Section 9 — Income deemed to accrue or arise in India. Successor to s.9, s.9A of the 1961 Act.
Section 9 is in Chapter II — Basis of Charge, which runs from section 4 to section 10.
Sub-section (1) makes the income described in sub-sections (2) to (8) deemed to accrue or arise in India. Sub-section (2) sets out the four connecting factors: income accruing or arising, directly or indirectly, through or from any asset or source of income in India, any property in India, any business connection in India, or the transfer of a capital asset situated in India. Sub-section (3) deals with salary — income under the head "Salaries" earned in India, with payment for services rendered in India and for a rest or leave period that is preceded and succeeded by services rendered in India and forms part of the service contract regarded as earned in India; and salary payable by the Government to an Indian citizen for services rendered outside India. Sub-section (4) covers dividend paid by an Indian company outside India.
Sub-sections (5), (6) and (7) deal with interest, royalty and fees for technical services on a common pattern built on the payer and the use of the money, right or service. Where the payer is the Government the income is always deemed to arise in India; where the payer is a resident it is deemed to arise in India unless the debt, right, property, information or service is used for a business or profession carried on by that resident outside India or for making or earning income from a source outside India; where the payer is a non-resident it is deemed to arise in India only where the use is for a business or profession carried on in India (and, for royalty and fees for technical services, also where it is for making or earning income from a source in India). Sub-section (5)(b) adds the banking rule: interest payable by the Indian permanent establishment of a non-resident engaged in banking to its head office or any other part of that non-resident outside India is deemed to accrue or arise in India and is chargeable in addition to any income attributable to the permanent establishment, which is deemed a separate and independent person, with "permanent establishment" taking its meaning from section 173(c).
Sub-section (6)(b) defines royalty as consideration, including lump sum consideration but excluding consideration chargeable under "Capital gains", for the seven items listed — transfer or grant of rights in a patent, invention, model, design, secret formula, process or trade mark; imparting information about their working or use; their use; imparting information about technical, industrial, commercial or scientific knowledge, experience or skill; use or right to use industrial, commercial or scientific equipment other than amounts referred to in section 61(2) (Table: Sl. No. 5); transfer or grant of rights in a copyright or literary, artistic or scientific work including films or video tapes for television and tapes for radio broadcasting; and services rendered in connection with those activities. Sub-section (6)(c) extends it: rights in computer software are covered irrespective of the medium of transfer; royalty arises whether or not the payer has possession or control of the right, property or information, whether or not the payer uses it directly, and whether or not it is located in India; "process" includes transmission by satellite, cable, optic fibre or similar technology, whether or not the process is secret; and "computer software" is defined. Sub-section (7)(b) defines fees for technical services as consideration for rendering managerial, technical or consultancy services, including the provision of technical or other personnel, excluding consideration for a construction, assembly, mining or like project undertaken by the recipient and consideration that would be salary income of the recipient.
Sub-section (8) deems income arising outside India, in the nature of a sum referred to in section 2(49)(u) and paid by a person resident in India, to accrue or arise in India where it is paid to a non-resident not being a company, to a foreign company, or to a person not ordinarily resident under section 6(13).
Sub-section (9) builds out "business connection". It includes a business carried out in India where all or part of the operations are carried out in India, and a significant economic presence in India. Clause (b) brings in activity through a dependent agent — one who has and habitually exercises authority to conclude contracts, habitually concludes them, or habitually plays the principal role leading to their conclusion, where the contracts are in the non-resident's name, for transfer or grant of use of property he owns or may use, or for provision of his services; one who habitually maintains a stock of goods in India from which he regularly delivers on the non-resident's behalf; and one who habitually secures orders in India mainly or wholly for the non-resident or its controlled group — and clause (b)(ii) denies independent status to a broker, general commission agent or other agent working mainly or wholly for the principal non-resident and connected non-residents. Clause (c) excludes activity through a genuinely independent broker or agent acting in the ordinary course of his business, and activity confined to purchase of goods in India for export, collection of news and views for transmission out of India by a news agency or publisher, display of uncut and unassorted diamond in a notified special zone by a foreign diamond mining company, and shooting of a cinematographic film in India by a non-Indian individual, a firm with no Indian-citizen or resident partner, or a company with no Indian-citizen or resident shareholder. Clause (d) defines significant economic presence by two alternative tests — transactions in goods, services or property with any person in India, including provision of download of data or software, where the aggregate of payments during the tax year exceeds such amount as may be prescribed; or systematic and continuous soliciting of business or interaction with such number of users in India as may be prescribed — each applying irrespective of where the agreement was entered into, whether the non-resident has a residence or place of business in India, or whether he renders services in India. Clause (e) takes purchase of goods in India for export out of clause (d). Clauses (f) and (g) confine the charge to income reasonably attributable to operations carried out in India or to the clause (d) transactions, and extend that attribution to income from advertisement targeting a customer resident in India or accessing it through an Indian internet protocol address, sale of data collected from such a person, and sale of goods or services using such data.
