In realm of taxation, understanding the concepts of income received or deemed to be received in India is crucial for both residents and non-residents. These terms form the basis for determining the taxability of various income streams under the Indian Income Tax Act, 1961. Let’s explore these concepts in detail and make sense of how they impact taxpayers.
Income Received in India
Income received in India refers to any income that is directly credited to an individual’s account or received in cash within the geographical boundaries of India. This includes salaries, business profits, rental income, and other forms of earnings. The taxability of such income is straightforward, as it is earned and received within the country.
For example, if an individual working in India receives a salary from their employer directly into their Indian bank account, that income is considered to be received in India and is subject to taxation.
Income Deemed to be Received in India
The concept of income deemed to be received in India is more nuanced. According to Section 7 of the Income Tax Act, 1961, there are specific scenarios where income is considered to be received in India, even if it is not physically received within the country. These scenarios include:
Income Accruing or Arising in India
In addition to income received or deemed to be received, the Income Tax Act also addresses income that accrues or arises in India. This includes income that is earned within the country but may not be immediately received. For example, interest on fixed deposits that accrues over time but is not yet due for payment is considered to accrue in India.
Tax Implications
The tax implications for income received or deemed to be received in India are significant. Both residents and non-residents are subject to taxation on such income, although the rates and exemptions may vary. It is essential for taxpayers to accurately report their income and understand the provisions of the Income Tax Act to ensure compliance and avoid penalties.
Case Example
Consider the case of Mr. Mohit, a guest lecturer at an Indian university. He earns consulting income of ₹50,000 per month. During the previous year, he received consulting income for 11 months (April to February) and the fee for March was received in the first week of April. While filing his return for the previous year, he included the fee for March, resulting in a total consulting fee of ₹6,00,000. The fee for March would not be taxable again in the subsequent year on a receipt basis.
Conclusion
Understanding the concepts of income received and deemed to be received in India is vital for accurate tax reporting and compliance. The Income Tax Act, 1961, provides clear guidelines on these matters, ensuring that taxpayers are aware of their obligations. By staying informed and adhering to the legal provisions, individuals can effectively manage their tax liabilities and contribute to the nation’s economic growth.
By…
Vasvi Sharma ,
4th Year B.A LL.B (Hons) ,
Student at Lovely Professional University
