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CA Final · Direct Tax Laws & International Taxation · Non Resident Taxation

Under section 174 of the Income-tax Act, 2025, Dev, a resident, receives a loan from a non-resident entity connected with a transfer of assets and associated operations, income having become the non-resident's income by virtue of that transfer. How does the section treat this loan?

The loan counts as a capital sum because the definition includes any sum paid by way of loan or repayment of a loan. Since it is connected with the transfer, the income that became the non-resident's is deemed to be Dev's income, not merely the loan amount.

  1. AThe loan is a 'capital sum' and the income that became the non-resident's is deemed to be Dev's incomeCorrect
  2. BThe loan is ignored since a loan cannot be a capital sum
  3. CThe loan is a capital sum only if repaid within the year
  4. DThe loan makes only the loan amount itself taxable as Dev's income

Explanation

Section 174(7)(d)(i) defines capital sum to include any sum paid or payable by way of a loan or its repayment. Under section 174(3), if the person receives a capital sum connected with the transfer or associated operations, the income that became the non-resident's is deemed to be the person's income. The option taxing only the loan misreads the deeming effect.

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