Sub-section (10) is the indirect transfer code. A share of, or interest in, a company or entity registered or incorporated outside India is deemed to be an asset situated in India if it derives, directly or indirectly, its value substantially from assets located in India; and it derives value substantially from such assets only if, on the specified date, the value of those assets exceeds ten crore rupees and represents at least 50% of the value of all assets owned by the company or entity. Value is fair market value on the specified date, without reduction of liabilities, determined in the prescribed manner. The specified date is the end of the accounting period preceding the date of transfer, or the date of transfer itself where the book value of assets on that date exceeds the book value on the earlier date by 15%; clause (e) defines "accounting period" for the ordinary, non-March, newly incorporated and ceasing cases. Clause (f) restricts the charge, on an offshore transfer by a non-resident transferor where not all assets are located in India, to the part of the income reasonably attributable to Indian assets, determined in the prescribed manner. Clause (g) carves out transfers where the share or interest is held by a non-resident as an investment in a Category I or Category II foreign portfolio investor under the 2014 Regulations prior to their repeal, or a Category I foreign portfolio investor under the 2019 Regulations; and small-holder cases — where the company directly owns the Indian assets, a transferor who, individually or with its associated enterprises, at any time in the twelve months preceding the transfer held neither the right of management or control nor voting power, share capital or interest exceeding 5%; and where it owns them indirectly, the equivalent test applied to the company that directly owns the Indian assets, with "associated enterprises" taking its meaning from section 162.
Sub-section (11) removes the nexus defences for sub-sections (5), (6) and (7): the income of a non-resident is deemed to accrue or arise in India and included in his total income whether or not he has a residence, place of business or business connection in India and whether or not he has rendered services in India. Sub-section (12) is the fund management safe harbour — fund management activity carried out by an eligible investment fund through an eligible fund manager acting on its behalf does not constitute a business connection of the fund; the fund is not resident under section 6 merely because the manager is in India; nothing in the section excludes income that would have been included anyway or affects the fund manager's own total income; the conditions for being an eligible investment fund or eligible fund manager and for furnishing the requisite statements are in Schedule I; and the Central Government may by notification disapply or modify those conditions where the fund manager is located in an International Financial Services Centre and commenced operations on or before 31 March 2030. Sub-section (13) defines "through" to mean and include "by means of", "in consequence of" or "by reason of".
