Section 5 Scope of total income.

Income-tax Act, 2025 [As Passed]

At a Glance

Clause 5 of the Income Tax Bill, 2025 (Old Version) defines the "scope of total income" for residents and non-residents. It matters because it sets the fundamental basis of charge under the income-tax scheme, determining which receipts and accruals are included in taxable income. The provision affects all taxpayers (residents and non-residents) and the tax administration. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 5 (Scope of total income) operates within the Income Tax Bill, 2025 and functions as the primary provision establishing the basis of charge for income tax. The provision delineates what constitutes "total income" for a tax year for persons who are residents and persons who are non-residents.

Definitions or explanations: The clause refers to the concept "not ordinarily resident" u/s 6(13), but the Bill's text of Clause 5 does not contain a definition of residency or "not ordinarily resident" itself; therefore, the residency criteria are governed by section 6 (text of which is Not stated in the document).

Statutory Provision Mode

Text & Scope

Clause 5(1) addresses residents: Subject to the provisions of the Act, the total income of a tax year of a person who is a resident includes all income from whatever source derived which-(a) is received or deemed to be received in India in that year by or on behalf of the person; or (b) accrues or arises, or is deemed to accrue or arise, to the person in India in that year; or (c) accrues or arises to the person outside India in that year, with a qualification: when such person is "not ordinarily resident" in India u/s 6(13), income accruing or arising outside India shall be included only when it is derived from a business controlled in or a profession set up in India.

Clause 5(2) addresses non-residents: Subject to the provisions of the Act, the total income of a tax year of a person who is a non-resident includes all income from whatever source derived which-(a) is received or deemed to be received in India in that year by or on behalf of the person; or (b) accrues or arises, or is deemed to accrue or arise, to the person in India in that year.

Clause 5(3) provides a confirmatory rule: income accruing or arising outside India shall not be deemed to be received in India under this section solely because it is taken into account in a balance sheet prepared in India.

Clause 5(4) is an anti-double inclusion rule: if income has been included in a person's total income on the basis that it has accrued or arisen, or is deemed to have accrued or arisen, it shall not again be included on the basis that it is received or deemed to be received by the person in India.

Interpretation

The Bill uses the inclusive phrase "all income from whatever source derived," signalling a wide territorial and source-neutral approach subject to the enumerated receipt/receipt-in-India and accrual/assignment tests. The clause establishes three distinct tests for residents (receipt in India; accrual/arising in India; accrual/arising outside India with a specific limitation for not-ordinarily-resident persons) and two tests for non-residents (receipt in India; accrual/arising in India). The text itself gives primacy to legislative criteria of receipt and accrual, and incorporates deeming language ("deemed to be received," "deemed to accrue or arise") to capture statutory constructs and specific deeming provisions elsewhere in the Act (Not stated in the document which deeming provisions apply).

Exceptions/Provisos

The only carve-out in the clause is the treatment of income accruing or arising outside India to a resident who is "not ordinarily resident" u/s 6(13): such foreign income is included only when derived from a business controlled in or a profession set up in India. No other exceptions or thresholds are specified within Clause 5. Any additional provisos, exemptions, or exclusions (for instance, tax treaties, specific deductions or exempt categories) are Not stated in the document.

Illustrations

• Example 1: A resident individual receives dividends from an Indian company in the tax year. That dividend is "received in India" and thus included in total income under Clause 5(1)(a).

• Example 2: A non-resident performs services in India and fees for services accrue to the non-resident in India in that tax year. Those fees are included under Clause 5(2)(b).

• Example 3: A person who is resident but "not ordinarily resident" has rental income from property located and let outside India. Such income is included in total income only if derived from a business controlled in India or from a profession set up in India; otherwise it is excluded under Clause 5(1)(c).

Interplay

Clause 5 expressly cross-refers to section 6(13) for the concept "not ordinarily resident." The Clause also uses deeming language that implies interaction with other statutory deeming provisions elsewhere in the Bill/Act (for example, provisions that deem receipt or accrual in particular circumstances), but those specific provisions or rules are Not stated in the document. The clause does not reference tax treaties, exemptions, or other sections that normally interact with basis-of-charge rules; those interactions are Not stated in the document.

Differences between Section 5 (Income-tax Act, 2025 [As Passed]) and Clause 5 (Income Tax Bill, 2025 - Old Version)

• Textual differences: The two texts are substantively identical in their operative provisions. Minor stylistic differences appear: the As Passed version uses the phrase "such person" in sub-clauses, whereas the Old Version uses "the person" in corresponding places. There are no substantive changes to the enumeration, structure, or scope of the clauses.

• Formatting and labeling: Document 1 is presented as "Section 5" of the enacted Income-tax Act, 2025 [As Passed]; Document 2 is presented as "Clause 5" of the Income Tax Bill, 2025 - Old Version. This reflects the transition from bill to statute but does not alter substantive content.

• Practical impact: None apparent. The minor wording variation ("such person" vs "the person") does not change legal effect. The enacted Section 5 preserves the scope and limitations as set out in the Bill's Clause 5. No new conditions, thresholds, or exceptions appear in the As Passed text relative to the Bill's Old Version.

• Effective date/decision date: Not stated in the document.

Practical Implications

• Compliance and risk areas: Taxpayers must correctly determine residential status (section 6(13) reference). The distinction between "resident," "resident but not ordinarily resident," and "non-resident" is critical because it governs whether foreign-sourced income falls within total income. Misclassification of residency risks inclusion or exclusion of foreign income. The text itself does not provide procedural guidance for residence determination; that is Not stated in the document.

• Record-keeping/evidence points: The clause implies that evidence demonstrating where income is received or accrues, and evidence of the locus of business control or existence of a profession set up in India (for not-ordinarily-resident residents), will be material. The Bill does not specify documentary requirements or evidentiary standards; those are Not stated in the document.

Key Takeaways

• Clause 5 establishes the primary basis of charge: total income includes receipts and accruals in India and, for residents, certain foreign income subject to a specific limitation for "not ordinarily resident" persons.
• The clause distinguishes resident and non-resident taxpayers, applying a broader inclusion rule to residents than to non-residents.
• Income taken in a balance sheet in India is not, by that fact alone, deemed to be received in India (Clause 5(3)).
• Clause 5(4) prevents double inclusion of income on both an accrual and a receipt basis.
• The text refers to section 6(13) for the "not ordinarily resident" concept; the substantive criteria and implications of that status are Not stated in the document.

Full Text:

Section 5 Scope of total income.