Section 9 — Income Deemed to Accrue or Arise in India | ITA 2025

Section 9 — - INCOME DEEMED TO ACCRUE OR ARISE IN INDIA

Section 9 is the cornerstone of cross-border income taxation in India -- the substantive equivalent of 1961 s. 9 in its entirety with all post-1961 accretions including the FA 2012 retrospective overriding of Vodafone (indirect transfer), the FA 2018 Significant Economic Presence (SEP) digital-economy nexus, the FA 2015 eligible-fund-manager safe harbour, the FA 2022 VDA royalty deeming, and the post-Vodafone case law architecture. The section operates on the SOURCE PRINCIPLE: income with sufficient nexus to India is deemed to accrue or arise in India even where the recipient is non-resident and physical receipt is outside India. THIRTEEN sub-sections cover: (1) deeming-anchor; (2) general nexus (asset / property / business connection / capital asset transfer); (3) salary; (4) dividend; (5) interest (with PE-attribution and head-office bank-interest deeming); (6) royalty (with elaborate inclusive definition); (7) fees for technical services; (8) other-income deeming for s. 2(49)(u) sums (FA 2022 VDA / digital-asset royalty); (9) BUSINESS CONNECTION -- elaborate definition with SEP / DAPE / agency / digital-economy nexus; (10) INDIRECT TRANSFER mechanics (Vodafone reversal); (11) NO-PE-NO-RENDERED-IN-INDIA deeming for sub-ss. (5)/(6)/(7); (12) ELIGIBLE FUND MANAGER safe harbour; (13) 'through' anti-circumvention. This is the LARGEST and MOST-LITIGATED section in the entire Act -- every cross-border transaction must be tested against this grid.

Statutory text — Income-tax Act, 2025

Marginal note -- Income deemed to accrue or arise in India

(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 permanent establishment; and

(B) the provisions of this Act relating to computation of total income, determination of tax and collection and recovery shall apply, accordingly;

(iii) “permanent establishment” shall have the meaning assigned to it in section 173(c). (6)(a) Income by way of royalty payable by—

(i) the Government;

(ii) a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes 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 the royalty is payable in respect of any right, property or information used or services utilised for the purposes of—

(A) a business or profession carried on by such non-resident in India; or

(B) making or earning any income by such non-resident from any source in India, shall be deemed to accrue or arise in India;

(b) in this sub-section, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for the following—

(i) the transfer or grant of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property;

(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property;

(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;

(iv) the imparting of any information concerning technical, industrial, com- mercial or scientific knowledge, experience or skill;

(v) the use or right to use any industrial, commercial or scientific equipment except the amounts referred in section 61(2) (Table: Sl. No. 5);

(vi) the transfer or grant of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including—

(A) films or video tapes for use in connection with television; or

(B) tapes for use in connection with radio broadcasting;

(vii) the rendering of services in connection with the activities referred to in sub-clauses (i) to (vi);

(c) for the purposes of clause (b),—

(i) the transfer or grant of all or any rights in respect of any right, property or information includes transfer or grant of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which that right is transferred;

(ii) royalty includes consideration in respect of any right, property or infor- mation, whether or not—

(A) the possession or control of that right, property or information is with the payer;

(B) that right, property or information is used directly by the payer;

(C) the location of that right, property or information is in India;

(iii) the expression “process” includes transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not that process is secret;

(iv) the expression “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customised electronic data. (7)(a) Income by way of fees for technical services payable by—

(i) the Government;

(ii) a resident, except where it is payable in respect of services utilised for—

(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 payable in respect of services utilised for—

(A) a business or a profession carried on by such non-resident in India; or

(B) making or earning any income by such non-resident from any source in India, shall be deemed to accrue or arise in India;

(b) in this sub-section, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration—

(i) for any construction, assembly, mining or like project undertaken by the recipient; or

(ii) which would be income of the recipient chargeable under the head “Salaries”.

(8) Income arising outside India, in the nature of a sum referred to in section 2(49)(u), paid by a person resident in India,—

(a) to a non-resident, not being a company, or to a foreign company; or

(b) to a person not ordinarily resident in India under section 6(13), shall be deemed to accrue or arise in India. (9)(a) For the purposes of this section, “business connection” in India shall include—

(i) any business carried out in India in the case of which all or part of operation are carried out in India; or

(ii) a significant economic presence in India;

(b) in clause (a), a business carried out in India shall include—

(i) business activity carried out through a person who, acting on behalf of the non-resident,—

(A) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident or habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are—

(I) in the name of the non-resident; or

(II) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or

(III) for the provision of services by the non-resident; or

(B) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(C) habitually secures orders in India, mainly or wholly for the non-res- ident, or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident;

(ii) a business activity carried out through a person who is a broker, general commission agent or any other agent, through whom such activity is carried out, and who is working mainly or wholly on behalf of—

(A) a non-resident (referred to as the principal non-resident); or

(B) such non-resident and other non-residents who—

(I) are controlled by the principal non-resident; or

(II) have a controlling interest in the principal non-resident; or

(III) are subject to the same common control as the principal non-resident, and such person shall not be deemed as having an independent status;

(c) in clauses (a) and (b), a business carried out in India shall not include any business activity or operations of the non-resident—

(i) carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent is acting in the ordinary course of his business; or

(ii) which are confined to any of the following—

(A) the purchase of goods in India for the purposes of export out of India; or

(B) the collection of news and views in India for transmission out of India, in the case where such non-resident is engaged in the business of running a news agency or of publishing newspapers, magazines or journals; or