India taxes a non-resident only on income with an Indian connection, and this section is where that connection is defined. It supplies the deeming rules that turn a payment made or a right used outside India into Indian income, and it does so by fixing on the payer and the use rather than on where a service was performed. Sub-section (10) closes the route of selling Indian value through an offshore holding company, while sub-sections (9)(d) and (9)(g) extend the connection to a business that has no physical presence at all. The carve-outs — the independent agent, the small shareholder, the foreign portfolio investor, the eligible investment fund — mark the line the section is not meant to cross.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Value of Indian assets for the substantial-value test | Exceeds ten crore rupees | Fair market value on the specified date, without reduction of liabilities; this limb must be satisfied together with the 50% limb | Sub-section (10)(b)(i) |
| Proportion of Indian assets to all assets | At least 50% | Of the value of all the assets owned by the company or entity on the specified date | Sub-section (10)(b)(ii) |
| Book value increase that shifts the specified date | 15% | Where the book value of assets on the date of transfer exceeds the book value on the preceding accounting period end by this margin, the specified date becomes the date of transfer | Sub-section (10)(d)(ii) |
| Shareholding ceiling for the small-holder carve-out, company directly owning Indian assets | Not exceeding 5% of total voting power, total share capital or total interest | Held by the transferor individually or with its associated enterprises at any time in the twelve months preceding the date of transfer, and coupled with no right of management or control | Sub-section (10)(g)(ii)(B) |
| Shareholding ceiling for the small-holder carve-out, company indirectly owning Indian assets | Not exceeding 5% of total voting power, total share capital or total interest | Tested against the company or entity that directly owns the Indian assets, individually or with associated enterprises, at any time in the twelve months preceding the transfer, with no right of management or control and no right entitling it to such control | Sub-section (10)(g)(iii)(C) |
| Look-back period for the carve-out tests | Twelve months preceding the date of transfer | The management, control and shareholding tests must be failed at no time in this period | Sub-section (10)(g)(ii) and (iii) |
| Length of an accounting period | Twelve months | Ending 31st March, or on another date regularly adopted for foreign tax compliance or for reporting to holders, with special rules for incorporation and cessation | Sub-section (10)(e) |
| Significant economic presence, transaction test | Such amount as may be prescribed — the section states no figure | Aggregate of payments arising from transactions in goods, services or property with any person in India, including download of data or software, during the tax year | Sub-section (9)(d)(i) |
| Significant economic presence, user test | Such number of users as may be prescribed — the section states no figure | Systematic and continuous soliciting of business activities or engaging in interaction with users in India | Sub-section (9)(d)(ii) |
| Commencement date for relaxation of the fund management conditions | On or before 31st March, 2030 | The eligible fund manager must be located in an International Financial Services Centre and have commenced operations by that date, before the Central Government may disapply or modify the Schedule I conditions | Sub-section (12)(f)(ii) |
For interest, royalty and fees for technical services the question is never where the work was done. Sub-section (11) says so expressly, and the operative test in sub-sections (5) to (7) is who pays and what the money, right or service is used for — a resident payer brings the income into charge unless the use is for a business abroad or for earning income from a source abroad. On the indirect transfer side both limbs of sub-section (10)(b) must be satisfied: Indian assets exceeding ten crore rupees and representing at least 50% of all assets. Even then, sub-section (10)(f) charges only the part of the gain reasonably attributable to Indian assets, and the 5% carve-out in clause (g) is a limit on holding and control tested across the whole twelve months before the transfer with associated enterprises aggregated, not a de minimis on the gain. Significant economic presence cannot be tested from the section alone — clause (9)(d) leaves both the payment amount and the number of users to be prescribed. And the fund management safe harbour in sub-section (12) is only as good as the Schedule I conditions, which clause (e) makes the operative source of the requirements.
A company incorporated outside India directly owns land and plant in India. At the end of its accounting period before the sale of its shares, the fair market value of those Indian assets is 400 crore rupees against 700 crore rupees for all its assets. Both limbs of sub-section (10)(b) are met — more than ten crore rupees, and roughly 57%, which is at least 50% — so the shares are deemed to be an asset situated in India and an offshore sale by a non-resident is within sub-section (2), on the part of the gain reasonably attributable to the Indian assets under clause (10)(f). A seller who held 4% of that company and had no right of management or control at any time in the twelve months before the transfer is outside the charge under clause (10)(g)(ii); a seller holding 8%, or holding 4% but with a management right, is not.
A non-resident meets this section in an assessment or a withholding dispute over royalty, fees for technical services or interest, and a resident payer meets it before remitting, when deciding whether the sum carries Indian tax. On an indirect transfer, the Department usually approaches the Indian concern first, under the information obligation in section 506, before the offshore parties hear anything.
the share or interest, referred to in clause (a), shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of such assets,— (i) exceeds the amount of ten crore rupees; and (ii) represents at least 50% of the value of all the assets owned by the company or entity, as the case may be
income of a non-resident shall be deemed to accrue or arise in India and shall be included in his total income, whether or not,— (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India
if the aggregate of payments arising from such transaction or transactions during the tax year exceeds such amount as may be prescribed
the expression "through" shall mean and include "by means of", "in consequence of" or "by reason of"
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See every circular and notification on this section, or the circulars index.
See every circular and notification on this section, or the notifications index.
