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CMA Intermediate · Direct and Indirect Taxation · Residential Status and Scope of Total Income

Arjun, a non-resident, sells goods to Indian customers from London. He receives Rs 5,00,000 in India as the sale proceeds of goods, and the income accrued to him outside India. Arjun earns no other income from India. Under section 5(2) of the Income-tax Act, 2025, how is the Rs 5,00,000 treated?

A non-resident is taxed under section 5(2) on income received or deemed received in India, or accruing or arising in India. Since Arjun actually received the Rs 5,00,000 in India, it is taxable even though it accrued outside India.

  1. AIt is not taxable because it accrued outside India
  2. BIt is taxable only if Arjun becomes a resident
  3. CIt is taxable only if he has a business connection in India
  4. DIt is taxable in India because a non-resident is taxed on income received in India, wherever it accruesCorrect

Explanation

Section 5(2)(a) includes in a non-resident's total income any income received or deemed to be received in India. The place of accrual does not matter once the income is received in India. So the Rs 5,00,000 is taxable. The option about accrual outside India is wrong because accrual and receipt are alternative bases of charge.

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