(C) the display of uncut and unassorted diamond in any special zone notified by the Central Government, in the case where such non- resident is a foreign company engaged in the business of mining of diamonds; or

(D) the shooting of any cinematographic film in India, in the case where such non-resident is a person being—

(I) an individual who is not an Indian citizen; or

(II) a firm which does not have a partner who is an Indian citizen or who is resident in India; or

(III) a company which does not have a shareholder who is an Indian citizen or who is resident in India;

(d) a non-resident shall have a significant economic presence in India, where there is—

(i) transaction in respect of any goods, services or property carried out by such non-resident with any person in India including provision of down- load of data or software in India, if the aggregate of payments arising from such transaction or transactions during the tax year exceeds such amount as may be prescribed; or

(ii) systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed, irrespective of whether the agreement for such transactions or activities is entered in India, or the non-resident has a residence or place of business in India, or the non-resident renders any services in India;

(e) the provisions of clause (d) shall not apply to the transactions or activities which are confined to the purchase of goods in India for the purpose of export;

(f) in this section, only the income which is reasonably attributable to—

(i) operations carried out in India, when all operations of the business are not carried out in India;

(ii) transactions or activities referred to in clause (d), shall be deemed to accrue or arise in India from any business connection;

(g) the income attributable to operations of any business or significant economic presence in this section shall also include income from—

(i) such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India;

(ii) sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India; and

(iii) sale of goods or services using data collected from a person who resides in India or from a person who uses internet protocol address located in India.

(10) In sub-section (2),—

(a) an asset or a capital asset, being any share of, or interest in, a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets (whether tangible or intangible) located in India;

(b) the share or interest, referred to in clause (a), shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of such assets,—

(i) exceeds the amount of ten crore rupees; and

(ii) represents at least 50% of the value of all the assets owned by the company or entity, as the case may be;

(c) the value of an asset shall be the fair market value on the specified date of such asset without reduction of liabilities, if any, in respect of the asset, determined in the manner, as may be prescribed;

(d) the expression “specified date” in clause (c) means—

(i) the date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or

(ii) the date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by 15%;

(e) the expression “accounting period” in clause (d) means—

(i) each period of twelve months ending with the 31st March;

(ii) each period of twelve months ending with a date other than the 31st March, in a case where a company or an entity, referred to in clause (a), regularly adopts a period of twelve months ending on a day other than the 31st March for—

(A) complying with the provisions of the tax laws of the territory, of which it is a resident, for tax purposes; or

(B) reporting to persons holding the share or interest;

(iii) the period beginning with the date of registration or incorporation of a company or entity and ending with the 31st March or such other day referred to in sub-clause (ii), in a case where a company or entity comes into existence and the later accounting period shall be the successive periods of twelve months; or

(iv) the period beginning with the 1st April or such other day as applicable in sub-clause (ii) and ending with the date immediately preceding the date on which the company or entity ceases to exist, in a case where the company or the entity ceases to exist before the end of the accounting period;

(f) in case of assets mentioned in clause (a), if—

(i) there is a transfer outside India of any share of, or interest in, a company or an entity registered or incorporated outside India by a non-resident transferor; and

(ii) all the assets owned, directly or indirectly, by that company or entity are not located in India, then, the income referred to in sub-section (2) shall be only such part of the income as is reasonably attributable to assets located in India and determined in the manner, as may be prescribed;

(g) the income referred to in sub-section (2) shall not include income from transfer, outside India, of any share of, or interest in, a company or an entity registered or incorporated outside India,—

(i) if such share of, or interest in, a company or an entity registered or incorporated outside India is held by a non-resident by way of investment, directly or indirectly,—

(A) in Category I or Category II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, prior to their repeal, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(B) in Category I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(ii) if such company or entity directly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer,—

(A) does not hold the right of management or control in relation to such company or the entity; and

(B) does not hold voting power or share capital or interest exceeding 5% of the total voting power or total share capital or total interest, as the case may be, of such company or entity; or

(iii) if such company or entity indirectly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer,—

(A) does not hold the right of management or control in relation to such company or the entity;

(B) does not hold any right in, or in relation to, such company or entity which would entitle it to the right of management or control in the company or entity which directly owns the assets situated in India; and

(C) does not hold such percentage of voting power or share capital or interest in such company or entity which results in holding of (either individually or along with associated enterprises) a voting power or share capital or interest exceeding 5% of the total voting power or total share capital or total interest, as the case may be, of the company or entity, which directly owns the assets situated in India;

(iv) in this clause, “associated enterprises” shall have the meaning assigned to it in section 162.

(11) In sub-sections (5), (6) and (7), income of a non-resident shall be deemed to accrue or arise in India and shall be included in his total income, whether or not,—

(a) the non-resident has a residence or place of business or business con- nection in India; or

(b) the non-resident has rendered services in India.

(12) (a) In this section, the fund management activity carried out by an eligible investment fund through an eligible fund manager acting on behalf of such fund, shall not constitute business connection in India of that fund;

(b) the eligible investment fund mentioned in clause (a) shall not be said to be resident in India under section 6 merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India;

(c) nothing contained in this section shall apply to exclude any income from the total income of the eligible investment fund, which would have been so included irrespective of whether the activity of the eligible fund manager constituted the business connection in India of such fund or not;

(d) nothing contained in this section shall have any effect on the scope of total income or determination of total income in the case of the eligible fund manager;

(e) the conditions for being an eligible investment fund or an eligible fund manager, or furnishing of requisite statements shall be as per the provisions of Schedule I;

(f) the Central Government may, by notification, specify that any one or more of the conditions as referred to in clause (e) shall not apply, or shall apply, with such modifications, as specified, in case of an eligible investment fund and its eligible fund manager, if—

(i) the eligible fund manager is located in an International Financial Ser- vices Centre; and

(ii) has commenced its operations on or before the 31st March, 2030.

