Scope of Total Income: What Is Taxable for Residents vs Non-Residents (Income Tax Act 2025)

Section 5 of the Income-tax Act, 2025 decides which income goes into your total income, and the answer depends on your residential status. A resident is taxed on income from everywhere. A not ordinarily resident (NOR) is taxed on Indian income plus foreign income from a business controlled in, or a profession set up in, India. A non-resident is taxed only on income received, or accruing or arising, in India. Section 6 sets the day-count tests that put you in each group.

This guide walks through section 4 (the charge), section 5 (scope) and section 6 (residence) of the Act as amended by the Finance Act, 2026, with the section number beside each point. Examples use tax year 2026-27, meaning 1 April 2026 to 31 March 2027 (section 3(1)). It covers scope only. It does not compute tax, rates or deductions.

What does section 4 of the Income Tax Act 2025 charge?

Section 4(2) charges income-tax on the total income of the tax year of every person, as per the provisions of the Act. Section 4(1) says the rate comes from the Central Act (in practice the Finance Act) that enacts it for that year. Section 4(5) adds that tax on this income is deducted or collected at source, or paid in advance, as the Act provides.

Section 5 then answers the next question: what is inside "total income" for a given person.

What is taxable for a resident, NOR and non-resident? (Section 5)

Income	Resident	Not ordinarily resident	Non-resident
Received, or deemed received, in India	Included (5(1)(a))	Included (5(1)(a))	Included (5(2)(a))
Accrues or arises, or deemed to accrue or arise, in India	Included (5(1)(b))	Included (5(1)(b))	Included (5(2)(b))
Accrues or arises outside India, from a business controlled in or a profession set up in India	Included (5(1)(c))	Included (5(1)(c) proviso)	Not included
Accrues or arises outside India, any other source	Included (5(1)(c))	Not included	Not included

How do you become a resident, NOR or non-resident? (Section 6)

Section 6(1) says residential status is decided for each tax year. For an individual, section 6(2) makes you a resident if you:

• are in India for a total of 182 days or more in the tax year; or
• are in India for 60 days or more in the year and 365 days or more in the four tax years before it.

Section 6(7) adds a deeming rule. An Indian citizen is deemed resident if the citizen is not liable to tax in any other country or territory because of domicile, residence or similar criteria, and has total income above Rs 15 lakh (other than income from foreign sources). Section 6(8) says this rule does not apply to someone already resident under 6(2) to 6(6).

When is the 60-day test relaxed?

• Leaving India (6(3)). The 60-day test does not apply to an Indian citizen who leaves India in the tax year as a crew member of an Indian ship, or for employment outside India. Only the 182-day test is left for that year.
• Visiting India (6(4)). The 60-day test does not apply to an Indian citizen or a person of Indian origin who, being outside India, comes on a visit to India in the tax year.
• Higher-income visitors (6(5)). If that visitor's total income, other than income from foreign sources, exceeds Rs 15 lakh, the test applies with 120 days in place of 60.

For other persons: a Hindu undivided family, firm or association of persons is resident unless control and management of its affairs is wholly outside India (6(9)). A company is resident if it is an Indian company or its place of effective management is in India (6(10)). Any other person is resident unless control and management is wholly outside India (6(11)).

Who is "not ordinarily resident" (NOR)?

NOR is a sub-status inside residents. Under section 6(13), a person is NOR in a tax year if the person is:

Clause	Who	Condition
6(13)(a)(i)	Individual, or HUF whose manager qualifies	Non-resident in 9 out of the 10 tax years before this one
6(13)(a)(ii)	Individual, or HUF whose manager qualifies	In India for 729 days or less in total in the 7 tax years before this one
6(13)(b)	Indian citizen or person of Indian origin	Income other than foreign-source income above Rs 15 lakh (the 6(5) case) and in India 120 days or more but less than 182 days in the year
6(13)(c)	Indian citizen deemed resident under 6(7)	Automatically NOR

"Income from foreign sources" has a specific meaning in section 6(14): income that accrues or arises outside India, other than income from a business controlled in or a profession set up in India, and that is not deemed to accrue or arise in India.

Worked example 1: what goes into a resident's total income?

