SCHEDULE IV - INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF ELIGIBLE NON-RESIDENTS, FOREIGN COMPANIES AND OTHER SUCH PERSONS

Income-tax Act, 2025

At a Glance

Schedule IV (Old Version) to the Income Tax Bill, 2025 lists categories of income that shall not be included in the total income of specified eligible non-residents, foreign companies and other persons (see section 11 reference). It matters for non-resident individuals and foreign entities interacting with India (embassies, foreign enterprises, foreign companies, European Economic Community etc.). Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hook: SCHEDULE IV is framed under "See section 11" of the Bill. The Schedule sets out tabulated exemptions (column A: serial number; B: income not to be included; C: eligible persons; D: conditions). The Schedule covers diverse categories including interest on NRE accounts, diplomatic remuneration, employees of foreign enterprises, incomes linked to foreign ships, government trainees, royalties/fees for technical services to specified security agencies, offshore banking unit deposits, cruise ship lease rentals, investments by the European Economic Community, and specified crude-oil related receipts to foreign companies. Definitions or explanatory notes: Note 1 (Sl. No. 9) defines "specified company", "holding company" and "subsidiary company"; Note 2 defines "European Economic Community". No other standalone definitions are provided within the Schedule.

Statutory Provision Mode

Text & Scope

The Schedule operates by excluding from computation of total income certain enumerated receipts of eligible non-residents and foreign companies, subject to conditions. Each serial entry specifies (i) the class of income, (ii) the class of eligible person(s), and (iii) conditions that must be satisfied for the income to be excluded. The exclusions are limited to the headings set out in the Table. The Schedule cross-references other statutory instruments: section 2(w) of the Foreign Exchange Management Act, 1999 (for residency definition), section 2(u) of the Special Economic Zones Act, 2005 (for Offshore Banking Unit), and sections of the Income-tax Act, 1961 (for certain sub-sections listed at Sl. No. 14).

Interpretation

Legislative intent, as discernible from textual structure: to provide targeted exemptions for certain foreign-sourced or diplomatically connected incomes, strategically significant commercial arrangements (e.g., crude oil storage/sale by notified foreign companies), and to maintain reciprocity for diplomatic personnel. The Schedule uses notification powers (Central Government) and pre-conditions (e.g., residence outside India, RBI permission, aggregate days of stay) as mechanisms to limit the benefit to particular factual situations. The text indicates that the exemption is conditional rather than absolute, requiring specified factual predicates and administrative notifications.

Exceptions/Provisos

Carve-outs and conditions appear in column D against each serial number. Notable conditions include:

• Sl. No. 1: interest on moneys in a Non-Resident (External) Account in Indian banks as per FEMA and rules.
• Sl. No. 2: diplomatic/trade commissioner exemption conditioned on reciprocity and staff status (not engaged in business/profession in India).
• Sl. No. 3 and 4: time-bound presence (90 days aggregate in tax year) and absence of employer's taxable presence in India.
• Sl. No. 6-7: notifications by Central Government and specified recipient being National Technical Research Organisation for certain royalties/fees.
• Sl. No. 8: deposit date threshold (on or after 1 April 2005) and Offshore Banking Unit reference.
• Sl. No. 9: intra-group cruise ship lease rental conditions, and temporal limitation to tax years beginning on or before 1 April 2029.
• Sl. Nos. 11-13: Central Government notification and agreements/arrangements entered into or approved by Central Government, with national interest consideration, and limitations on activities of the foreign company in India.
• Sl. No. 14: incomes falling under specified sections of the Income-tax Act, 1961 subject to conditions specified therein.

Illustrations

• Example 1: An individual non-resident holding a Non-Resident (External) Account with interest earned thereon - the interest is excluded from total income if the account is maintained as per FEMA and rules. (Directly consistent with text.)
• Example 2: A non-citizen employee of a foreign enterprise who visits India for 60 aggregate days in the year to provide services for a foreign employer that has no trade or business in India - his remuneration for services rendered during the stay is excluded provided the remuneration is not taxable to the employer under the Act. (Consistent with Sl. No. 3.)
• Example 3: A notified foreign company stores crude oil in India under a Central Government-approved arrangement and sells the oil to an Indian resident as per the agreement - the income accruing from storage and sale is not included in total income subject to notification. (Consistent with Sl. Nos. 12-13.)