(13) For the purposes of this section, the expression “through” shall mean and include “by means of”, “in consequence of” or “by reason of”. Apportionment of income between spouses governed by Portuguese Civil Code.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 9	INCOME-TAX ACT, 1961 -- s. 9
s. 9(1) -- deeming-anchor / opening words	1961 s. 9(1) opening words
s. 9(2) -- General nexus (asset / property / business connection / CA transfer)	1961 s. 9(1)(i) opening + Explanations 1-7
s. 9(3) -- Salary earned in India / for services rendered in India / Government to citizen abroad	1961 s. 9(1)(ii)/(iii)
s. 9(4) -- Dividend by Indian company outside India	1961 s. 9(1)(iv)
s. 9(5) -- Interest with PE-attribution and head-office bank-interest deeming	1961 s. 9(1)(v) + FA 2015 Explanation
s. 9(6) -- Royalty with seven-clause inclusive definition + computer software gloss	1961 s. 9(1)(vi) + FA 2012 retro Explanations 4-6
s. 9(7) -- Fees for technical services with managerial / technical / consultancy ambit	1961 s. 9(1)(vii)
s. 9(8) -- s. 2(49)(u) sums (FA 2022 VDA / digital-asset deeming)	1961 s. 9(1)(ix) [FA 2022]
s. 9(9)(a) -- 'business connection' = business carried out in India + Significant Economic Presence	1961 s. 9(1)(i) Explanation 1 + Explanation 2A [FA 2018 SEP]
s. 9(9)(b) -- DAPE: dependent-agent-PE rules (authority to conclude / habitual stock / orders)	1961 s. 9(1)(i) Explanation 2 [FA 2018 BEPS-Action-7-aligned]
s. 9(9)(c) -- Independent agent carve-out + Six 'preparatory / auxiliary' exclusions (purchase / news / diamonds / cinema / etc.)	1961 s. 9(1)(i) Explanation 1(b)
s. 9(9)(d) -- SEP test: aggregate-payment threshold OR users-threshold	1961 s. 9(1)(i) Explanation 2A [FA 2018 / 2020]
s. 9(9)(e) -- SEP carve-out for purchase-for-export	1961 s. 9(1)(i) Explanation 2A Proviso
s. 9(9)(f)-(g) -- Reasonably-attributable income; advertising / data / data-aided sales attribution	1961 s. 9(1)(i) Explanation 1(a)
s. 9(10) -- INDIRECT TRANSFER: 50% / INR 10 crore threshold; 5%-shareholder-and-control carve-out; FPI Cat-I exemption	1961 s. 9(1)(i) Explanations 5-7 [FA 2012 retro / FA 2015 / FA 2017]
s. 9(11) -- No-PE-no-rendered-in-India deeming for ss. (5)/(6)/(7)	1961 s. 9(2) Explanation [FA 2010]
s. 9(12) -- ELIGIBLE FUND MANAGER safe harbour (FA 2015 / IFSC sunset 31-Mar-2030)	1961 s. 9A [FA 2015]
s. 9(13) -- 'through' = 'by means of', 'in consequence of', 'by reason of'	1961 s. 9(1)(i) opening words gloss

STATUTORY ARCHITECTURE -- THE SOURCE-RULE GRID

Section 9 builds the SOURCE-RULE grid of Indian taxation. India follows a hybrid system: residents are taxed on world-wide income (s. 5(1)); non-residents are taxed only on Indian-source income (s. 5(2)). Section 9 defines 'Indian-source' through deeming. The architecture has THREE layers: (I) GENERAL NEXUS [sub-s. 2 + sub-s. 9-10]: asset / property / source / business connection / capital asset transfer / Significant Economic Presence / Indirect transfer of Indian-asset-bearing offshore shares -- deemed Indian-source. (II) SPECIFIC INCOME-TYPE NEXUS [sub-ss. 3-7]: payer-based or service-rendered-in-India deeming for salary / dividend / interest / royalty / FTS. (III) FA-ERA EXTENSIONS [sub-s. 8 (VDA royalty / digital-asset), sub-s. 12 (fund manager safe harbour), sub-s. 13 ('through' anti-circumvention)]. Practitioner workflow: (1) classify the income (sub-section identification); (2) test deeming triggers; (3) apply DTAA s. 159 override (most-beneficial); (4) apply Equalisation Levy 2.0 (post-FA 2020) interaction for digital services; (5) determine TDS rate under s. 393 / Chapter XIX-B; (6) GAAR overlay (s. 178-184 of 2025 Act).

SUB-SECTIONS (1)-(2) -- DEEMING ANCHOR AND GENERAL NEXUS

Sub-s. (1) is the OPENING DEEMING-ANCHOR -- 'income referred to in sub-sections (2) to (8) shall be deemed to accrue or arise in India'. This makes the listed categories presumptively Indian-source regardless of contrary location facts. Sub-s. (2) supplies the GENERAL NEXUS test: 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. 'Through' is defined in sub-s. (13) as 'by means of', 'in consequence of', 'by reason of' -- a deliberately wide net to capture indirect linkages. Sub-s. (2)(d) is the sister-charge of CG-on-Indian-asset-transfer; if the asset is situated in India, the CG is Indian-source even where buyer / seller / consideration are all offshore.

