Section 9 Income Tax Act: Income Deemed to Accrue or Arise in India
Section 9 of the Income-tax Act, 1961 is the principal source rule that treated specified income as accruing or arising in India even where the recipient, transaction or payment had a foreign element. It remains important for tax years governed by the 1961 Act and for legacy proceedings.
What does "income deemed to accrue or arise in India" mean?
A deeming provision treats income as having an Indian source for tax purposes when the statutory conditions are satisfied, even though ordinary concepts of receipt, residence or physical performance might point outside India. Under the 1961 Act, section 9(1) covered business connection, property, assets or sources in India, transfer of a capital asset situated in India, specified salary, dividend, interest, royalty, fees for technical services and certain sums paid to non-residents.
Section 9 must be read with the scope-of-total-income provisions, the residential status of the taxpayer, applicable rules, and any Double Taxation Avoidance Agreement (DTAA). Where a DTAA applies, treaty provisions may affect the ultimate Indian tax liability.
Section 9 at a glance under the Income-tax Act, 1961
| Provision | Broad category | Core source rule |
|---|---|---|
| Section 9(1)(i) | Business, property, asset, source and capital asset | Income linked directly or indirectly to specified Indian connections or assets may be deemed to accrue or arise in India. |
| Section 9(1)(ii) | Salary earned in India | Salary for services rendered in India, including qualifying rest or leave periods, is treated as earned in India. |
| Section 9(1)(iii) | Government salary abroad | Salary payable by the Government to an Indian citizen for service outside India. |
| Section 9(1)(iv) | Dividend | Dividend paid by an Indian company outside India. |
| Section 9(1)(v) | Interest | Specified interest payable by Government, residents and, in stated circumstances, non-residents. |
| Section 9(1)(vi) | Royalty | Specified royalty payable by Government, residents and, in stated circumstances, non-residents. |
| Section 9(1)(vii) | Fees for technical services | Specified managerial, technical or consultancy consideration, subject to statutory exclusions and source conditions. |
| Section 9(1)(viii) | Certain sums paid to non-residents | Specified money paid outside India by a resident to a non-resident or foreign company is covered, subject to the provision. |
Business connection, property, assets and sources in India
Section 9(1)(i) of the 1961 Act covered income accruing or arising, directly or indirectly, through or from a business connection in India, property in India, an asset or source of income in India, or transfer of a capital asset situated in India.
Where only part of the operations of a business were carried out in India, the provision generally limited deemed Indian income to the part reasonably attributable to Indian operations. The section also contained specific exclusions, including qualifying operations confined to purchase of goods in India for export, collection of news for transmission outside India, specified cinematograph-film activities, and qualifying diamond-display activities.
Meaning of business connection
The statutory explanation expanded "business connection" to cover specified dependent-agent activities. Broadly, this included a person acting for a non-resident who habitually concluded contracts, played the principal role leading to their conclusion, maintained stock for regular delivery in specified circumstances, or habitually secured orders. Independent agents acting in the ordinary course of their business were treated separately, subject to the statutory conditions.
Significant economic presence
Explanation 2A to section 9(1)(i) extended "business connection" to a non-resident's significant economic presence in India. The concept addresses prescribed levels of transactions with persons in India and systematic and continuous business solicitation or interaction with the prescribed number of users in India.
From 1 April 2026, the 1961 Act text was amended to clarify that transactions or activities confined to purchasing goods in India for export do not constitute significant economic presence. This amendment is relevant when applying the old Act to the periods for which it continues to govern.
Indirect transfer of assets situated in India
The indirect-transfer rules treated a share or interest in a foreign company or entity as situated in India where it derived its value substantially from assets located in India, subject to the detailed statutory thresholds, valuation rules and exemptions. Under the 1961 Act, the substantial-value test included the monetary and percentage conditions stated in Explanation 6, while Explanation 7 contained relief for qualifying minority holdings and rules for attributing income to Indian assets.
Salary and dividend
Salary earned in India: Section 9(1)(ii) covered salary earned in India. Service rendered in India was expressly treated as income earned in India, and qualifying rest or leave periods forming part of the employment contract were also covered.
Government service outside India: Section 9(1)(iii) covered salary chargeable under the head "Salaries" payable by the Government to an Indian citizen for service outside India.
Dividend: Section 9(1)(iv) covered a dividend paid by an Indian company outside India.
Interest under section 9(1)(v)
Interest was deemed to accrue or arise in India when payable by the Government; by a resident, subject to the statutory foreign-business or foreign-source exception; or by a non-resident where the debt or borrowed money was used for a business or profession carried on in India. The section also contained a special rule for interest payable by an Indian permanent establishment of a non-resident banking business to its head office or another overseas part of the same non-resident.
Royalty under section 9(1)(vi)
The royalty source rule applied to specified royalty payable by the Government, residents and non-residents, subject to the location and use conditions in the clause. The statutory definition was broad and included consideration for specified rights or licences involving patents, inventions, designs, secret formulae or processes, trade marks, copyright, certain equipment, technical or commercial information, and connected services.
The explanations also addressed computer software and clarified the treatment of rights, property, information and "process", including specified transmission technologies. Historic agreements and specified software arrangements were subject to separate provisos in the provision.
Fees for technical services under section 9(1)(vii)
Fees for technical services were covered where payable by the Government; by a resident except where the services were utilised for a business, profession or source outside India; or by a non-resident where the services were utilised for a business or profession carried on in India or for earning income from an Indian source.
The statutory definition broadly covered consideration for managerial, technical or consultancy services, including provision of technical or other personnel. It excluded consideration for specified construction, assembly, mining or like projects undertaken by the recipient and amounts chargeable as salary.
Certain sums paid by a resident to a non-resident
Section 9(1)(viii) brought within the deemed-accrual rule specified sums of money referred to in the relevant definition of income when paid on or after 5 July 2019 by a resident to a non-resident (not being a company) or to a foreign company. The precise tax treatment depends on the connected charging and exemption provisions applicable to the transaction.
Residence or physical presence is not always necessary
The explanation to section 9(2) of the 1961 Act clarified, for interest, royalty and fees for technical services under clauses (v), (vi) and (vii), that deemed accrual can apply whether or not the non-resident has a residence, place of business or business connection in India, and whether or not the non-resident rendered services in India, subject to the conditions of the relevant clause and any applicable treaty.
Current position under the Income-tax Act, 2025
The Income-tax Act, 2025 came into force on 1 April 2026. Its section 9 retains the subject "Income deemed to accrue or arise in India" but presents the rules in a reorganised form. In broad terms, section 9(2) addresses income through Indian assets, property, business connection or transfer of an Indian capital asset, while later sub-sections deal with salary and other specified source categories.
For Tax Year 2026-27 and later, start with the Income-tax Act, 2025. For income and proceedings relating to periods governed by the repealed 1961 Act, section 9 of the Income-tax Act, 1961 may continue to be the relevant provision under the transition rules.
Official resources
- Income-tax Act, 2025 as amended by Finance Act, 2026 - Income Tax Department
- Income-tax Act, 2025 Help Centre - Income Tax Department
- Transition from the 1961 Act to the 2025 Act - Income Tax Department
- Section 9 of the Income-tax Act, 1961 - official departmental text
Editorial note: This page is a general explanation of the statutory source rules and is not a substitute for the applicable Act, Rules, notifications, treaty provisions or professional advice for a particular transaction.