Chapter 21: Non-Resident Taxation & Special Regimes | CA Final DT Notes

Section 2(72)

Definition of Non-Resident & Jurisdictional Principles

Statutory Definition Source vs Residence

Statutory Definition • Income-tax Act, 2025 [Corresponding to Section 2(30) of 1961 Act]

Section 2(72) defines a “non-resident” as a person who is not a “resident”, and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6.

Two Core Pillars of Cross-Border Taxation

International taxation of income across cross-border transactions universally rests on two foundational doctrines:

1. Residence-Based Taxation (Worldwide Scope)

Asserts that sovereign tax jurisdictions hold worldwide fiscal allegiance over persons who establish their personal residence, domicile, or permanent home (in case of individuals) or seat of incorporation / Place of Effective Management (POEM in case of companies). Residents are taxable on global income irrespective of where the economic activity takes place.

2. Source-Based Taxation (Territorial Nexus)

Asserts that a country has the primary right to tax income that originates within its geographic borders or economic territory, because the state provides legal infrastructure, capital markets, labor, natural resources, and consumer demand. Source jurisdiction applies regardless of the taxpayer's residential status or nationality.

Core Triad Governing Indian Tax Liability

Under Section 5 of the Income-tax Act, 2025, total income chargeability is determined by three interdependent factors:

The Residential Status of the assessee in the relevant tax year under Section 6.
The Place of Accrual or Receipt of income (whether actual or deemed under Section 7, 8, or 9).
The Timing of Accrual or Receipt during the previous tax year.

Section 6

Residential Status Determination Framework

Classification of Taxable Entities

For tax liability purposes, taxpayers are divided into three distinct residential categories for each financial year:

Entity Category	Resident and Ordinarily Resident (ROR)	Resident but Not Ordinarily Resident (RNOR)	Non-Resident (NR)
Individual	Applicable (Global Income)	Applicable (India + Foreign Business/Profession controlled from India)	Applicable (Indian Source Only)
Hindu Undivided Family (HUF)	Applicable	Applicable	Applicable
Firms, LLPs, AOPs, BOIs	Resident (No sub-division)	Not Possible	Non-Resident
Companies (Domestic & Foreign)	Resident (No sub-division)	Not Possible	Non-Resident

Section 6(1) Basic Conditions for Individuals

An individual is deemed to be a Resident in India in any tax year if he satisfies EITHER of the following basic conditions:

Statutory Basic Conditions under Section 6(1)

$$\mathbf{Condition\ [A]:}\quad ext{Physical presence in India for } \ge \mathbf{182\ days} ext{ during the relevant tax year.}$$

— OR —

$$\mathbf{Condition\ [B]:}\quad ext{Physical presence in India for } \ge \mathbf{60\ days} ext{ in relevant tax year } \mathbf{AND} \ge \mathbf{365\ days} ext{ during 4 preceding tax years.}$$

Mandatory Rule for Day Counting

In computing the period of stay in India, the day of arrival into India as well as the day of departure from India are both counted as days of presence in India, unless specific passport stamp entry/exit hours establish otherwise under continuous transit rules.

Section 6(3) Exceptions where Condition [B] (60-day rule) is INAPPLICABLE • Indian Ship Crew & Employment Abroad

In the following exceptional circumstances, Condition [B] is completely overridden and only Condition [A] (182 days) applies to establish residency:

1. Leaving India for Employment

An Indian citizen who leaves India during the previous year for the purposes of employment outside India (including self-employment or business relocation abroad).

2. Indian Crew Member on Indian Ship

An Indian citizen who leaves India as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958.

Rule 126 • Computation of Stay Period for Crew of Foreign-Bound Ships

For an eligible voyager (Indian citizen, crew member on a foreign-bound ship), the period to be EXCLUDED from his stay in India is:

$$\mathbf{Excluded\ Period} = ext{Date entered in Continuous Discharge Certificate (CDC) for joining the ship}$$ $$ ext{through to the Date entered in the CDC for signing off from the ship.}$$

Both the joining date and the sign-off date recorded in the Continuous Discharge Certificate (CDC) are excluded from the individual's stay in India.

Section 6(5) The 120-Day Concession & Anti-Abuse Rule for Visiting Citizens & PIOs

Where an Indian citizen or a Person of Indian Origin (PIO) who resides outside India comes on a visit to India during the previous year:

Total Income (Other than Foreign Source)	Applicable Threshold for Condition [B]	Resultant Residential Status
Up to ₹15,00,000	The 60-day limit in Condition [B] is extended to 182 days.	Resident only if stay $\ge$ 182 days. (Ordinary Resident if conditions met).
Exceeding ₹15,00,000 (> ₹15 Lakhs)	The 60-day limit in Condition [B] is modified to 120 days (provided 4-year stay $\ge$ 365 days).	If stay $\ge$ 182 days $ ightarrow$ Normal Resident (ROR/RNOR). If stay $\ge$ 120 days but < 182 days $ ightarrow$ Deemed RNOR automatically under Section 6(13)(c).

Meaning of "Income from Foreign Sources"

"Income from foreign sources" means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India) and which is not deemed to accrue or arise in India.

Section 6(7) Deemed Resident Rule for Stateless Individuals [Section 6(1A) of 1961 Act]

An individual, being an Indian citizen, shall be deemed to be a resident in India in any tax year if:

His total income, other than income from foreign sources, exceeds ₹15,00,000 during the previous year; AND
He is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

Statutory Status of Deemed Resident

Under Section 6(13)(d), an individual who becomes a resident by virtue of Section 6(7) is ALWAYS a Resident but Not Ordinarily Resident (RNOR). Foreign source income not connected to an Indian business/profession is completely shielded from Indian taxation!

Section 6(9) Residential Status of HUF, Partnership Firms, LLPs & AOPs

The residential status of non-corporate non-individual entities depends on the seat of Control and Management of its affairs:

Entity	Resident	Non-Resident	RNOR Conditions
Hindu Undivided Family (HUF)	If control and management of its affairs is situated wholly or partly in India.	If control and management is situated wholly outside India.	HUF is RNOR if the Karta is a non-resident in 9 out of 10 prior years OR stay of Karta $\le$ 729 days in 7 prior years.
Partnership Firm / LLP / AOP / BOI	If control and management is situated wholly or partly in India.	If control and management is situated wholly outside India.	Cannot be RNOR (Only Resident or Non-Resident).

Meaning of "Control and Management"

Refers to the controlling power, the head and brain which directs and governs business policies, financial approvals, and key operational decisions. It does not mean merely the place where trading operations are conducted, but where high-level managerial decisions are taken.

Section 6(10) Residential Status of Companies & Place of Effective Management (POEM)

A company is resident in India in any tax year if:

It is an Indian company (always resident, irrespective of management location); OR
Its Place of Effective Management (POEM) in that year is in India.

Definition of Place of Effective Management (POEM)

POEM means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made.

CBDT Guiding Principles for POEM Determination (Circular No. 6/2017)

POEM is tested sequentially based on whether the foreign company satisfies the Active Business Outside India (ABOI) test:

Four Mandatory Criteria for ABOI Test

$$\mathbf{1.\ Passive\ Income\ Test:}\quad ext{Passive income is } \le \mathbf{50\%} ext{ of total income.}$$ $$\mathbf{2.\ Assets\ Test:}\quad ext{Value of assets situated in India is } < \mathbf{50\%} ext{ of total assets.}$$ $$\mathbf{3.\ Employees\ Test:}\quad ext{Number of employees situated/resident in India is } < \mathbf{50\%} ext{ of total employees.}$$ $$\mathbf{4.\ Payroll\ Expense\ Test:}\quad ext{Payroll expense incurred on Indian employees is } < \mathbf{50\%} ext{ of total payroll expense.}$$

If ABOI Test is SATISFIED

POEM is presumed to be OUTSIDE INDIA if the majority of Board of Directors meetings are held outside India. However, if the Board is merely rubber-stamping decisions taken by an Indian parent company/de facto director, POEM will be in India.

If ABOI Test is NOT SATISFIED

Two-stage identification: First, identify the persons who actually make key commercial/managerial decisions. Second, determine the physical place where those decisions are de facto taken (head office location, executive committee seat).

Safe Harbour Turnover Threshold

CBDT Circular No. 8/2017 clarifies that POEM provisions do NOT apply to companies having turnover or gross receipts of ₹50 Crores or less in a financial year.