SUB-SECTION (3) -- SALARY (RD AGGARWAL / ELI LILLY)

Salary deemed Indian-source if: (a) Earned in India (services rendered in India + rest/leave preceded and succeeded by services rendered in India and forming part of contract). (b) Payable by Government to Indian citizen for services rendered outside India. Eli Lilly (SC 2009, 312 ITR 225) extended this to cover Indian-entity-to-foreign-entity reimbursement of cross-border salary -- s. 192 TDS obligation triggers if services are rendered in India regardless of payer location. The 'rest period or leave period' addition (sub-s. 3(a)(ii)) closes a previously-open loophole where expat employees structured short India-stays bracketed by 'rest periods' to escape salary deeming. Practitioner: for cross-border deputation packages, document services-rendered-in-India calendar; rest periods only qualify if integrally part of contract.

SUB-SECTION (4) -- DIVIDEND BY INDIAN COMPANY

Dividend paid by INDIAN COMPANY OUTSIDE INDIA is deemed Indian-source. Important post FA 2020 -- the Dividend Distribution Tax (DDT) regime was abolished and dividend made taxable in shareholder's hands; non-resident shareholder taxation now operates through s. 9(4) deeming + DTAA-rate-cap (typical 5%-15% under treaties) + s. 393 TDS. India-Mauritius / India-Singapore / India-Cyprus treaties have been amended post 2017 to remove the source-state-zero-tax position; current dividend WHT rates: ~10-15% across major treaties (verify per applicable DTAA).

SUB-SECTION (5) -- INTEREST (WITH PE-ATTRIBUTION AND HEAD-OFFICE BANK INTEREST)

Sub-s. (5)(a): Interest deemed Indian-source if payable by: (i) Government; (ii) RESIDENT, EXCEPT where used by such resident for [(A) outside-India business or (B) outside-India income source]; or (iii) NON-RESIDENT, IF used for [(A) Indian business or (B) Indian-source income]. Sub-s. (5)(b) -- HEAD-OFFICE BANK-INTEREST DEEMING (FA 2015): interest payable by Indian-PE of NR-engaged-in-banking to its head office (or other PE / part) outside India is deemed Indian-source. Two corollaries: (i) PE deemed SEPARATE PERSON from NR (inverse to UN model); (ii) Computation / determination / collection provisions apply accordingly. 'Permanent establishment' = s. 173(c). Practitioner relevance: foreign-bank-Indian-branch (Citibank India / HSBC India / Standard Chartered India) interest paid from branch to head office is taxable at branch level. Pre-FA 2015 Sumitomo Mitsui (SC 2009) had held such interest non-taxable on identity-rule; FA 2015 reversed.

SUB-SECTION (6) -- ROYALTY (SEVEN-CATEGORY INCLUSIVE DEFINITION + COMPUTER SOFTWARE)

Sub-s. (6)(a): mirror payer-test as for interest -- payable by Government / resident (exception-tested) / non-resident (exception-tested). Sub-s. (6)(b): 'royalty' = consideration (including lump-sum, excluding CG-character receipts) for: (i) transfer or grant of rights (incl. licence) in patent / invention / model / design / secret formula / process / trade mark / similar property; (ii) IMPARTING INFORMATION concerning working / use of (i) above; (iii) USE of patents / inventions / etc.; (iv) IMPARTING information concerning technical / industrial / commercial / scientific KNOWLEDGE / EXPERIENCE / SKILL ('know-how' clause); (v) USE OR RIGHT TO USE industrial / commercial / scientific equipment (except s. 61(2) Table Sl. 5 amounts -- which is the rental from operating equipment lease cleaved off into specific PGBP / IFOS treatment); (vi) transfer or grant of rights in COPYRIGHT / literary / artistic / scientific work including TV films / radio tapes; (vii) RENDERING SERVICES in connection with (i)-(vi). Sub-s. (6)(c) -- ANTI-AVOIDANCE GLOSSES (FA 2012 RETRO): (i) 'transfer or grant of rights' includes COMPUTER SOFTWARE rights (any medium); (ii) royalty includes consideration regardless of (A) payer's possession / control of right; (B) right used directly by payer; (C) location of right (in / outside India); (iii) 'process' includes TRANSMISSION BY SATELLITE / cable / optic fibre / similar technology, secret or not; (iv) 'computer software' = computer programme on disc / tape / perforated media / other storage device, including any such programme or customised electronic data. ENGINEERING ANALYSIS (SC 2021, 432 ITR 471) is the leading TREATY decision. The SC held that consideration paid by Indian end-users / distributors to foreign software-suppliers is NOT 'royalty' under DTAA (US / UK / Singapore etc.) because the SCOPE-OF-LICENCE-PROBLEM test under TRIPS / Berne Convention demonstrates these are not 'use of copyright in software' but 'use of copyrighted article'. Treaty position prevails over s. 9(6) FA 2012 amendment via s. 159 (DTAA most-beneficial). However, s. 9(6) FA 2012 amendments STILL APPLY where (a) no DTAA exists (rare); or (b) DTAA royalty definition is itself broad (e.g., India-China DTAA equates Indian DTL with India-FA 2012 amendment). FA 2024 further clarified: equipment-rental-royalty ambit for cross-border IT-equipment leases. Practitioner: every cross-border software / cloud / SaaS / IaaS / PaaS payment must be evaluated under both s. 9(6) FA 2012-aligned definition AND applicable DTAA royalty article -- claim more-beneficial.

