Section 9 · Residence
Section 9 of the Income-tax Act, 2025 — Income Deemed to Accrue or Arise in India (NRI Taxation)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter II
📜 What the law says — Section 9, Income-tax Act 2025
9. (1) The income referred to in sub-sections (2) to (8) shall be deemed to
accrue or arise in India.
(2) The income accruing or arising, directly or indirectly, through or from—
(a) any asset or source of income in India; or
(b) any property in India; or
(c) any business connection in India; or
(d) the transfer of a capital asset situated in India,
shall be deemed to accrue or arise in India.
(3) Any income falling under the head “Salaries” shall be deemed to accrue or arise
in India, if it is—
(a) earned in India, and any income payable for,—
(i) services rendered in India; and
(ii) the rest period or leave period which is preceded and succeeded by
services rendered in India and forms part of the service contract of
employment,
shall be regarded as income earned in India;
(b) payable by the Government to an Indian citizen for services rendered
outside India.
(4) Any dividend paid by an Indian company outside India shall be deemed to accrue
or arise in India.
(5)(a) Income by way of interest payable by—
(i) the Government;
(ii) a resident, except where it is payable in respect of any debt incurred, or
moneys borrowed and used, for the purpose of—
(A) a business or profession carried on by such resident outside India;
or
(B) making or earning any income by such resident from any source
outside India; or
(iii) a non-resident, if it is in respect of any debt incurred, or moneys bor-
rowed and used, for the purposes of a business or profession carried on
by such non-resident in India,
shall be deemed to accrue or arise in India;
(b) for the purposes of clause (a),—
(i) any interest payable by the permanent establishment in India of a
non-resident person engaged in the business of banking, to the head
office or any other permanent establishment or any other part of such
non-resident outside India shall be deemed to accrue or arise in India
and shall be chargeable to tax in addition to any income attributable to
such permanent establishment in India;
(ii) such permanent establishment in India shall—
(A) be deemed to be a person separate from, and independent of, the
non-resident person of which it is a perma
In plain language
What Section 9 actually does
Section 9 of the Income-tax Act, 2025 (effective 1 April 2026) is the "source rule" of Indian income tax. It creates a legal fiction: even when income is neither received in India nor actually accrues in India, the law can still deem it to accrue or arise in India — and therefore make it taxable here. This is the single most important section for non-residents (NRIs), foreign companies and cross-border transactions. It is the modern replacement for the old Section 9(1) of the Income-tax Act, 1961, reorganised into cleaner sub-sections and updated for the digital economy.
Who it applies to
- Non-residents and foreign companies — they are taxed in India only on income that is received in India or that is deemed to accrue or arise in India. Section 9 is what pulls their India-linked income into the Indian tax net.
- Residents — the section also matters, because it defines the "source" character of income for treaty relief, TDS and foreign tax credit purposes.
- Anyone making a payment to a non-resident — interest, royalty, fees for technical services (FTS) etc. — because it decides whether TDS under the withholding provisions applies.
The main heads of deemed income
- Business connection / assets in India — income from any business connection in India, any asset, property or source of income in India, or the transfer of a capital asset situated in India.
- Salary — salary earned in India (i.e. for services rendered in India), plus salary paid by the Government to an Indian citizen for services rendered abroad.
- Dividend — dividend paid by an Indian company, even if paid outside India.
- Interest — interest payable by the Government, by a resident (unless the borrowing is used for a business/source of income outside India), or by a non-resident where the borrowing funds an Indian business.
- Royalty — for patents, designs, trademarks, copyrights, secret formula/process, software and industrial/scientific equipment — where used for an Indian business or to earn Indian income.
- Fees for technical services (FTS) — managerial, technical or consultancy services (including supply of technical personnel), on the same India-use test.
Business connection and Significant Economic Presence (SEP)
"Business connection" is deliberately wide. It covers a dependent agent in India who habitually concludes contracts, maintains stock for delivery, or secures orders for the non-resident — but not a genuinely independent broker or commission agent. Crucially, the 2025 Act merges Significant Economic Presence (SEP) into the main business-connection definition. SEP catches digital/remote businesses with no physical presence:
- Transaction test: aggregate payments from transactions in goods, services or property (including download of data or software) with persons in India exceeding a prescribed threshold — set at ₹2 crore per year; or
- User test: systematic and continuous soliciting of business or interaction with a prescribed number of users in India — set at 3 lakh users.
SEP applies whether or not the contract is signed in India, the non-resident has a place of business in India, or the services are rendered in India.
Attribution — only the India part is taxed
A key protection: where all operations are not carried out in India, only the income reasonably attributable to the operations in India (or to the SEP transactions/users) is taxed here. The 2025 Act also expressly recognises data-driven income — advertising targeted at Indian users/Indian IP addresses, sale of data of Indian users, and goods/services sold using such data.