Section 6(13) Resident but Not Ordinarily Resident (RNOR) Conditions

An individual or HUF is classified as RNOR if they satisfy any of the statutory exclusionary gateways:

Gateway	Statutory Condition	Scope of Indian Taxation
Clause (a)	Non-Resident in India in 9 out of the 10 preceding tax years.	Shielded: Foreign income is exempt. Taxed: 1. Income received/accrued in India. 2. Income deemed received/accrued in India. 3. Foreign income derived from a business controlled in or profession set up in India.
Clause (b)	Stay in India for $\le$ 729 days during the 7 preceding tax years.
Clause (c)	Indian citizen / PIO visiting India whose total income (excl. foreign sources) > ₹15 Lakhs and stay is $\ge$ 120 days but < 182 days.
Clause (d)	Deemed resident under Section 6(7) (stateless Indian citizen).

ILLUSTRATION 1 • Residential Status of Foreign Sportsman Visiting India

Facts: Mr. Keshav Maharaj (KM), a South African cricketer, visits India for 100 days every financial year since FY 2018-19. Determine his residential status for Assessment Year 2026-27 (Previous Year 2025-26).

Statutory Analysis under Section 6(1):

Condition [A] (182 days): Stay in PY 2025-26 is 100 days, which is < 182 days. (Condition [A] NOT satisfied).
Condition [B] (60 days + 365 days):
- Stay in PY 2025-26 = 100 days ($\ge$ 60 days).
- Stay in 4 preceding years (2021-22 to 2024-25) = $100 imes 4 = 400 ext{ days}$ ($\ge$ 365 days).
- KM is NOT an Indian citizen leaving for employment or crew of an Indian ship. Hence Condition [B] applies!
- Therefore, KM is a Resident under Section 6(1).
Ordinary Residence Test under Section 6(13):
- Preceding 7 years stay (2018-19 to 2024-25) = $100 imes 7 = 700 ext{ days}$.
- Since stay in 7 preceding years is 700 days (which is $\le$ 729 days), KM satisfies the condition in Section 6(13)(b).

Conclusion: For AY 2026-27, Mr. Keshav Maharaj is a Resident but Not Ordinarily Resident (RNOR).

ILLUSTRATION 2 • POEM Determination & ABOI Test for Foreign Subsidiary

Facts: ABC Inc., a company incorporated in Sweden, is a 100% subsidiary of an Indian parent company XYZ Ltd. For the previous year 2025-26, the company presents the following financial and operational parameters:

Parameter	In India	Outside India	Total
Passive Income (Dividend, Interest, Royalty)	₹10 Crores	₹15 Crores	₹25 Crores (Total Income = ₹60 Cr)
Active Trading Income	₹5 Crores	₹30 Crores	₹35 Crores
Value of Assets	₹40 Crores	₹80 Crores	₹120 Crores
Number of Employees	30 Employees	70 Employees	100 Employees
Payroll Cost	₹4 Crores	₹16 Crores	₹20 Crores

All Board meetings were held in Stockholm, Sweden, where all commercial strategies were finalized. Determine whether ABC Inc. has its POEM in India.

Step 1: Evaluation of Active Business Outside India (ABOI) Test:

Passive Income Criterion: Passive income = ₹25 Crores / ₹60 Crores = $41.67\% \le 50\%$. Satisfied
Assets Criterion: Indian assets = ₹40 Crores / ₹120 Crores = $33.33\% < 50\%$. Satisfied
Employees Criterion: Indian employees = 30 / 100 = $30\% < 50\%$. Satisfied
Payroll Criterion: Indian payroll = ₹4 Crores / ₹20 Crores = $20\% < 50\%$. Satisfied

Since all 4 criteria are satisfied, ABC Inc. is engaged in Active Business Outside India (ABOI).

Step 2: Place of Board Meetings: Since ABC Inc. satisfies ABOI and the majority of its board meetings were held outside India (in Stockholm), its POEM is outside India.

Conclusion: ABC Inc. is a Non-Resident for Indian tax purposes in AY 2026-27.

Sections 5 & 7

Scope of Total Income & Deemed Receipts

Section 5 • Scope of Total Income Matrix

Nature of Income	ROR	RNOR	Non-Resident (NR)
1. Income received or deemed to be received in India (whether accrued in India or abroad)	Taxable	Taxable	Taxable
2. Income accruing or arising or deemed to accrue or arise in India (whether received in India or abroad)	Taxable	Taxable	Taxable
3. Income accruing or arising outside India from a business controlled in or profession set up in India	Taxable	Taxable	Not Taxable
4. Income accruing or arising outside India from any other source (pure foreign income)	Taxable	Not Taxable	Not Taxable
5. Past untaxed foreign profits remitted to India during the previous year	Not Taxable	Not Taxable	Not Taxable

Section 7 Incomes Deemed to be Received in India

Under Section 7, the following receipts are statutory fictions deemed to be received in India in the previous year:

Recognised Provident Fund: Annual accretion in excess of 12% of salary contributed by the employer, and interest credited in excess of 9.5% p.a.
Transfer of Balance: Transferred balance from an unrecognised provident fund to a recognised provident fund.
National Pension System (NPS): Contribution made by the Central Government or employer to the account of an employee under pension scheme u/s 80CCD.
Dividend Deemed: Any dividend declared, distributed or paid by a company within the meaning of section 2(22) is deemed to be the income of the year in which it is declared/paid.

Section 9

Income Deemed to Accrue or Arise in India & Economic Nexus

Statutory Mandate • Section 9(1) of the Income-tax Act, 2025

All income accruing or arising, whether directly or indirectly, through or from:

Any business connection in India;
Any property in India;
Any asset or source of income in India; or
The transfer of a capital asset situated in India,

shall be deemed to accrue or arise in India, regardless of where the payment is made or where the contract is concluded.

Business Connection, DAPE & Significant Economic Presence (SEP)

Under Indian jurisprudence and statutory provisions, a Business Connection involves an intimate, real, and continuous relation between the trading activity carried on outside India and the business activity within India.

1. Dependent Agent PE (DAPE)

A business connection includes any business activity carried out through an agent acting on behalf of the non-resident who:

Habitually exercises an authority to conclude contracts in India, or habitually plays the principal role leading to the conclusion of contracts that are routinely approved without material modification;
Habitually maintains a stock of goods or merchandise in India from which he regularly delivers goods on behalf of the non-resident; or
Habitually secures orders in India, mainly or wholly for the non-resident or other non-residents controlling or controlled by the same principal.

2. Significant Economic Presence (SEP) • Digital Economy Nexus

To capture modern cross-border digital transactions that operate without a physical presence, Significant Economic Presence (SEP) constitutes a statutory business connection in India:

Condition [A]: Revenue Threshold

$$\mathbf{Aggregate\ Payments} \ge \mathbf{₹2\ Crores}$$

Any transaction in goods, services, or property carried out by a non-resident with any person in India, including provision of download of data or software in India, where aggregate payments exceed ₹2 Crores in the previous year.

Condition [B]: User Base Threshold

$$\mathbf{Indian\ Users} \ge \mathbf{3,00,000\ (3\ Lakhs)}$$

Systematic and continuous soliciting of business activities or engaging in interaction with 3 lakh or more users in India through digital platforms, websites, apps, or social media networks.

Complete Elimination of Physical Nexus Requirements

An SEP constitutes a business connection in India irrespective of whether:

The agreement for the transaction or activity is entered into in India;
The non-resident has a residence or place of business in India; or
The non-resident renders services in India.

Statutory Exclusions from Business Connection

In the following cases, no income is deemed to accrue or arise in India through or from business operations:

Exclusion Category	Statutory Conditions & Scope
1. Purchase of Goods for Export	In case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export.
2. Collection of News & Views	No income deemed in India from operations confined to the collection of news and views in India for transmission out of India by/on behalf of a non-resident running a news agency, newspaper, magazine, or journal.
3. Shooting Cinematograph Films	Shooting of films in India by a non-resident who is: (a) an individual not a citizen of India; (b) a firm not having any partner who is a citizen/resident; or (c) a foreign company not having any shareholder who is a citizen/resident of India.
4. Display of Rough Diamonds in SNZ	Display of uncut and unassorted rough diamonds in any Special Notified Zone (SNZ) by a foreign company without carrying on any active sales operations in India.

Section 9(2) Income Accruing or Arising Outside India

Income which accrues or arises outside India shall not be deemed to be received or to accrue or arise in India solely by reason of the fact that it is taken into account in a balance sheet prepared in India or remitted to India.

Section 9(3) Salaries Deemed to Accrue or Arise in India

Salaries are deemed to accrue or arise in India in two principal situations:

Service Rendered in India: Income chargeable under the head “Salaries” is deemed to accrue or arise in India if it is earned in India (i.e. service is rendered in India). Rest periods or leave periods forming part of the employment contract and preceded/succeeded by Indian service are also treated as earned in India.
Government Salaries Paid Abroad: Income chargeable under “Salaries” payable by the Government of India to a citizen of India for service outside India is deemed to accrue or arise in India.