SUB-SECTION (7) -- FEES FOR TECHNICAL SERVICES

Mirror payer-test as for interest / royalty. Sub-s. (7)(b): 'fees for technical services' = consideration (incl. lump-sum) for rendering MANAGERIAL / TECHNICAL / CONSULTANCY services (incl. provision of services of technical or other personnel). EXCLUSIONS: (i) Construction / assembly / mining / like project undertaken by RECIPIENT (the recipient is doing the project work; the FTS character is in the technical-input layer, but if recipient is project-undertaker, the consideration is project consideration not FTS); (ii) Salary-character receipts (excluded from FTS to prevent double-classification with sub-s. 3 salary). FTS scope is heavily litigated. KEY DECISIONS: (a) DIT v. Mphasis Ltd (SC 2018, 405 ITR 1) -- 'made available' test under DTAA: FTS taxable only if technology / skills are 'made available' to recipient (i.e., recipient acquires capability). Under domestic s. 9(7), no 'made available' qualifier -- this is a TREATY-DOMESTIC asymmetry. (b) GVK Industries Ltd v. ITO (SC 2015, 371 ITR 453) -- consultancy fees from foreign expert for power project: FTS chargeable; 'rendered in India' not required. (c) Ishikawajima-Harima Heavy Industries v. DIT (SC 2007, 288 ITR 408) -- pre-FA 2010, source-rule required services rendered IN India; legislatively reversed by FA 2010 (now sub-s. 11). Sub-s. (11) confirms: for ss. (5)/(6)/(7), NR's deemed-Indian-source income arises whether or not (a) NR has residence / business / business connection in India; or (b) NR has rendered services in India. This is the 'no-PE-no-rendered-in-India' override of Ishikawajima-Harima.

SUB-SECTION (8) -- s. 2(49)(u) SUMS (FA 2022 VDA / DIGITAL ASSETS)

Income arising OUTSIDE INDIA in nature of sum referred to in s. 2(49)(u) [VIRTUAL DIGITAL ASSET-related income / trading / royalty equivalent], paid by RESIDENT-OF-INDIA to: (a) NR not being company; or foreign company; or (b) NOR (Not Ordinarily Resident under s. 6(13)) -- is deemed Indian-source. Effect: Indian-resident's payment to NR / NOR for VDA-related transactions creates Indian-source on the recipient regardless of foreign location. Background: FA 2022 inserted s. 2(49)(u) defining VDA broadly to cover crypto / NFTs / similar tokens. The royalty-character payment between resident payer and NR recipient was specifically deemed Indian-source to bring foreign exchange / wallet operators / off-shore VDA-platform-fees into the tax net. This is in addition to the s. 197 30% flat-tax on VDA-trading-CG by Indian residents. Practitioner: Indian companies paying foreign crypto-exchanges / VDA-platforms must withhold TDS at applicable rate; document VDA payment categorisation.

SUB-SECTION (9) -- 'BUSINESS CONNECTION' (THE LITIGATION HEARTLAND)

Sub-s. (9)(a) defines 'business connection' to INCLUDE: (i) Business carried out in India where ALL OR PART of operations carried out in India; or (ii) SIGNIFICANT ECONOMIC PRESENCE (FA 2018 / FA 2020 -- the digital-economy nexus). Sub-s. (9)(b) -- DEPENDENT AGENT PE (DAPE): a business carried out in India INCLUDES activity carried out through a person who, acting on behalf of NR: (A) HAS AND HABITUALLY EXERCISES authority to conclude contracts on behalf of NR, OR HABITUALLY CONCLUDES contracts, OR HABITUALLY PLAYS THE PRINCIPAL ROLE leading to conclusion of contracts (FA 2018 BEPS-Action-7-aligned 'principal role' commissionnaire-bridge); the contracts must be (I) in NR's name; OR (II) for transfer of property owned by NR or NR's right to use; OR (III) for provision of services by NR. (B) Has no such authority but HABITUALLY MAINTAINS in India STOCK OF GOODS from which regularly delivers; or (C) HABITUALLY SECURES ORDERS in India mainly or wholly for the NR / NR-and-other-NRs-under-common-control. Sub-s. (9)(b)(ii) covers BROKER / GENERAL COMMISSION AGENT / OTHER AGENT working mainly or wholly for NR / common-control-NRs -- such person is NOT to be deemed of independent status. Sub-s. (9)(c) -- INDEPENDENT AGENT CARVE-OUT: business connection EXCLUDES activity through INDEPENDENT broker / commission agent acting in ordinary course of business; AND six specific 'preparatory / auxiliary' exclusions: (A) PURCHASE-FOR-EXPORT (purchase of goods in India for export); (B) NEWS-AGENCY: collection of news for transmission abroad (NR engaged in news agency / publishing); (C) UNCUT DIAMOND DISPLAY in CG-notified zone (foreign diamond miner display); (D) CINEMATOGRAPHIC FILM SHOOTING in India (where NR is non-citizen individual / non-resident-partner firm / non-resident-shareholder company).

