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

Interest of Rs. 90,000 accrues to Mr. Kapoor outside India and is shown in the balance sheet of his Indian business prepared in Mumbai. He is a non-resident. What is the tax consequence under section 5?

The interest is not taxable in India. Income accruing outside India is not deemed received in India merely because it is recorded in a balance sheet prepared in India, and a non-resident is not taxed on foreign income not received in India.

  1. AIt is taxable because it is included in a balance sheet prepared in India
  2. BIt is taxable because he has an Indian business
  3. CIt is not taxable merely because it appears in a balance sheet prepared in IndiaCorrect
  4. DIt is taxable only if remitted within the tax year

Explanation

Section 5(3) says income accruing outside India is not deemed received in India merely because it is taken into account in a balance sheet prepared in India. For a non-resident, foreign income not received in India is outside scope.

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