Section 10(7) Exemption for Foreign Allowances

While the basic salary of an Indian citizen employed abroad by the Government of India is taxable in India under Section 9(3), all allowances or perquisites paid or allowed outside India by the Government to such citizen are wholly exempt from tax under Section 10(7)!

ILLUSTRATION 3 • Indian Diplomat Posted Abroad (Ministry of External Affairs)

Facts: Mr. J, an Indian citizen, is posted at the Indian Embassy in Tokyo, Japan, by the Ministry of External Affairs. During the previous year 2025-26, he receives:

Basic Salary from Government of India: ₹18,00,000 (credited to his Tokyo bank account).
Foreign Allowance: ₹12,00,000.
Free furnished accommodation provided by the Government in Tokyo (perquisite value ₹4,00,000).
Interest on savings account in State Bank of India (Delhi branch): ₹60,000.

Compute the Total Income of Mr. J for Assessment Year 2026-27 under the default tax regime.

Particulars	Amount (₹)	Statutory Notes
Basic Salary	18,00,000	Deemed to accrue or arise in India u/s 9(3) (Govt salary to citizen abroad).
Foreign Allowance	NIL	Wholly EXEMPT under Section 10(7).
Perquisites (Tokyo Accommodation)	NIL	Wholly EXEMPT under Section 10(7).
Gross Salary	18,00,000
Less: Standard Deduction u/s 16(ia)	(75,000)	Enhanced standard deduction ₹75,000 under default tax regime.
Net Salary Income	17,25,000
Interest on SBI Savings Account (Delhi)	60,000	Accrued and received in India. Taxable under IFOS.
Total Income (Gross Total Income)	₹17,85,000	Taxable at applicable slab rates.

Section 9(4) Dividends Paid by an Indian Company Outside India

All dividends paid by an Indian company outside India are deemed to accrue or arise in India. Since dividends are taxable in the hands of shareholders under Section 56(2)(i), dividend received by a non-resident from an Indian company is taxable in India and subject to TDS under Section 195 (or Section 196D for FPIs).

Section 9(5) Interest Income Deemed to Accrue or Arise in India

Interest is deemed to accrue or arise in India depending on the category of the borrower/payer:

Payer / Borrower	Deemed Accrual in India?	Exceptions / Conditions
1. Central Government or State Government	Always Deemed	No exception. Sovereign debt interest is always Indian source.
2. Resident Person	Deemed to Accrue	EXCEPTION: Not deemed if the money borrowed is used for a business or profession carried on outside India OR for making/earning any income from any source outside India.
3. Non-Resident Person	Conditional	Deemed to accrue in India ONLY IF the money borrowed is used for a business or profession carried on by him in India. (Not deemed if used for earning other Indian income).

Section 9(6) Royalty Income & Software Licensing

Royalty is deemed to accrue or arise in India if payable by Government, or by a Resident (except for overseas business/source), or by a Non-Resident (where right/property is used for business/source in India).

Scope of Royalty under Explanations to Section 9(1)(vi)

Explanation 2: Consideration for transfer of rights in patent, invention, design, trademark, copyright of literary/artistic/scientific work, films/tapes, or imparting of information/know-how.
Explanation 4 (Computer Software): Transfer of all or any rights for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.
Explanation 5 (No Possession/Control Needed): Royalty includes consideration whether or not possession or control is with payer, whether used directly by payer, and whether the location of right/property is in India.
Explanation 6 (Process): Includes transmission by satellite (uplinking/downlinking), cable, optic fibre, or similar technology.

Landmark Precedent: Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT [2021] (SC)

Supreme Court Ruling on Shrink-Wrapped / Off-the-Shelf Software:

The Supreme Court held that the purchase of standard copyrighted software (shrink-wrapped software / off-the-shelf software) by Indian distributors or end-users does NOT constitute Royalty under the DTAA (Article 12):

There is a vital distinction between the transfer of a “copyright” (which gives the right to commercially exploit, reproduce, or modify) and the transfer of a “copyrighted article” (a user license to utilize the finished software product).
Since DTAA definitions take precedence over domestic law under Section 90(2), non-resident software suppliers residing in treaty partner countries are not liable to Indian TDS/tax as royalty, but represent business profits (taxable only if they have a Permanent Establishment in India).

Section 9(7) Fees for Technical Services (FTS)

Fees for Technical Services (FTS) means any consideration (including lump sum) for rendering of any:

Managerial Services

Technical Services

Consultancy Services

Statutory Exclusions from FTS: Does NOT include consideration for any construction, assembly, mining or like project undertaken by the recipient, or consideration which falls under the head “Salaries”.

Section 9(8) Monetary Gifts to Non-Residents

Any sum of money exceeding ₹50,000 paid on or after 5th July, 2019 by an Indian resident to a non-resident or a foreign company is deemed to accrue or arise in India under Section 9(8). Such gift is chargeable to tax under Section 56(2)(x) in the hands of the non-resident recipient.

Section 9(11) Royalty & FTS Taxed Irrespective of Territorial Nexus (Situs of Service Rule)

Under Section 9(11) [corresponding to Explanation to Section 9 of the 1961 Act], interest, royalty, or fees for technical services shall be deemed to accrue or arise in India to a non-resident whether or not:

The non-resident has a residence or place of business or business connection in India; OR
The non-resident has rendered services in India!

Utilization Test Prevails

Even if 100% of the technical or architectural services are executed sitting outside India, if the service/intellectual property is utilized for a business or property in India, the income is deemed to accrue or arise in India!

ILLUSTRATION 4 • Technical Fees Paid to US Architect for Properties

Facts: Miss Vivitha, a resident in India, pays technical fees of USD 25,000 to Mr. Robert, an architect based in New York (non-resident), for drawing architectural designs for:

A residential house property being constructed by Vivitha in New York, USA.
A commercial shopping mall being constructed by Vivitha in Mumbai, India.

Mr. Robert performed all design work entirely from his office in New York and never visited India. Determine whether the fees are deemed to accrue or arise in India.

Statutory Analysis under Section 9(7) and Section 9(11):

Transaction 1 (New York House): Fees paid by a resident to a non-resident for services utilized for a source of income / property situated outside India. Under Section 9(7), this falls directly within the statutory exception. Hence, USD 25,000 for the NY property is NOT deemed to accrue or arise in India.
Transaction 2 (Mumbai Shopping Mall): Fees paid by a resident for services utilized for a property/business in India. Under Section 9(11), since the property is in India, the fees are deemed to accrue or arise in India notwithstanding the fact that Mr. Robert rendered all services in New York and has no place of business in India!

ILLUSTRATION 5 • Comprehensive Computation of Non-Resident Total Income & Tax Liability

Facts: Delta Corp, a foreign company incorporated in Germany, presents the following income streams earned during the previous year 2025-26:

Income Item	Amount (₹)	Particulars
Dividend from Indian Company	₹15,00,000	Gross dividend credited to German bank account.
Interest on Indian Government Securities	₹8,00,000	Gross interest received from RBI.
Royalty from Indian Company ABC Ltd.	₹25,00,000	For providing patented manufacturing process in India (No PE in India).
Fees for Technical Services (FTS)	₹12,00,000	Paid by an Indian firm for factory setup in Germany.
Long-Term Capital Gains on unlisted shares	₹10,00,000	Sale of unlisted shares of Indian private limited company.

Compute the Total Income and Tax Liability of Delta Corp for Assessment Year 2026-27 under the provisions of the Income-tax Act, 2025 (assume surcharge and HEC apply, no DTAA relief opted).