SUB-SECTION (9)(d) -- SIGNIFICANT ECONOMIC PRESENCE (SEP) -- DIGITAL-ECONOMY NEXUS

FA 2018 introduced SEP as a SECOND limb of business connection, made operative by FA 2020 with prescribed thresholds. SEP arises where: (i) AGGREGATE PAYMENT THRESHOLD: NR's transaction with any person in India (including digital-download / software-download in India) where aggregate payments during tax year EXCEED PRESCRIBED AMOUNT (Rule 11UD specifies INR 2 crore); OR (ii) USERS THRESHOLD: SYSTEMATIC AND CONTINUOUS soliciting / interaction with prescribed number of users in India (Rule 11UD specifies 3 LAKH USERS), REGARDLESS OF: (a) whether agreement is entered in India; (b) whether NR has residence / place of business in India; (c) whether NR renders services in India. Sub-s. (9)(e): SEP carve-out for purchase-for-export. Sub-s. (9)(f): only income reasonably ATTRIBUTABLE to (i) Indian operations (where not all operations are in India); (ii) SEP transactions / activities -- is deemed Indian-source. Sub-s. (9)(g): attributable income ALSO INCLUDES income from: (i) ADVERTISING targeting India-resident or India-IP-address user; (ii) SALE OF DATA collected from India-resident or India-IP-user; (iii) SALE OF GOODS / SERVICES using data collected from India-resident or India-IP-user. Practitioner relevance: SEP is the cornerstone of digital-economy taxation -- FAANG (Google / Meta / Amazon / Apple / Netflix) routinely cross both thresholds. SEP attribution methodology (Rule 11UD-A) is litigation-heavy. EQUALISATION LEVY 2.0 (FA 2020 Chapter VIII Finance Act) at 2% on e-commerce-supply was designed as a self-contained levy; FA 2024 ABOLISHED Equalisation Levy 2.0 effective FY 2024-25 -- digital businesses now squarely under SEP / Income-tax. Strategic shift: Equalisation Levy was a flat 2% gross; SEP is income-tax (~30%-40% effective on attributable profit) -- post FA 2024 the tax incidence on FAANG digital revenues has POTENTIALLY INCREASED significantly under SEP. DTAA modification (Mauritius / Singapore / Netherlands) becomes critical -- many DTAAs do NOT recognise SEP as PE.

SUB-SECTION (10) -- INDIRECT TRANSFER (VODAFONE REVERSAL)

FA 2012 retrospectively reversed Vodafone International Holdings (SC 2012, 341 ITR 1). Sub-s. (10) operationalises the reversed position. Architecture: (a) Asset / capital asset = SHARE OF / INTEREST IN company / entity REGISTERED OR INCORPORATED OUTSIDE INDIA shall be DEEMED SITUATED IN INDIA if share / interest derives, directly or indirectly, value SUBSTANTIALLY from assets located in India. (b) 'Substantially' = on SPECIFIED DATE, value of Indian assets: (i) EXCEEDS INR 10 CRORE; AND (ii) Represents AT LEAST 50% of value of all assets owned. (c) Value = FMV on specified date WITHOUT REDUCTION OF LIABILITIES (Rule 11UB / 11UC methodology). (d) 'Specified date' = (i) end of accounting period preceding date of transfer; OR (ii) date of transfer if book value increased >15% from (i). (e) 'Accounting period' definitions for various scenarios (March-end / non-March-end / new-incorporation / dissolution). (f) ATTRIBUTION: where some but not all assets are in India, only INDIAN-attributable portion is deemed Indian-source (Rule 11UC formula). (g) FIVE-PERCENT-AND-CONTROL CARVE-OUT (FA 2017): no income deeming if transferor (with associated enterprises) at any time in 12 months preceding transfer: (i) for direct-asset-holding entity: (A) does not have right of management / control; AND (B) holds <=5% of voting power / share capital / interest; (ii) for indirect-asset-holding entity: (A) no right of management / control in entity; (B) no right that would entitle right of management / control in direct-asset-holding entity; AND (C) <=5% holding in direct-asset-holding entity. FPI CAT-I CARVE-OUT: foreign portfolio investors registered Cat-I under SEBI FPI Regulations 2014 (or pre-2014) and Cat-I under SEBI FPI Regulations 2019 are exempt. 'Associated enterprises' = s. 162. Practitioner: Indirect transfer compliance is a major scrutiny area. Cairn UK Holdings v. UoI (PCA Award 2020 + India-UK BIT) ruled FA 2012 retrospective application against Cairn breached BIT; UoI repealed retrospective application via Taxation Laws (Amendment) Act 2021 -- but s. 9(10) PROSPECTIVELY (post-FA 2012) remains valid. Vodafone arbitration similarly went against UoI (PCA 2020). Currently, s. 9(10) catches POST-FA 2012 indirect transfers above thresholds; pre-FA 2012 transactions (Vodafone's 2007 Hutchison acquisition included) are no longer pursued. Recent application: Walmart-Flipkart 2018 acquisition triggered s. 9(10) on Singapore-resident sellers with Indian-asset-bearing shares -- Walmart withheld and deposited approximately INR 7,000 crore.

SUB-SECTION (12) -- ELIGIBLE FUND MANAGER SAFE HARBOUR

FA 2015 introduced the 'eligible fund manager' safe harbour to attract foreign-fund-manager activity to India / IFSC. Architecture: (a) Fund management activity by ELIGIBLE INVESTMENT FUND through ELIGIBLE FUND MANAGER acting on its behalf shall NOT constitute business connection in India of that fund. (b) The eligible investment fund shall NOT be deemed RESIDENT IN INDIA under s. 6 merely because the eligible fund manager is in India. (c)/(d) Section does not exclude income otherwise includible / does not affect fund manager's own taxation. (e) Conditions for eligible-investment-fund / eligible-fund-manager / requisite statements -- per Schedule I. (f) IFSC SUNSET 31-MARCH-2030: CG may notify modifications / non-application of conditions where (i) fund manager is in IFSC; AND (ii) commenced operations on or before 31-Mar-2030. Practitioner relevance: Indian fund managers managing foreign funds (typically Cayman / Mauritius / Singapore feeder structures) historically located outside India to avoid PE / business connection. FA 2015 safe harbour reverses this -- Indian-located manager (in onshore India or IFSC) can now operate without triggering Indian-residence / business-connection of the fund. IFSC GIFT City has emerged as the prime location post FA 2020-2024 incentive stack; sunset 31-Mar-2030. Strategic timeline: relocation of fund management to IFSC must be operational by 31-Mar-2030 to lock in benefits. Coordinated with s. 70(1)(t)/(u) FUND RELOCATION tax-neutrality and s. 147 IFSC framework.

