Indian income

Residential status used to turn on one thing: how many days a person spent in India. Since Assessment Year 2021-22 it turns on three — citizenship, period of stay, and total income from Indian sources.

That third input needs a name, and the Act gives it one. Indian income means total income excluding income from foreign sources.

Income from foreign sources is income that accrues or arises outside India. There is one carve-out: income derived from a business controlled in India, or a profession set up in India, is not treated as foreign-source income even though it arises abroad.

The figure matters because of a threshold. Rs 15 lakh of Indian income is the line at which two separate residence rules change.

So Indian income is not a tax head and not a rate. It is a measuring stick.

The definition (Chapter 10, section 10.1.1). Section 6(1A) of the Income-tax Act uses the phrase while creating the deemed resident category: an Indian citizen is deemed resident in India irrespective of his stay in India if his total income, excluding income from foreign sources — hereinafter referred to as 'Indian Income' — exceeds Rs 15 lakhs during the previous year, and he is not liable to tax in any other country or territory by reason of his domicile, residence or any other criterion of a similar nature.

What is excluded. Income from foreign sources means income which accrues or arises outside India, except income derived from a business controlled in, or a profession set up in, India. So a consultancy run from India but billing overseas clients counts as Indian income; a rental property abroad does not.

The three places the Rs 15 lakh test appears (section 10.1.1.1).

The basic residence test it modifies. An individual is resident in India if he stays 182 days or more in the relevant previous year, or 60 days or more (but less than 182) in that year and 365 days or more in the last 4 years. Indian income decides whether that 60-day limb is replaced by 120 days or by 182 days.

Why the concept exists at all (section 10.1.1). Tax liability is computed on total income, and what goes into total income depends on residential status — citizenship is of no consequence to that. A person resident in India pays tax on total world income; a citizen of India who is non-resident pays tax only on his Indian income. So the phrase does double duty: it measures the threshold, and for a non-resident it also describes the tax base.

Illustrative figures applying the workbook's tests. Three Indian citizens working abroad, each spending 130 days in India in the previous year and more than 365 days in India over the preceding four years.

The Dubai salary and the Sharjah rent are income from foreign sources and drop out. The Pune rent is Indian income. The consultancy income is Indian income too, even if the clients are overseas, because the profession is set up in India.

Mr Menon. Indian income of Rs 22,00,000 exceeds Rs 15 lakh, so Exception 2 applies and his 60-day limb becomes 120 days. He stayed 130 days, which is more than 120, so he is resident — and Not Ordinarily Resident.

Ms Sheikh. Indian income of Rs 9,00,000 is below Rs 15 lakh. If she was outside India and came on a visit, Exception 1 applies and her limb becomes 182 days. At 130 days she is non-resident, and pays Indian tax only on her Rs 9,00,000 of Indian income — not on her Rs 90,00,000 Dubai salary.

Mr Grover. Indian income of Rs 13,00,000 is also below Rs 15 lakh, so the same 182-day limb applies and he too is non-resident.

Ms Sheikh has by far the largest total income of the three and the smallest Indian tax base. The threshold is not about how much a person earns. It is about how much of it is Indian.

Chapter 10 (Taxation), section 10.1.1 (Residential status), coins the term while setting out Section 6(1A), and section 10.1.1.1 uses it three times — in the deemed resident rule and in both exceptions to the 60-day test.

Expect a computation question: given a list of receipts, work out Indian income and then apply the Rs 15 lakh test to decide residential status. And expect the threshold itself to be asked directly. The trap the examiner uses is a large foreign salary alongside a modest Indian receipt, to see whether the candidate excludes the foreign-source income.

• Indian income is not total income. It is total income minus income from foreign sources, so a large overseas salary does not count towards the Rs 15 lakh test.
• Business controlled in India, or a profession set up in India, is not foreign-source income even when the money arises abroad. That carve-out is where most computation marks are lost.
• Rs 15 lakh cuts both ways. Above it, the 60-day limb becomes 120 days and the deemed resident rule can apply; below it, a visiting citizen or PIO gets 182 days.
• A deemed resident is always Not Ordinarily Resident, and the rule applies notwithstanding the number of days spent in India.
• The deemed resident rule needs the second condition too — not liable to tax in any other country or territory. Indian income above Rs 15 lakh alone is not enough.
• Citizenship is irrelevant to the basic residence test but central to these rules. The workbook says citizenship is of no consequence to total income, yet Section 6(1A) and both exceptions apply only to Indian citizens or Persons of Indian Origin.