Step 1: Computation of Total Income of Delta Corp:

Particulars	Amount (₹)	Applicable Section & Tax Rate
Dividend from Indian Company	15,00,000	Sec 115A / Normal: Taxable @ 20%
Interest on Indian Government Securities	8,00,000	Sec 115A: Taxable @ 20%
Royalty from Indian Company (No PE)	25,00,000	Sec 115A: Taxable @ 20% gross (No deduction u/s 28 to 44D)
Fees for Technical Services (factory in Germany)	NIL	NOT deemed in India u/s 9(7) (utilized for overseas business)
LTCG on Unlisted Shares of Indian Co.	10,00,000	Sec 112(1)(c)(iii): Taxable @ 10% (no indexation, no FX benefit)
Gross Total Income / Total Income	₹58,00,000

Step 2: Tax Liability Computation:

Tax Component	Basis of Calculation	Amount (₹)
Tax on Dividend (₹15,00,000 @ 20%)	$15,00,000 \times 20\%$	3,00,000
Tax on Interest (₹8,00,000 @ 20%)	$8,00,000 \times 20\%$	1,60,000
Tax on Royalty (₹25,00,000 @ 20%)	$25,00,000 \times 20\%$	5,00,000
Tax on LTCG (₹10,00,000 @ 10%)	$10,00,000 \times 10\%$	1,00,000
Base Tax Payable	Total Special Rate Taxes	10,60,000
Add: Surcharge (Foreign Co Total Income ₹58 Lakhs > ₹1 Cr: NIL; Surcharge applies > ₹1 Cr)	Income ≤ ₹1 Crore $\rightarrow$ NIL Surcharge	NIL
Add: Health and Education Cess @ 4%	$10,60,000 \times 4\%$	42,400
Total Tax Payable (Delta Corp)	Rounded off u/s 288B	₹11,02,400

Section 10 / 11-13

Exempted Income of Non-Residents & IFSC Concessions

Major Incomes of Non-Residents Exempt from Tax

Statutory Clause	Nature of Income	Conditions for Exemption
Section 10(4)(ii)	Interest on Non-Resident (External) [NRE] Account	Individual must be a person resident outside India under FEMA, 1999, or permitted by RBI to maintain such account.
Section 10(4B)	Interest on notified Government Savings Certificates	Subscribed in foreign currency by an Indian citizen or PIO non-resident.
Section 10(6)	Remuneration of foreign diplomatic personnel & foreign enterprise employees	Services rendered by foreign officials, consular staff, or foreign trainees in India subject to reciprocal bilateral conventions.
Section 10(15)(iv)(fa)	Interest on Foreign Currency Non-Resident (FCNR) Deposits	Exempt in the hands of a Non-Resident or RNOR on deposits with scheduled banks.
Section 10(4D)	Specified Income of Specified Fund (IFSC)	Capital gains on transfer of capital assets (ADR/GDR, rupee denominated bonds, derivatives) on an IFSC exchange by Category-III AIFs.
Section 10(4F)	Royalty or Interest from Lease of Aircraft / Ship	Paid by a Unit of an IFSC to a non-resident, provided the unit commences operation on or before 31st March, 2026.
Section 10(4G)	Income from Portfolio Management Services in IFSC	Received by a non-resident from an IFSC unit to the extent derived from investments outside India.

Section 59

Royalty & FTS with Indian Permanent Establishment (PE)

Statutory Provision • Section 59 of the Income-tax Act, 2025 [Corresponding to Section 44DA of 1961 Act]

Where a non-resident or a foreign company carries on business in India through a Permanent Establishment (PE) or performs professional services from a fixed place of profession situated in India, and the right, property or contract in respect of which Royalty or Fees for Technical Services (FTS) is paid is effectively connected with such PE or fixed place:

The income shall be computed under the head “Profits and gains of business or profession” on a NET BASIS.
Deductions allowable under Sections 30 to 38 are permitted in respect of expenses incurred wholly and exclusively for the business of the PE.
Disallowance: No deduction shall be allowed in respect of any amount paid by the PE to its Head Office (other than towards reimbursement of actual expenses).
Mandatory Audit: The assessee must maintain statutory books of accounts under Section 44AA and obtain a Tax Audit Report in the prescribed form from an Accountant under Section 44AB.

Section 115A (No PE) vs Section 59 (Effectively Connected PE)

Section 115A (Gross Basis): Applicable where non-resident has NO PE in India. Taxed at a flat gross rate of 20% (under domestic law) with ZERO expense deductions.

Section 59 (Net Basis with PE)

Section 59 (Net Basis): Applicable where Royalty/FTS is effectively connected to an Indian PE. Taxed at the applicable corporate tax rate for foreign companies (35% w.e.f. AY 2025-26, earlier 40%) on NET PROFIT after deducting operating expenses.

Section 60

Head Office Expenditure Deduction • The 5% Cap

Statutory Mandate • Section 60 of the Income-tax Act, 2025 [Corresponding to Section 44C of 1961 Act]

In the case of a non-resident having an Indian branch or PE, the deduction allowable in respect of Head Office Expenditure in computing business income is capped at the LEAST of the following:

$$\mathbf{Allowable\ HO\ Expenditure} = \mathbf{MINIMUM}\ \text{of}:$$ $$\text{(a) Actual Head Office Expenditure attributable to the Indian business; OR}$$ $$\text{(b) An amount equal to } \mathbf{5\%} \text{ of the } \mathbf{Adjusted\ Total\ Income}.$$

Computation of "Adjusted Total Income"

Adjusted Total Income means the total income of the assessee computed before giving effect to:

Deduction in respect of Head Office expenditure under this section;
Deductions under Chapter VI-A;
Unabsorbed depreciation under Section 32(2);
Brought forward business losses under Section 72; and
Family pension or investment allowances if any.

Treatment when Adjusted Total Income is a Loss

If the Adjusted Total Income of the Indian branch is a Loss, 5% of Adjusted Total Income is treated as NIL. Consequently, the allowable deduction for Head Office expenditure for that year is NIL!

ILLUSTRATION 6 • Head Office Expenditure Deduction with Profit and Loss Scenarios

Facts: Tokyo Bank Ltd., a foreign banking company incorporated in Japan, has an Indian branch in Mumbai. For PY 2025-26, the branch accounts show:

Net Profit as per P&L Account: ₹80,00,000 (after debiting HO administrative expenses of ₹25,00,000).
Brought forward business loss of PY 2023-24: ₹15,00,000.
Unabsorbed depreciation of PY 2024-25: ₹10,00,000.
Deductions under Chapter VI-A: ₹5,00,000.

Compute the allowable Head Office expenditure under Section 60 and the Total Income of the Indian branch for AY 2026-27.

Step 1: Computation of Adjusted Total Income:

Particulars	Amount (₹)
Net Profit as per P&L Account	80,00,000
Add: Head Office Administrative Expenses debited to P&L	25,00,000
Adjusted Total Income	1,05,00,000

Step 2: Determining Allowable Head Office Expenditure u/s 60:

Lower of:

Actual HO expenses attributable to Indian business = ₹25,00,000
5% of Adjusted Total Income ($1,05,00,000 \times 5\%$) = ₹5,25,000

Therefore, allowable Head Office Expenditure = ₹5,25,000. (Disallowed HO expenses = $25,00,000 - 5,25,000 = ₹19,75,000$).

Step 3: Computation of Total Income:

Particulars	Amount (₹)
Adjusted Total Income	1,05,00,000
Less: Allowable Head Office Expenditure u/s 60	(5,25,000)
Profits before set-off of b/f losses and depreciation	99,75,000
Less: Brought forward business loss	(15,00,000)
Less: Unabsorbed depreciation	(10,00,000)
Gross Total Income	74,75,000
Less: Deductions under Chapter VI-A	(5,00,000)
Total Income (Taxable Income)	₹69,75,000

Section 61

Presumptive Taxation for Non-Residents (Shipping, Aircraft, Oil & Turnkey)

Comparative Matrix • Presumptive Regimes under Section 61

Business Category	Statutory Sub-section	Deemed Profit Rate	Receipts Included in Tax Base
Shipping Business of Non-Residents	Section 61(1) (Sec 44B of 1961 Act)	7.5% of gross receipts	1. Paid/payable on carriage shipped at any port in India (whether received in or out of India). 2. Received/deemed received in India on carriage shipped at any port outside India. (Includes demurrage and handling charges).
Aircraft Operations of Non-Residents	Section 61(2) (Sec 44BBA of 1961 Act)	5% of gross receipts	1. Paid/payable on carriage embarking at any place in India. 2. Received/deemed received in India on carriage embarking outside India.
Oil Exploration / Mineral Oil Services	Section 61(3) (Sec 44BB of 1961 Act)	10% of gross receipts	Amounts paid/payable or received/deemed received for provision of services or facilities or plant/machinery on hire in connection with prospecting, extraction or production of mineral oils.
Turnkey Power Projects of Foreign Companies	Section 61(4) (Sec 44BBB of 1961 Act)	10% of gross receipts	Amounts paid/payable or received/deemed received for civil construction, erection, testing or commissioning of plant and machinery in turnkey power projects approved by Central Govt.

ILLUSTRATION 7 • Non-Resident Shipping Business Presumptive Profit Computation

Facts: Sea Port Shipping Line, a non-resident foreign shipping company, collected the following billings during PY 2025-26:

Freight of ₹1,20,00,000 for goods shipped at Chennai Port (received in London in GBP).
Freight of ₹80,00,000 for goods shipped at Kolkata Port (received in Kolkata in INR).
Freight of ₹60,00,000 for goods shipped at Singapore Port to Chennai (freight received in India).
Freight of ₹40,00,000 for goods shipped at Dubai Port to Visakhapatnam (freight received in Dubai).
Demurrage charges received in India for delay in unloading at Chennai: ₹10,00,000.
Handling charges received in London for cargo loaded at Kolkata: ₹5,00,000.