SUB-SECTION (13) -- 'THROUGH' DEFINITION (ANTI-CIRCUMVENTION)

Inserted to overcome Vodafone-style 'no through' arguments. 'Through' for purposes of s. 9 means and INCLUDES 'BY MEANS OF', 'IN CONSEQUENCE OF', 'BY REASON OF'. The widest possible nexus phrase. Used in sub-s. (2) ('income accruing or arising, directly or indirectly, through or from any asset...'). The FA 2012 retrospective extended this definition to capture indirect transfers; sub-s. (13) now codifies it for all of s. 9. Practical effect: NR's argument that income did not 'flow through' India fails -- 'by reason of' or 'in consequence of' Indian-asset / Indian-source-connection is sufficient.

DTAA OVERRIDE (s. 159) -- THE OPERATIONAL OVERLAY

Section 9 deeming is SUBJECT TO DTAA via s. 159 (s. 90 of 1961 Act): non-resident may invoke applicable DTAA if it is more beneficial. Azadi Bachao Andolan (SC 2003, 263 ITR 706) is the foundational decision. Most DTAAs have: (a) Article 5 PE -- typically excludes SEP unless updated (post-2017 BEPS MLI updates introduced 'principal role' but few DTAAs have full SEP equivalent); (b) Article 7 Business Profits -- only PE-attributable income taxable at source; (c) Article 12 Royalty / FTS -- typically capped at 10-15% gross; 'made available' qualifier in newer treaties (UK / Singapore); (d) Article 13 Capital Gains -- shares-of-Indian-co-CG generally taxable in India under most amended treaties (Mauritius / Singapore post 2017); offshore-share-of-foreign-co-with-Indian-asset CG depends on specific treaty article. GAAR (s. 178-184 of 2025 Act / 1961 Chapter X-A) overrides DTAA under s. 159(2A) where main purpose is tax benefit. Practitioner: every NR-payment requires (i) s. 9 deeming test; (ii) DTAA most-beneficial test; (iii) Form 10F / TRC validation; (iv) GAAR exposure assessment for high-value or scheme-driven arrangements.

CASE LAW -- LEADING DECISIONS

(i) CIT v. R.D. Aggarwal & Co (SC 1965, 56 ITR 20) -- 'business connection' = real and intimate relation; mere agency / branch insufficient. Foundational. (ii) Vodafone International Holdings BV v. UoI (SC 2012, 341 ITR 1) -- offshore share-sale with Indian-asset-bearing target; pre-FA 2012 not chargeable; legislatively reversed. (iii) Ishikawajima-Harima Heavy Industries v. DIT (SC 2007, 288 ITR 408) -- services rendered abroad pre-FA 2010 not Indian-source; legislatively reversed by FA 2010 / sub-s. 11. (iv) Engineering Analysis Centre of Excellence v. CIT (SC 2021, 432 ITR 471) -- software payments under treaty not royalty; treaty position prevails. (v) DIT v. Mphasis Ltd (SC 2018, 405 ITR 1) -- FTS 'made available' test under treaty. (vi) GVK Industries Ltd v. ITO (SC 2015, 371 ITR 453) -- consultancy fees from foreign expert for power project; FTS chargeable without rendered-in-India. (vii) Eli Lilly & Co (India) (P) Ltd v. CIT (SC 2009, 312 ITR 225) -- cross-border salary reimbursement TDS u/s 192 obligation. (viii) Azadi Bachao Andolan v. UoI (SC 2003, 263 ITR 706) -- DTAA over Income-tax Act if more beneficial. (ix) Sumitomo Mitsui Banking Corp v. DIT (SC 2009) -- pre-FA 2015 head-office bank-interest non-taxable; legislatively reversed by sub-s. 5(b). (x) E*Trade Mauritius Ltd v. UoI (Bom HC) -- FII Mauritius routing analysed; treaty residency. (xi) Cairn UK Holdings v. UoI (PCA 2020 BIT Award) -- retrospective indirect-transfer breach of BIT; legislatively addressed by Taxation Laws (Amendment) Act 2021. (xii) Vodafone International Holdings BV v. UoI (PCA 2020 BIT Award) -- retrospective treatment breach of BIT. (xiii) Walmart-Flipkart Singapore (post-2018) -- s. 9(10) indirect transfer practical application; INR 7,000 crore TDS deposited.

DEPARTMENTAL PRACTICE / CBDT / RULES

(a) Income-tax Rules, 2026 r. 11UB / 11UC -- FMV computation for s. 9(10) indirect-transfer thresholds. (b) r. 11UD / 11UD-A -- SEP thresholds (INR 2 crore aggregate payments / 3 lakh users) and SEP-attribution methodology. (c) r. 21AB / 21AB-A -- Form 10F for tax-residency certificate (TRC). (d) Form 15CA / 15CB -- mandatory filings for cross-border remittances >= INR 5L per FY. (e) Schedule I -- Eligible Fund Manager / Eligible Investment Fund conditions (sub-s. 12). (f) Section 173(c) -- 'permanent establishment' definition (sub-s. 5(b)(iii)). (g) Section 162 -- 'associated enterprises' definition (sub-s. 10(g)(iv)). (h) CBDT Circular 7/2009 (TDS on cross-border payments). (i) FA 2024 -- Equalisation Levy 2.0 abolished; Schedule III amendments for digital-economy. (j) FA 2026 (potential) -- updates on VDA / digital asset framework.

