Which income is considered to be earned or generated in India as per the tax laws?

As per section 9(1), income arising out of India directly or indirectly or from any business connection in India shall be deemed to accrue or arise in the country. It should be noted that there is a difference between a trade connection in India and a business connection with India. If the transacting party is from India, it does not mean that there will be a business relationship in India.

How is the income taxed in India on the income of a non-resident who does not have a place of business in the country but is acting here through an agent?

If a non-resident has appointed an agent in India who habitually receives orders on his behalf, the income arising to the non-resident by way of that transaction shall be taxed in India.

What if this agent is working in an independent capacity?

There is a specific clarification in this regard that if a non-resident assessee is carrying on business through a broker, general commission agent or any other agent of independent status, and if such person is acting, the business relationship shall not be established. their normal course of business.

What if a business connection is established?

If a business connection is being established, only that income will be taxed in the country which is on account of transactions involving business connection in India.

Will the provision of section 9 apply to transfer of shares outside India to a person resident outside India?

It has been determined that if there is a transfer of shares of a company, which is incorporated in a foreign country but derives substantial value of its shares from assets situated in India, then the income from the transfer of such shares is taxable in India. Even if the transfer took place outside India.

However, there is an exception to this rule if the seller of such stake has no right of management or control in relation to the foreign company or entity in the preceding 12 months and does not have more than 5% of the total voting power or total share capital or The total interest of the company. Then, such transfer of shares will not be taxed in India.

Let us understand this with an example, A is located in Dubai. He holds a 2% stake in a foreign company, XYZ Ltd. XYZ derives its substantial value from properties located in India. A does not participate in managerial work nor does he control the operations of XYZ. A decides to transfer all his shares to C. In such a case, is the transfer of shares taxable in India?

Since A has not held any right of management relationship to the foreign company or entity in the previous 12 months; and his voting power or share capital or interest does not exceed 5% of the total voting power or total share capital or total interest of the said foreign company, the transfer of such shares shall not be taxable in India.

What if A has 6% stake in XYZ?

In this case, A is not resident in India; the transfer relates to the shares of a company located outside India; And the transfer took place outside India. However, the income arising from such transfer shall be taxed in India (i.e. the part which is attributable to Indian property).

How is dividend taxed in the hands of a non-resident in India?

in accordance with a clause of section 9(1); Dividend paid by an Indian company outside India is deemed to accrue or arise in India and shall be taxable in India in the hands of non-resident shareholders.

Can a non-resident in India accept cash gifts?

As per the recent judgment of the Ahmedabad Tribunal, a person who is a non-resident in India is not prohibited from accepting cash gifts from relatives.

The provisions laid down under section 9 of the Act are comprehensive and seek to cover various transactions whereby income not received or earned in India shall be taxed in India.

Jigar Mansatta is the owner of Jigar Mansatta & Associates.