Total Indian operational expenditure was ₹90,00,000. Compute the taxable business profit under Section 61(1).

Statutory Analysis under Section 61(1) [Section 44B]:

Presumptive base comprises:

All amounts paid/payable for carriage shipped at any Indian port (Chennai ₹1.2 Cr + Kolkata ₹80 L) = ₹2,00,00,000 (irrespective of place of receipt).
Handling charges for goods shipped at Kolkata = ₹5,00,000.
Demurrage charges for Indian port delay = ₹10,00,000.
Goods shipped outside India (Singapore to Chennai) where freight is received in India = ₹60,00,000.
Freight for goods shipped outside India (Dubai) received outside India (Dubai) = ₹40,00,000 is EXCLUDED.

Item	Included in Base?	Amount (₹)
Chennai port carriage (received in London)	Included	1,20,00,000
Kolkata port carriage (received in India)	Included	80,00,000
Singapore carriage received in India	Included	60,00,000
Dubai carriage received in Dubai	Excluded	NIL
Demurrage charges received in India	Included	10,00,000
Cargo handling charges for Kolkata port	Included	5,00,000
Total Presumptive Base		2,75,00,000
Deemed Profit u/s 61(1) @ 7.5%	$2,75,00,000 \times 7.5\%$	₹20,62,500

Note: Actual expenses of ₹90,00,000 are not deductible as Section 61(1) is a non-obstante presumptive code.

ILLUSTRATION 8 • Aircraft Operation Presumptive Profit Computation

Facts: AeroTrans SAS, a French airline company, operated passenger flights during PY 2025-26 and collected:

Passenger fare collected in India for flights embarking from Mumbai to Paris: ₹3,00,00,000.
Passenger fare collected in France for flights embarking from Delhi to London: ₹2,00,00,000.
Cargo freight collected in India for cargo embarking from New York to Mumbai: ₹1,50,00,000.
Passenger fare collected in Paris for flights embarking from Frankfurt to Paris: ₹80,00,000.

Compute profits and gains of AeroTrans SAS under Section 61(2).

Statutory Analysis under Section 61(2) [Section 44BBA]:

Presumptive rate is 5% of:

All carriage embarking from India (Mumbai flight ₹3 Cr + Delhi flight ₹2 Cr) = ₹5,00,00,000 (irrespective of where paid).
Carriage embarking outside India where freight is received in India (NY to Mumbai freight received in India) = ₹1,50,00,000.
Frankfurt to Paris flights collected in Paris = Excluded (no Indian nexus).

Total Qualifying Receipts: $3,00,00,000 + 2,00,00,000 + 1,50,00,000 = \mathbf{₹6,50,00,000}$.

Deemed Business Profit u/s 61(2) @ 5%: $6,50,00,000 \times 5\% = \mathbf{₹32,50,000}$.

Section 210

Taxation of Foreign Institutional Investors (FII / FPI)

Statutory Regime • Section 210 of the Income-tax Act, 2025 [Corresponding to Section 115AD of 1961 Act]

Income received by a notified Foreign Institutional Investor (FII) or Foreign Portfolio Investor (FPI) from securities or capital gains is taxed at concessional flat rates:

Income Category	Concessional Tax Rate	Statutory Conditions
Dividend & Interest on Securities	20%	Gross basis. Zero deductions under Sections 28 to 44C or 57 or Chapter VI-A.
Short-Term Capital Gains u/s 111A	20% (w.e.f. 23.07.2024)	Equity shares or units of equity oriented fund where STT paid.
Other Short-Term Capital Gains	30%	Debentures, bonds, derivatives, unlisted securities.
Long-Term Capital Gains u/s 112A	12.5% (w.e.f. 23.07.2024)	On gains exceeding ₹1.25 Lakhs where STT paid.
Other Long-Term Capital Gains	12.5% (w.e.f. 23.07.2024)	Unlisted shares, debt instruments (without indexation).

Exclusion of Section 48 Provisos for FIIs

In computing capital gains of FIIs/FPIs, the first proviso to section 48 (foreign currency fluctuation benefit) and the second proviso to section 48 (indexation benefit) are NOT APPLICABLE.

Section 211

Taxation of Foreign Sportsmen, Sports Associations & Entertainers

Statutory Code • Section 211 of the Income-tax Act, 2025 [Corresponding to Section 115BBA of 1961 Act]

Applies to a non-resident individual who is not a citizen of India and is a sportsman (including an athlete) or an entertainer, and non-resident sports associations/institutions:

Category	Covered Income Streams	Tax Rate
Non-Resident Sportsman	1. Participation in any game or sport in India (other than lotteries/horse races). 2. Advertisements in India. 3. Contribution of articles relating to any game/sport in Indian newspapers, magazines or journals.	20% + Surcharge + 4% HEC
Non-Resident Sports Association	Any amount guaranteed to be paid or payable in relation to any game or sport played in India.	20% + Surcharge + 4% HEC
Non-Resident Entertainer	Income received/receivable from any performance in India.	20% + Surcharge + 4% HEC

Zero Expense Deductions

Under Section 211(2), NO DEDUCTION in respect of any expenditure or allowance shall be allowed under any provision of the Act in computing such income!

Exemption from Filing ITR

Under Section 211(3), the sportsman/entertainer is not required to file return of income u/s 139(1) if total income consists only of such incomes AND tax deductible at source u/s 194E has been fully deducted.

ILLUSTRATION 9 • Rafael Nadal Tennis Player in India

Facts: Rafael Nadal, a renowned tennis player and citizen of Spain (non-resident in India), visits India to participate in an exhibition tennis tournament. During PY 2025-26, he earns:

Prize money for participation in tournament: ₹25,00,000.
Endorsement fees from an Indian brand for endorsing sportswear: ₹15,00,000.
Remuneration for writing articles on tennis strategies in an Indian sports daily: ₹2,00,000.
Travelling and coaching expenses incurred in India: ₹6,00,000.

Determine his tax liability in India and examine whether he is required to file a return of income.

Computation of Tax Liability of Rafael Nadal:

All 3 receipts (participation ₹25L, advertisement ₹15L, newspaper article ₹2L) fall squarely under Section 211.
Total Gross Income: $25,00,000 + 15,00,000 + 2,00,000 = \mathbf{₹42,00,000}$.
Deductions: Under Section 211(2), no deduction is allowable for travelling/coaching expenses of ₹6,00,000.
Tax Rate: 20% on ₹42,00,000 = ₹8,40,000.
Surcharge: Nil (income ≤ ₹50 Lakhs).
Health and Education Cess @ 4%: $8,40,000 \times 4\% = ₹33,600$.
Total Tax Payable: $\mathbf{₹8,73,600}$.

Filing Requirement: Since all income is covered u/s 211 and if tax has been deducted at source under Section 194E @ 20.8%, he is NOT required to furnish a return of income under Section 139(1).

ILLUSTRATION 10 • Foreign Cricketer Match Fees & Advertisements

Facts: Steve Smith, an Australian cricketer (non-resident), participates in matches in India and earns match fees of ₹30,00,000 and advertisement earnings of ₹20,00,000. He also won ₹5,00,000 from horse racing in Bengaluru. Compute his tax liability.

Statutory Analysis:

Match fees (₹30 Lakhs) and advertisement income (₹20 Lakhs) are taxable under Section 211 @ 20% ($50,00,000 \times 20\% = ₹10,00,000$).
Horse racing winning (₹5 Lakhs) is NOT covered by Section 211 (statutorily excluded). It is taxable under Section 115BB @ 30% ($5,00,000 \times 30\% = ₹1,50,000$).
Base Tax: $10,00,000 + 1,50,000 = ₹11,50,000$.
Add: Surcharge: Total income = ₹55 Lakhs (> ₹50 Lakhs but ≤ ₹1 Crore) $\rightarrow$ Surcharge @ 10% = ₹1,15,000.
Tax + Surcharge: ₹12,65,000.
Add: HEC @ 4%: $12,65,000 \times 4\% = ₹50,600$.
Total Tax Liability: $\mathbf{₹13,15,600}$.
Return Filing: Because he has horse racing income, he CANNOT avail exemption from filing return and MUST file ITR under Section 139(1).

Sections 214 & 215

Special Provisions for Non-Resident Indians (NRIs • Chapter XII-A)

Chapter XII-A Architecture • Foreign Exchange Assets

Chapter XII-A provides a simplified, low-tax regime for Non-Resident Indians (NRIs) who invest convertible foreign exchange in specified Indian assets:

Specified Foreign Exchange Assets

Shares in an Indian company;
Debentures issued by an Indian public company;
Deposits with an Indian public company;
Central Government securities; and
Other notified assets, acquired with convertible foreign exchange.

