Scope of Total Income

The term “total income” has been defined in section 2 (45) of the Income-tax Act, 1961 (“the Act”) as, “the total amount of income referred to in section 5, computed in the manner laid down in the Act”. Therefore, while computing the total income, one has to have regard to the scope of income as specified in section 5 of the Act and then compute the income in the manner laid down in the Act. Section 5 prescribes scope of taxable total income for residents, not ordinarily residents and non-residents. Since the scope of taxable income and the tax liability varies with the residential status of the assessee it is important to determine the residential status of the assessee. The residential status has to be determined in accordance with section 6 of the Act.

Scope of Total Income – Residents – Section 5 (1)

Persons who are ‘Resident” are charged to tax on –

(a) income received or deemed to be received in India in the accounting year, by or on behalf of such person, the date or place of its accrual being immaterial [section 5(1)(a)].

(b) Income which accrues or is deemed to accrue or arise in India during the accounting year, the date or place of its receipt being immaterial [section 5(1)(b)].

(c) Income which accrues or arise outside India during the accounting year, even if it is not received in or brought into India [section 5(1)(c)]

Scope of Total Income – Not Ordinarily Residents

Persons not ordinarily resident in India, are assessed exactly in the same manner as persons who are resident but subject to one special exemption. Persons who are not ordinarily resident are chargeable in respect of all the three items of income enumerated above, but they are exempt from tax in respect of income accruing or arising outside India unless it is derived from a business controlled in or a profession or vocation set up in India. [proviso to section 5 (1)]

Scope of Total Income – Non Residents

Persons who are not resident in India in the previous year are charged to tax on–

(a) income received or deemed to be received in India in the previous year, by or on behalf of such person, the date or place of its accrual being immaterial [section 5(2)(a)];

(b) income which accrues or arises or is deemed to accrue or arise in India during the previous year, the date or place of its receipt being immaterial [section 5(2)(b)];

To sum up, all assessees, whether resident or not, are chargeable in respect of income accruing or arising , or deemed to accrue or arise or received or deemed to be received, in India; while residents alone are chargeable in respect of income which accrues or arises and is received outside India.