rent from a house in India is income that actually accrues or arises in India because the property is located there. It is also covered by the deeming limb for income through a property in India. Receipt in Dubai does not change this. Taxable: ₹2,40,000.
Add the taxable items: ₹6,00,000 + ₹30,000 + ₹2,40,000 = ₹8,70,000.

Answer: Items (a), (c) and (d) are taxable in India. Item (b) is not. Gross taxable income is ₹8,70,000, before deductions under the respective heads.

Example 2

Alpha Inc., a non-resident company, has total profit of ₹80,00,000 from its global business. An agent in India habitually concludes contracts on behalf of Alpha Inc. Profit reasonably attributable to the Indian operations is 25% of total profit. Separately, Alpha Inc. buys goods in India for export through another Indian firm, and this is its only activity there under that arrangement. How much income is deemed to accrue in India from the first arrangement, and what is the position of the second?

Show the solution

An agent who habitually exercises authority to conclude contracts for a non-resident creates a business connection in India.
With a business connection, only the income reasonably attributable to Indian operations is deemed to accrue or arise in India. Do not tax the whole ₹80,00,000.
Indian share = 25% × ₹80,00,000 = ₹20,00,000.
For the second arrangement, operations confined to purchase of goods in India for export do not create a business connection. No income is deemed to accrue in India on that ground.

Answer: ₹20,00,000 is deemed to accrue in India through the business connection. The purchase-for-export arrangement creates no business connection and no deemed accrual.

Exam tips

Always list incomes one by one and give a reason for each. Examiners award marks for each item, so a single total with no reasons loses marks.
In MCQs, check the residential status first. A resident and ordinarily resident is taxed on world income, so a 'not taxable' option is usually wrong for such a person.
For business connection questions, look for the words 'habitually', 'authority to conclude contracts' and 'mainly for the non-resident'. These decide the answer.
If a question gives an apportionment ratio, apply it to the profit and show the calculation line. Do not skip it.
Keep accrue and receipt separate in your answer. Write 'received in India' or 'accrues in India' as the reason for each conclusion.

Practice questions from Residential Status and Scope of Total Income

Income Deemed to Be Received, Accrued or Arisen in India in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Income Deemed to Be Received, Accrued or Arisen in India: frequently asked questions

What is the difference between accrue, arise and receipt of income?

Receipt is the point where you first get the money in your control. Accrue or arise is when you get the right to the income, which ties to its source or place of earning. An income can be received in one country and accrue in another, so you must test both.

What does business connection in India mean?

It is a real link between a non-resident's business and India, such as an Indian agent who habitually concludes contracts, keeps stock for regular delivery or secures orders mainly for the non-resident. Only the income attributable to the Indian operations is taxed. A mere purchase of goods in India for export is not a business connection.

Is income received outside India but brought into India taxable?

If a non-resident first receives income outside India and it also accrued outside India, it is not taxable. The same applies to an RNOR, except for income from a business controlled in India or a profession set up in India. Bringing the money into India later is not a fresh receipt, so treat the first receipt as the deciding event.

How is income apportioned when a non-resident has a business connection?

Only the part of income reasonably attributable to the operations carried out in India is deemed to accrue in India. In exam questions, the ratio is given, for example a percentage of profit. Multiply it by total profit and tax only that amount.