Concessional Tax Rates under Section 214

Investment Income: Taxed @ 20%. (Zero Chapter VI-A deductions).
Long-Term Capital Gains: Taxed @ 12.5% (w.e.f. 23.07.2024, earlier 10%).
No indexation benefit under second proviso to Section 48.

Section 215 Reinvestment Exemption for LTCG on Foreign Exchange Assets [Sec 115F]

Where a capital gain arises from the transfer of a foreign exchange asset (being a long-term capital asset), and the NRI invests the whole or any part of the net consideration in any specified asset within 6 months from the date of transfer:

Reinvestment Exemption Formula u/s 215

$$\mathbf{Exemption\ Amount} = \mathbf{Capital\ Gain} \times \frac{\mathbf{Cost\ of\ New\ Specified\ Asset}}{\mathbf{Net\ Consideration}}$$

3-Year Lock-in Period & Clawback

If the new specified asset is transferred or converted into money within a period of 3 years from the date of its acquisition, the capital gain exempted earlier shall be deemed to be Long-Term Capital Gains of the previous year in which such asset is transferred/converted!

ILLUSTRATION 11 • Remittance in Foreign Currency vs First Proviso to Section 48

Facts: Mr. A, a non-resident, purchased 10,000 equity shares of an Indian listed company on 01.05.2023 for USD 20,000 (TTBR on acquisition date: 1 USD = ₹75; Cost in INR = ₹15,00,000). On 10.08.2025, he sells the shares for USD 35,000 (TTSR on sale date: 1 USD = ₹82; Sale value in INR = ₹28,70,000). STT paid on sale. Brokerage paid in USD = USD 500 (TTBR on transfer date: 1 USD = ₹82). Compute capital gains under the first proviso to Section 48.

Computation under First Proviso to Section 48:

Particulars	Amount in USD ($)	Exchange Rate	Amount in INR (₹)
Full Value of Consideration	$35,000	TTSR: ₹82
Less: Expenditure on transfer (Brokerage)	($500)	TTBR: ₹82
Net Consideration	$34,500
Less: Cost of Acquisition	($20,000)	TTBR on purchase: ₹75
Capital Gains in Foreign Currency (USD)	$14,500
Reconverted to INR (TTBR on transfer date: ₹82)	$14,500 \times ₹82		₹11,89,000

Since shares were held for > 12 months, it is LTCG. Taxable u/s 112A @ 12.5% on gains exceeding ₹1.25 Lakhs.

ILLUSTRATION 12 • Section 215 Reinvestment Exemption on NRI Assets

Facts: Mr. Vikram, a Non-Resident Indian, sells shares of an Indian public company (purchased out of foreign exchange) on 15.10.2025 for a net consideration of ₹50,00,000. Long-term capital gain computed is ₹20,00,000. On 10.02.2026 (within 4 months), he purchases Central Government Securities for ₹30,00,000. Compute the taxable capital gain under Section 215.

Application of Section 215 (Sec 115F):

$$\mathbf{Exemption} = \text{LTCG} \times \frac{\text{Cost of New Asset}}{\text{Net Consideration}} = 20,00,000 \times \frac{30,00,000}{50,00,000} = \mathbf{₹12,00,000}$$

Taxable Long-Term Capital Gains: $20,00,000 - 12,00,000 = \mathbf{₹8,00,000}$. Taxable @ 12.5% u/s 214.

ILLUSTRATION 13 • NRI Convertible Debentures & Regime Election

Facts: Mr. John, an NRI, earned interest of ₹4,00,000 on convertible debentures of an Indian company purchased in US Dollars. He also earned ₹2,00,000 from Indian rental income. He wonders whether he must elect to be governed by Chapter XII-A or normal provisions.

Statutory Analysis under Section 217 (Sec 115-I):

An NRI may elect NOT to be governed by Chapter XII-A for any assessment year by furnishing his return of income under Section 139 along with a declaration to that effect. If he opts out, his total income will be charged under normal provisions of the Act (allowing slab benefits, standard deductions, and normal tax rates).

Sections 219 & 220

Branch Conversion into Indian Subsidiary & First-Time Transition

Section 219 Tax Neutrality on Conversion of Indian Branch of Foreign Bank into Subsidiary [Sec 115JG]

Where an Indian branch of a foreign company/bank is converted into an Indian subsidiary company in accordance with RBI scheme:

Capital Gains Exemption: Capital gains arising from the transfer of capital assets or goodwill of the branch to the subsidiary company are completely exempt from capital gains tax.
Carry Forward of Losses & Depreciation: Accumulated business losses and unabsorbed depreciation of the branch are deemed to be losses and depreciation of the Indian subsidiary for the previous year of conversion.

Section 220 Statutory Transition Mechanism for Foreign Company Assessed for First Time

When a foreign company is assessed to tax in India for the first time by virtue of its POEM being in India, Section 220 provides special transitional rules regarding:

Depreciation Written Down Value (WDV): Determining the opening WDV of assets located outside India based on foreign tax records or books of account.
Brought Forward Foreign Losses: Set-off and carry forward of past business losses and unabsorbed depreciation incurred outside India, subject to conditions specified by CBDT.

Sections 306, 434, 505 & 506

Withholding Tax, Statutory Agents & Reporting Compliance

Section 195 • Withholding Tax on Payments to Non-Residents

Any person responsible for paying to a non-resident or a foreign company any interest or any other sum chargeable under the provisions of the Act (other than salaries) is required to deduct tax at source at the rates in force.

Lower / Nil Deduction Certificate

Section 195(2) / Section 197: The payer or non-resident recipient can apply to the Assessing Officer for a certificate authorizing deduction of tax at a lower rate or nil rate if the whole sum is not chargeable to income tax.

Form 15CA & Form 15CB

Remittance abroad requires electronic filing of Form 15CA along with a Chartered Accountant certification in Form 15CB certifying applicability of tax rates and DTAA benefits.

Section 434 Appeal / Refund for Denying Liability to Deduct Tax [Sec 248 of 1961 Act]

Where an Indian payer has deducted tax at source on a payment made to a non-resident under an agreement where tax was borne by the payer, and the payer claims that no tax was deductible on such sum, he may file an appeal before the Commissioner (Appeals) under Section 434 for refund of the tax paid.

Section 306 Statutory Agent of Non-Residents and Representative Assessee [Sec 163]

The Assessing Officer may, after giving reasonable opportunity of being heard, treat any of the following persons in India as the Statutory Agent (Representative Assessee) of a non-resident:

Any person employed by or on behalf of the non-resident;
Any person having any business connection with the non-resident;
Any person from or through whom the non-resident is in receipt of any income, directly or indirectly; or
Any person who is the trustee of the non-resident or has acquired an asset from him.

Section 505 Annual Statement by Liaison Office in India (Form 49C) [Sec 285]

Every non-resident person having a Liaison Office in India established under RBI regulations is mandatorily required to submit an Annual Statement in Form 49C to the Assessing Officer within 60 days from the end of the financial year (i.e. on or before 30th May).

Section 506 Reporting by Indian Concerns with Foreign Shareholding (Indirect Transfers) [Sec 285A]

Where any share of, or interest in, a foreign company or entity derives its value substantially from assets located in India (indirect transfer under Section 9(1)), the Indian concern is mandatorily required to furnish prescribed information and documents in Form 49D to the tax authority within 90 days of transaction or end of financial year. Failure to furnish information attracts stringent financial penalties under Section 271GA.

Practical Application

ICAI Test Your Knowledge (TYK Questions 1 to 10)

Examination Focus & Practical Problem Solving

The following 10 comprehensive problems from the ICAI CA Final Study Material test advanced application of residential status rules, deemed accrual under Section 9, presumptive codes under Section 61, FII taxation under Section 210, and POEM ABOI mechanics.

TYK QUESTION 1 • Peeyush Returning to India after 20 Years in UK

Facts: Peeyush, who returned to India on 12th June 2026 for permanently residing in India after a stay of about 20 years in U.K., provides the sources of his various incomes and seeks your opinion to know about his liability to income-tax thereon in India in tax year 2026-27:

Rent of London Flat: Income of rent of the flat in London which was deposited in a bank there. The flat was given on rent by him after his return to India since July, 2026.
Dividends from German Companies: Dividends on the shares of three German Companies which are being collected in a bank account in London. He proposes to keep the dividend on shares in London with the permission of the Reserve Bank of India.
Incomes of Minor and Major Sons: He has got two sons, one of whom is 12 years and the other 19 years. Both his sons are staying in London and not returning to India with him. Each of his sons is having income of ₹75,000 in U.K. in foreign currency (not received in India) and ₹20,000 in India.
Sale of UK Shares in Preceding Year: During the preceding tax year when he was a non-resident, he had sold 1,000 shares which were acquired by him in British Pound Sterling and the sale proceeds were repatriated. The profit in terms of GBP on sale of these 1,000 shares was 175% of the cost at ₹37,500 while in terms of Indian Rupee it was ₹50,000.