PLANNING NOTES (TWELVE AREAS)

(i) DTAA-FIRST APPROACH -- conduct DTAA analysis BEFORE TDS; invoke s. 159 most-beneficial; obtain TRC + Form 10F BEFORE remittance. (ii) SOFTWARE / SAAS PAYMENTS -- cite Engineering Analysis to defeat blanket royalty TDS; treaty position controls; document EULA / distribution-agreement structure. (iii) FTS 'MADE AVAILABLE' (TREATY-PROTECTED NRs) -- distinguish 'mere consultancy' from 'technology transfer'; document deliverables / training / capability-transfer; cite Mphasis / Steria India. (iv) BUSINESS-CONNECTION DEFENCE -- for foreign principal with Indian agent, document independent-status; cite R.D. Aggarwal; check sub-s. 9(c) preparatory/auxiliary carve-outs. (v) SEP COMPLIANCE -- digital businesses must monitor (a) INR 2 crore aggregate payment threshold; (b) 3 lakh user threshold; once crossed, Indian-source attribution per Rule 11UD-A required. (vi) INDIRECT TRANSFER (sub-s. 10) -- offshore M&A with Indian-asset-bearing target: (a) test 50% / INR 10 crore thresholds; (b) check 5%-and-no-control carve-out; (c) verify FPI Cat-I exemption status; (d) quantify Indian-attributable consideration per Rule 11UC. (vii) HEAD-OFFICE BANK INTEREST (sub-s. 5(b)) -- foreign-bank-Indian-branch interest to head office is taxable at branch level since FA 2015; calibrate transfer pricing on inter-branch funding. (viii) ELIGIBLE FUND MANAGER (sub-s. 12) -- IFSC location strategic; sunset 31-Mar-2030; pair with s. 70(1)(t)/(u) fund relocation; obtain IFSCA registration. (ix) VDA / DIGITAL ASSETS (sub-s. 8) -- Indian-resident's payment to NR / NOR for VDA-related transactions deemed Indian-source; coordinate with s. 197 30%-flat-tax for residents. (x) GAAR EXPOSURE -- high-value (>INR 3 crore) tax-driven cross-border arrangements need GAAR risk assessment under s. 178-184. (xi) CROSS-BORDER SALARY (sub-s. 3) -- expat / inbound deputation: maintain India-services-rendered calendar; treat rest periods as services-rendered if part of contract; gross-up for tax-on-tax. (xii) DIVIDEND / CG WHT (sub-s. 4 / 2(d)) -- post-DDT-abolition: NR shareholder dividend / Indian-co share-CG taxable at applicable DTAA rate; verify amended treaty (Mauritius / Singapore / Cyprus); obtain s. 393 TDS lower-deduction certificate where appropriate.

EQUALISATION LEVY INTERACTION (FA 2020 / FA 2024 ABOLITION)

FA 2016 introduced Equalisation Levy 1.0 (6% on online advertisement payments); FA 2020 introduced Equalisation Levy 2.0 (2% on e-commerce supply by non-resident e-commerce operator with India-customer-revenue). FA 2024 ABOLISHED Equalisation Levy 2.0 effective 1-Aug-2024 (sun-set with the Finance Bill enactment date) -- eliminating the parallel levy that had effectively double-taxed FAANG digital revenues alongside SEP. Post-abolition: digital businesses fall squarely under SEP / income-tax architecture. EL 1.0 (online advertisement) continues. Practitioner: review post-1-Aug-2024 invoices for pure SEP-attribution treatment; pre-1-Aug-2024 invoices need EL 2.0 compliance and NO income-tax (s. 9(8)(g) carve-out applied where EL 2.0 paid).

CROSS-REFERENCES

Section 5 -- Scope of total income (s. 9 deeming feeds s. 5(2) / 5(3)).
Section 6 -- Residence (sub-s. 12(b) override).
Section 159 / 160 -- DTAA / unilateral foreign tax relief framework.
Section 162 -- Associated enterprises definition (sub-s. 10(g)(iv)).
Section 173(c) -- Permanent establishment definition (sub-s. 5(b)(iii)).
Section 178-184 -- GAAR (override of s. 9 / DTAA for tax-avoidance arrangements).
Section 393 / Chapter XIX-B -- TDS on payments to non-residents (s. 195 of 1961 Act).
Section 197 -- LTCG rate (interaction with sub-s. 4 NR-shareholder dividend / sub-s. 2(d) CG).
Section 70(1)(t)/(u) -- IFSC fund relocation (paired with sub-s. 12).
Section 147 -- IFSC framework (referenced for sub-s. 12(f)).
Section 2(49)(u) -- VDA definition (referenced in sub-s. 8).
Section 6(13) -- Not Ordinarily Resident definition (sub-s. 8(b)).
Section 61(2) Table Sl. No. 5 -- Equipment-rental excluded from royalty (sub-s. 6(b)(v)).
Schedule I -- Eligible Fund Manager / Eligible Investment Fund conditions.
Income-tax Rules, 2026 r. 11UB / 11UC -- Indirect-transfer FMV / Indian-attributable consideration.
Income-tax Rules, 2026 r. 11UD / 11UD-A -- SEP thresholds / attribution.
Income-tax Rules, 2026 r. 21AB / 21AB-A -- TRC / Form 10F.
Form 15CA / 15CB -- Cross-border remittance compliance.
DTAA Articles 5 (PE) / 7 (Business profits) / 12 (Royalty / FTS) / 13 (CG) -- treaty layer.
BEPS Action 7 (Permanent Establishment) / Action 1 (Digital Economy) / Multilateral Instrument -- international source-rule architecture.

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