Indirect transfer of shares
Shares/interest in a foreign entity are treated as situated in India if they substantially derive their value from Indian assets — where the Indian assets exceed ₹10 crore and represent at least 50% of the entity's total value. Category I / II Foreign Portfolio Investors get a carve-out.
Important exclusions
- Purchase of goods in India purely for export out of India.
- Collection of news for transmission out of India.
- Shooting of cinematograph films in India by non-citizens/foreign entities.
- Display of uncut diamonds in a notified special zone by a foreign mining company.
💡 Example
Example 1 — Royalty/FTS to a non-resident. A US software firm licenses software to an Indian company and charges ₹40 lakh, plus ₹10 lakh for technical support. Since the software is used in the Indian company's business and the FTS supports Indian operations, the entire ₹50 lakh is deemed to accrue or arise in India under Section 9 (royalty + FTS heads). The Indian payer must deduct TDS at the applicable rate (subject to relief under the India–US DTAA, typically 10–15%), even though the US firm has no office in India.
Example 2 — Significant Economic Presence (SEP). A foreign streaming/ad platform with no office in India earns ₹9 crore from Indian subscribers and serves 12 lakh Indian users. Both SEP triggers are crossed (payments > ₹2 crore and users > 3 lakh). It has a business connection in India. However, only the income reasonably attributable to Indian users/transactions — say the profit on the ₹9 crore Indian revenue — is taxed in India, not its global profit.
A relatable story. Meera, an NRI in Dubai, keeps a fixed deposit in an Indian bank and owns a flat in Pune she rents out. She assumed that since she "lives abroad," nothing is taxable in India. But under Section 9, the FD interest (paid by an Indian resident bank) and the rent (income from property in India) are both deemed to accrue in India. She must file an Indian return and can then claim credit in the UAE where applicable. Section 9 is exactly why "I'm an NRI" does not mean "India can't tax me."
| Head of income | When deemed to arise in India | Key threshold / test |
|---|
| Business connection | Business carried on in India (wholly/partly) or dependent agent in India | Only India-attributable profit taxed |
| Significant Economic Presence (SEP) | Digital/remote business with Indian customers/users | Payments > ₹2 crore/yr OR > 3 lakh users |
| Salary | Services rendered in India; Govt salary to Indian citizen abroad | Based on place of service |
| Dividend | Paid by an Indian company (even if paid outside India) | No threshold |
| Interest | Payable by Govt / resident (unless for foreign business) / NR for Indian business | Use-of-funds test |
| Royalty | For IP/software/equipment used in Indian business or to earn Indian income | India-use test |
| Fees for technical services | Managerial/technical/consultancy for Indian business or income | India-use test |
| Indirect transfer of shares | Foreign shares deriving value substantially from Indian assets | Indian assets > ₹10 cr AND ≥ 50% of value |
Related sections
Section 5 — Scope of total income (resident vs non-resident) Section 6 — Residential status in India Section 2(49) — Definitions (royalty, FTS, business connection) Section 90 — Double Taxation Avoidance Agreements (DTAA relief) Section 195 — TDS on payments to non-residents Section 162 — Associated enterprises / transfer pricing linkage
Frequently asked questions
Is NRI income from an Indian bank FD taxable in India under Section 9?
Yes. Interest paid by a resident bank in India is deemed to accrue or arise in India, so an NRI's FD interest is taxable in India, subject to TDS and any DTAA relief.
Does a foreign company without any office in India still get taxed here?
It can. Through the Significant Economic Presence (SEP) rule, a foreign digital business with over ₹2 crore of India-linked receipts or more than 3 lakh Indian users has a business connection and is taxed on the India-attributable income, even with no physical presence.
What is the difference between Section 9 of the 2025 Act and Section 9(1) of the 1961 Act?
The substance is largely the same, but the 2025 Act reorganises the heads into separate sub-sections, merges SEP into the main business-connection definition, expressly covers data-driven income, and uses clearer language like 'transfer or grant' of rights and 'export out of India'.
Is dividend from an Indian company taxable for a non-resident?
Yes. Any dividend paid by an Indian company is deemed to accrue or arise in India even if actually paid outside India, so it is taxable for the non-resident shareholder, subject to DTAA rates.
How much of a non-resident's business income is taxed if only part of the operations are in India?
Only the income reasonably attributable to the operations carried out in India (or to SEP transactions/users) is taxed in India, not the entire global income.
When are shares of a foreign company taxable in India?
When they derive their value substantially from Indian assets — specifically when the Indian assets exceed ₹10 crore and represent at least 50% of the entity's total value (with a carve-out for Category I/II FPIs).
Can a DTAA override Section 9?
Yes. If a tax treaty under Section 90 gives a more beneficial treatment (lower rate or narrower scope, e.g. requiring a permanent establishment), the treaty prevails over the domestic deeming provision, and the taxpayer can choose the more beneficial option.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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