Step 1: Residential Status of Peeyush for Tax Year 2026-27:

Stay in India: 12th June 2026 to 31st March 2027 = 19 (June) + 31 (July) + 31 (Aug) + 30 (Sept) + 31 (Oct) + 30 (Nov) + 31 (Dec) + 31 (Jan) + 28 (Feb) + 31 (March) = 293 days.
Since his stay in India is $\ge$ 182 days, he is a Resident in India under Section 6(1).
Ordinary Residence Test u/s 6(13): Peeyush was a non-resident in all the 10 preceding tax years (having lived in UK for 20 years). Under Section 6(13)(a), an individual who has been a non-resident in 9 out of 10 preceding tax years is a Resident but Not Ordinarily Resident (RNOR).

Step 2: Taxability of Incomes in the Hands of RNOR:

Income Stream	Taxability	Statutory Justification
(i) London Flat Rent	Not Taxable	Accrued and received outside India. In case of RNOR, foreign income not derived from an Indian business/profession is not taxable.
(ii) German Company Dividends	Not Taxable	Accrues and received in London. RNOR is not taxable on foreign investment dividends.
(iii) Income of 19-Year Old Son	Self Assessment	Being a major (19 years), his income cannot be clubbed with Peeyush. The son will be taxable independently on Indian income of ₹20,000.
(iii) Income of 12-Year Old Minor Son	Clubbed: ₹18,500	Under Section 64(1A), minor's income is clubbed with the parent whose total income is greater. Minor's UK income of ₹75,000 is not taxable in India (father is RNOR). Minor's Indian income of ₹20,000 is clubbed after allowing exemption of ₹1,500 u/s 10(32), resulting in ₹18,500 taxable under IFOS.
(iv) Repatriation of Past Capital Gain	Not Taxable	The profit arose during the preceding year when he was a non-resident. Repatriation of past profits into India is not a receipt of income in India.

TYK QUESTION 2 • Mr. David • MEA Official Posted in Indian Embassy in Canada

Facts: Mr. David, a citizen of India, serving in the Ministry of External Affairs in India, was transferred to the Indian Embassy in Canada on 31.03.2026. He did not visit India any time during the tax year 2026-27. He has received the following income for the tax Year 2026-27:

S. No.	Particulars	Amount (₹)
(i)	Salary (Computed)	5,00,000
(ii)	Foreign Allowance	4,00,000
(iii)	Interest on fixed deposit from bank in India	1,00,000
(iv)	Income from agriculture in Country X	2,00,000
(v)	Income from house property in Country X	2,50,000

Compute his Gross Total Income for tax year 2026-27.

Residential Status: Mr. David's stay in India during PY 2026-27 is 0 days. He is a Non-Resident.

Computation of Gross Total Income:

Particulars	Amount (₹)	Statutory Notes
Salary Income (Computed)	5,00,000	Deemed to accrue or arise in India u/s 9(3) (Salary payable by Govt of India to a citizen abroad).
Foreign Allowance	NIL	Wholly EXEMPT under Section 10(7).
Interest on Fixed Deposit in India	1,00,000	Income accrued and received in India from Indian bank.
Agricultural Income in Country X	NIL	Accrued and received outside India; not taxable for non-resident.
House Property Income in Country X	NIL	Accrued and received outside India; not taxable for non-resident.
Gross Total Income	₹6,00,000

TYK QUESTION 3 • Interest Charged between Non-Residents for Indian Share Purchase

Facts: Mr. A, a citizen of India, left for USA for the purposes of employment on 1.5.2026. He has not visited India thereafter. Mr. A borrows money from his friend Mr. B, who also left India for employment purpose one week before Mr. A's departure, to the extent of ₹10 lakhs and buys shares in X Ltd., an Indian company. Discuss the taxability of the interest charged @ 10% in B's hands, if the said interest has been received in New York.

Statutory Analysis under Section 9(5):

Residential Status of Mr. A and Mr. B: Both left India for employment abroad during PY 2026-27. Mr. A stayed for only 30 days and Mr. B stayed for 23 days (both < 182 days). Under Section 6(3), both are Non-Residents.
Deemed Accrual Rule for Interest u/s 9(5)(c): Interest payable by a non-resident is deemed to accrue or arise in India ONLY IF the borrowed funds are utilized for the purposes of a business or profession carried on by him in India.
Application to Facts: Here, the borrower Mr. A utilized the borrowed money to buy shares in an Indian company. Investment in shares yields dividend or capital gains and does NOT constitute a business or profession carried on by Mr. A in India.

Conclusion: The interest of ₹1,00,000 ($10,00,000 \times 10\%$) received by Mr. B in New York is NOT deemed to accrue or arise in India and is therefore NOT taxable in India in the hands of Mr. B.

TYK QUESTION 4 • Off-shore Technical Services for Indian Fertilizer Plant

Facts: JJ Limited, a company incorporated in Australia, has entered into an agreement with KK Limited, an Indian company, for rendering technical services to the latter for setting up a fertilizer plant in Orissa. As per the agreement, JJ Limited rendered both off-shore services and on-shore services to KK Limited at fees of ₹1 Crore and ₹1.5 Crore, respectively. JJ Limited is of the view that it is not liable to tax in India in respect of fee of ₹1 Crore as it is for rendering services outside India. Discuss the correctness of the view of JJ Limited.

Statutory Analysis under Section 9(7) and Section 9(11):

Under Section 9(7), fees for technical services payable by an Indian resident company are deemed to accrue or arise in India, except where the services are utilized in a business or profession carried on outside India or for earning income from a source outside India.
Here, the services are utilized for setting up a fertilizer plant in Orissa, India (an Indian business source).
Under Section 9(11) [corresponding to the Explanation to Section 9], FTS shall be deemed to accrue or arise in India irrespective of whether the non-resident has rendered services in India or outside India!

Conclusion: The view of JJ Limited is INCORRECT. The entire technical fee of ₹2.5 Crores (including the ₹1 Crore off-shore services fee) is deemed to accrue or arise in India and is fully chargeable to tax in India.

TYK QUESTION 5 • Deemed Accrual Analysis for Five Independent Transactions

Problem: Examine with reasons whether the following transactions attract income-tax in India, in the hands of recipients under section 9 of Income-tax Act, 2025:

A non-resident German company, which did not have a PE in India, entered into an agreement for execution of electrical work in India. Separate payments were made towards drawings & designs, which were described as “Engineering Fee”. Assessee contended that it was business profits not taxable without a PE.
An Indian company purchased shrink-wrapped computer software from a US company for internal business use. US company had no PE in India.
A non-resident foreign company supplied plant and machinery manufactured outside India to an Indian company on CIF terms. Delivery and title passed on high seas outside India, and payments were received in foreign currency abroad.
Turnkey power project executed in India by a foreign company involving onshore erection, civil construction, and testing.
A foreign company gifted equity shares of an Indian company to another foreign company outside India without any consideration.

Transaction	Taxability in India	Statutory Principle & Judicial Authority
(i) German Co Engineering Fee	Taxable as FTS	Consideration for drawings and designs represents Fees for Technical Services (FTS) under Section 9(7). The absence of a PE does not prevent taxation as FTS under Section 9(7) read with Section 9(11).
(ii) US Software Supply	Not Taxable under DTAA	Under domestic law Explanation 4 to Sec 9(6), it is royalty. However, under India-USA DTAA read with Engineering Analysis (SC), supply of shrink-wrapped software without transfer of copyright is purchase of a copyrighted article, taxable as business profits only if there is a PE in India.
(iii) Offshore Equipment Supply (CIF)	Not Taxable	Since the sale of goods took place on high seas outside India, title passed abroad, and payment was received abroad, no operations were carried out in India. No income deemed to accrue in India (Ishikawajima-Harima Heavy Industries).
(iv) Turnkey Power Project	Presumptive Tax u/s 61(4)	Amounts received for onshore civil construction, erection, and testing attract presumptive taxation @ 10% under Section 61(4).
(v) Gift of Indian Co Shares Abroad	Taxable u/s 56(2)(x)	Under Section 9(1)(i), shares of an Indian company constitute property/asset situated in India. Gift of Indian property without consideration exceeding ₹50,000 attracts tax in India under Section 56(2)(x).