Interplay

The Schedule expressly interacts with: FEMA, 1999 (residency definition and NR(E) accounts); Special Economic Zones Act, 2005 (Offshore Banking Units); and referenced sections of the Income-tax Act, 1961 for Sl. No. 14 exemptions. Several exemptions depend on Central Government notification or agreements entered into/approved by the Central Government, indicating administrative coordination between tax authorities and executive departments. No rules or notifications beyond these cross-references are reproduced in the document.

Differences between SCHEDULE IV - Income-tax Act, 2025 (Document 1) and Income Tax Bill, 2025 - Old Version (Document 2)

• Textual corrections and punctuation: Document 1 contains minor editorial differences (for example, punctuation and phrasing around clauses (a)-(d) under Sl. No. 11 and Sl. No. 12 are slightly more concise).
  • Practical impact: purely editorial; no substantive change in scope or meaning appears from the texts provided.
• Minor wording differences on eligibility phrases: e.g., Document 2 in Sl. No. 8 specifies "Non-resident or a person who is not ordinarily resident in India," whereas Document 1 uses "Non-resident or a person who is not ordinarily resident."
  • Practical impact: nominal; contextually both identify same classes of persons; if interpreted strictly, omission of "in India" could raise an interpretive question but the intent remains the same.
• Variation in presentation of Sl. No. 11 and 13 wording: Document 1 states that the Central Government may notify "any person in India" and that the foreign company and the agreement are notified "having regard to the national interest"; Document 2 requires that "such agreement is entered with the foreign company, having regard to the national interest, and the agreement or arrangement is notified."
  • Practical impact: Document 1 frames notification of the company and agreement slightly differently; both require Central Government notification and national-interest consideration. Substantively the scope of exemption is governed by Central Government notification; any difference is stylistic unless read to alter the sequencing of notification vs. entry of agreement - not expressly stated as a legal difference in the texts.
• Formatting and small textual insertions: Document 2 contains a stray full stop after the clause in Sl. No. 7(b) and some additional bracket spacing in Sl. No. 14.
  • Practical impact: typographical; no substantive legal consequence discernible from the provided materials.

Practical Implications

• Compliance and risk areas: taxpayers and foreign entities must ensure that qualifying conditions (residency status, period of stay, RBI permission, Central Government notification/approval, and absence of trade or business in India) are satisfied and documented before claiming the exclusion. Failure to meet stated conditions risks disallowance and tax exposure.
• Record-keeping/evidence: maintenance of residency documentation (FEMA definitions), RBI permissions for NR(E) accounts, travel and stay records (to evidence the 90-day threshold), copies of Central Government notifications/agreements, and employer payroll records to show whether employer's income is chargeable in India. For Sl. No. 9, intra-group corporate documentation establishing holding/subsidiary relationships as per Note 1 is relevant.

Key Takeaways

• Schedule IV enumerates limited classes of income excluded from "total income" for particular non-residents and foreign entities, subject to explicit conditions and administrative notifications.
• Most exemptions require factual predicates (residency status, period of presence, non-engagement in business in India) and/or Central Government notification or agreement.
• Several exemptions are purpose-specific (diplomatic reciprocity, security projects, national-interest crude oil arrangements, cruise ship group structures, EEC investment schemes).
• Document differences between the Act version and the Bill old version are largely editorial and typographical; no substantive changes are discernible from the texts provided.
• Taxpayers and advisers should retain documentary evidence of qualifying conditions and track Central Government notifications/approvals relevant to the Schedule.

Full Text:

SCHEDULE IV - INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF ELIGIBLE NON-RESIDENTS, FOREIGN COMPANIES AND OTHER SUCH PERSONS