TYK QUESTION 6 • Residential Status of American Tourist Visiting India

Facts: Z, an American tourist, comes to India for the first time on June 17, 2026. He leaves India on September 29, 2026. Determine his residential status for the tax year 2026-27.

Stay Calculation in India during Tax Year 2026-27:

June 2026: 14 days (17th June to 30th June)
July 2026: 31 days
August 2026: 31 days
September 2026: 29 days (1st Sept to 29th Sept)
Total Stay: $14 + 31 + 31 + 29 = \mathbf{105\ days}$.

Application of Basic Conditions u/s 6(1):

Condition [A] requires $\ge$ 182 days. (105 days < 182 days $\rightarrow$ NOT satisfied).
Condition [B] requires $\ge$ 60 days in current year AND $\ge$ 365 days in 4 preceding years. While stay in current year is 105 days ($\ge$ 60 days), he came to India for the first time, so stay in 4 preceding years is 0 days (< 365 days $\rightarrow$ NOT satisfied).

Conclusion: Mr. Z is a Non-Resident in India for the tax year 2026-27.

TYK QUESTION 7 • US Airline Presumptive Taxation u/s 61(2)

Facts: M/s. Global Airlines, incorporated as a company in USA, operated flights to India and vice versa during the tax year 2026-27. It collected the following sums:

S. No.	Particulars	Amount (₹)
1	Carriage of passengers embarking from Delhi to London (paid in London)	1,20,00,000
2	Carriage of passengers embarking from Mumbai to New York (paid in India)	1,50,00,000
3	Carriage of cargo embarking from New York to Mumbai (paid in India)	80,00,000
4	Carriage of passengers embarking from Paris to New York (paid in India)	40,00,000

Total Indian airport handling expenses were ₹45,00,000. Compute the taxable business profits under Section 61(2).

Statutory Analysis under Section 61(2) [Sec 44BBA]:

The presumptive rate of 5% applies to:

All amounts paid/payable for carriage embarking from any place in India (Item 1: ₹1,20,00,000 + Item 2: ₹1,50,00,000) = ₹2,70,00,000.
Amounts received in India for carriage embarking outside India (Item 3: ₹80,00,000 + Item 4: ₹40,00,000) = ₹1,20,00,000.
Total Gross Receipts Base: $2,70,00,000 + 1,20,00,000 = \mathbf{₹3,90,00,000}$.

Deemed Business Profits u/s 61(2) @ 5%:

$$\mathbf{Taxable\ Income} = 3,90,00,000 \times 5\% = \mathbf{₹19,50,000}$$

(Actual expenses of ₹45,00,000 are completely ignored under presumptive taxation).

TYK QUESTION 8 • Atlant France SAS • Software Supply vs Treaty Characterization

Facts: Atlant France SAS, a company incorporated in France, manufactured computer software and licensed it to Indian distributors and end-users. The Indian tax authorities sought to treat the consideration as Royalty under Section 9(6) read with Explanation 4 and demanded tax with interest. The company contends that under the India-France DTAA, the income represents business profits not taxable in India as it has no PE in India. Discuss the validity of the contention in light of judicial precedents.

Judicial Analysis • Engineering Analysis Centre of Excellence (SC):

Under Section 90(2), an assessee has the legal right to be governed by the provisions of the domestic Act or the Double Taxation Avoidance Agreement (DTAA), whichever is more beneficial.
Under Article 12 of the India-France DTAA, royalty is defined as payment received for the use of or the right to use any copyright of literary, artistic, or scientific work.
In the landmark ruling of Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT [2021] (SC), the Supreme Court settled this controversy:
- Distributors or end-users purchasing packaged software acquire only a license to use the copyrighted product (a “copyrighted article”).
- They do not acquire any right to reproduce, sub-license, reverse-engineer, or commercially exploit the underlying “copyright”.
- Therefore, such consideration is NOT Royalty under the DTAA.
Such income constitutes Business Profits under Article 7, taxable in India only if Atlant France SAS has a Permanent Establishment (PE) in India.

Conclusion: Since Atlant France SAS has no PE in India, the consideration is NOT taxable in India. The contention of the company is VALID.

TYK QUESTION 9 • Singtel Ltd. Singapore • POEM Determination & ABOI Test

Facts: Singtel Ltd. is a company incorporated in Singapore. 55% of its shares are held by Godavari Ltd., an Indian company. For the tax year 2026-27, Singtel Ltd. furnishes the following data:

Particulars	Total	In India	Outside India
Total Income	₹80 Crores	₹10 Crores	₹70 Crores
Passive Income (Included in above)	₹32 Crores	₹5 Crores	₹27 Crores
Total Assets Value	₹60 Crores	₹18 Crores	₹42 Crores
Number of Employees	80 Employees	25 Employees	55 Employees
Payroll Cost	₹20 Crores	₹8 Crores	₹12 Crores

During the year, 8 Board meetings were held, out of which 5 were held in Singapore and 3 were held in Mumbai. Determine the residential status of Singtel Ltd. for tax year 2026-27.

Evaluation of Active Business Outside India (ABOI) Criteria:

Passive Income Criterion: Passive income (₹32 Cr) / Total income (₹80 Cr) = 40% ($\le$ 50%). Condition 1 Satisfied
Assets Criterion: Indian assets (₹18 Cr) / Total assets (₹60 Cr) = 30% (< 50%). Condition 2 Satisfied
Employees Criterion: Indian employees (25) / Total employees (80) = 31.25% (< 50%). Condition 3 Satisfied
Payroll Criterion: Indian payroll (₹8 Cr) / Total payroll (₹20 Cr) = 40% (< 50%). Condition 4 Satisfied

Since all 4 conditions are fulfilled, Singtel Ltd. is engaged in Active Business Outside India (ABOI).

Presumption for POEM: As per CBDT Circular No. 6/2017, the POEM of a company engaged in ABOI shall be presumed to be OUTSIDE INDIA if the majority of the board meetings are held outside India.

Here, out of 8 meetings, 5 meetings were held in Singapore (outside India).

Conclusion: POEM of Singtel Ltd. is in Singapore (outside India). Consequently, Singtel Ltd. is a Non-Resident in India for tax year 2026-27.

TYK QUESTION 10 • STYLE Inc. • Notified FII Tax Liability under Section 210

Facts: STYLE Inc., a foreign company and a notified Foreign Institutional Investor (FII), derived the following incomes during the tax year 2026-27:

Dividend income: ₹6,20,000.
Interest on securities: ₹17,32,000 (expenses incurred ₹1,80,000).
Long-term capital gains on sale of bonds of J Ltd.: Sale consideration ₹47,00,000; Cost of acquisition ₹32,00,000.
Short-term capital gains on sale of listed equity shares of E Ltd. (STT paid): Sale consideration ₹12,40,000; Cost of acquisition ₹7,80,000.
Short-term capital gains on sale of unlisted equity shares of M Ltd.: Sale consideration ₹8,40,000; Cost of acquisition ₹3,72,000.

Compute the total income and tax liability of STYLE Inc. for Tax Year 2026-27 under Section 210 (Section 115AD).

Step 1: Computation of Total Income of STYLE Inc.:

Particulars	Inner (₹)	Amount (₹)	Statutory Notes
Dividend Income	6,20,000		Gross basis. Zero expense deductions.
Interest on Securities	17,32,000	23,52,000	Expenses of ₹1,80,000 not allowable u/s 210(2).
LTCG on Bonds of J Ltd. ($47,00,000 - 32,00,000$)		15,00,000	No indexation benefit under 2nd proviso to Sec 48.
STCG on STT-paid Listed Shares of E Ltd. ($12,40,000 - 7,80,000$)		4,60,000	Covered u/s 111A.
STCG on Unlisted Shares of M Ltd. ($8,40,000 - 3,72,000$)		4,68,000	Other STCG.
Total Income		₹47,80,000

Step 2: Computation of Tax Liability:

Income Component	Tax Rate	Tax Amount (₹)
Tax on Dividend & Interest ($23,52,000 \times 20\%$)	20%	4,70,400
Tax on LTCG on Bonds ($15,00,000 \times 12.5\%$)	12.5%	1,87,500
Tax on STT-paid STCG of E Ltd. ($4,60,000 \times 20\%$)	20%	92,000
Tax on Unlisted STCG of M Ltd. ($4,68,000 \times 30\%$)	30%	1,40,400
Sub-Total (Base Tax)		8,90,300
Add: Surcharge (Income ₹47,80,000 ≤ ₹1 Crore for Foreign Co)		NIL
Add: Health and Education Cess @ 4% ($8,90,300 \times 4\%$)		35,612
Total Tax Liability		9,25,912
Tax Liability Rounded Off u/s 288B		₹9,25,910