Ravi lives in Pune and is a resident for 2026-27 (200 days in India). Assumptions: no 6(13) test applies to him, so he is not NOR; all amounts are for the tax year and before any exemption or deduction.

Income	Where it arises	In scope?	Amount (Rs)
Salary from a Pune employer, paid into an Indian bank account	India	Yes, 5(1)(a) and (b)	12,00,000
Rent from a flat in London, received in a UK account	Outside India	Yes, 5(1)(c)	3,00,000
Included in total income			15,00,000

Step: 12,00,000 + 3,00,000 = 15,00,000. Ravi is a resident and not NOR, so the foreign rent is inside the net.

Worked example 2: the same exercise for a NOR

Meena returned to India after years abroad. For 2026-27 she was in India more than 182 days, so she is a resident, and she was in India 600 days in total over the previous seven years, so she is NOR under 6(13)(a)(ii).

Income	Where it arises	In scope?	Amount (Rs)
Salary for work done in Mumbai	India	Yes, 5(1)(a) and (b)	8,00,000
Profit from a Dubai client business run and controlled from Mumbai	Outside India	Yes, 5(1)(c) proviso	2,00,000
Dividends on US shares, paid abroad	Outside India	No, a NOR is not taxed on this	1,50,000 (left out)
Included in total income			10,00,000

Step: 8,00,000 + 2,00,000 = 10,00,000. The Rs 1,50,000 of US dividends is excluded because it is foreign income and not derived from a business controlled in India.

Worked example 3: a non-resident

Karan works in Singapore and spent 40 days in India during 2026-27 with 250 days in India across the previous four tax years. The 60-day test is not met and 182 days is not reached, so he is a non-resident for the year (assuming no other test in section 6 applies).

Income	Where it arises	In scope?	Amount (Rs)
Rent from a flat in Chennai	India	Yes, 5(2)(b)	2,40,000
Interest on an Indian bank deposit	India	Yes, 5(2)(b)	60,000
Salary earned and paid in Singapore	Outside India	No	20,00,000 (left out)
Included in total income			3,00,000

Step: 2,40,000 + 60,000 = 3,00,000. The Singapore salary never enters Karan's Indian total income. Tax deduction on payments to non-residents is dealt with separately in section 393(2); our TDS on rent guide covers the section 393(1) rent rules.

Worked example 4: a visiting citizen on 130 days

Vikram, an Indian citizen working abroad, comes to India on a visit in 2026-27.

1. Days in India this year: 130. This is below 182, so 6(2)(a) is not met.
2. Days in India in the four preceding tax years: 90 + 80 + 100 + 110 = 380, which is 365 or more.
3. Vikram is a visitor under 6(4), so the 60-day test is switched off. Whether it is replaced by a 120-day test depends on his income (6(5)).
4. Case A: income other than foreign-source income is Rs 18,00,000, above Rs 15 lakh. The test becomes 120 days. 130 is 120 or more and 380 is 365 or more, so he is a resident. As 130 days lies from 120 to under 182 and his income is above Rs 15 lakh, he is NOR under 6(13)(b).
5. Case B: the same income is Rs 12,00,000. The 60-day test is disapplied and 6(5) does not raise it to 120, so only the 182-day test is left. 130 days falls short, so he is a non-resident (unless another test applies).

One income figure moves Vikram from NOR (taxed on Indian income plus foreign business income controlled from India) to non-resident (Indian income only), so count days and income carefully before filing.

What do "deemed received" and "accrues or arises" mean in section 5?

Section 5 adds three clarifications that decide edge cases:

• Balance sheet rule (5(3)). Income that accrues or arises outside India is not deemed received in India only because it is shown in a balance sheet prepared in India.
• No double counting (5(4)). If income has already been included on the basis that it accrued or arose (or is deemed to have), it is not included again on the basis that it was received (or is deemed received) in India.
• Deemed accrual (section 9). Section 9 lists income that is deemed to accrue or arise in India, which brings that income into scope for every status, including a non-resident. Read section 9 for the specific heads.

Which incomes are deemed to accrue or arise in India (section 9)?

These are taxed in India even for a non-resident, and even if paid abroad. Section 9 deems the following to accrue or arise in India:

• Income through an Indian link (9(2)). Income arising directly or indirectly from an asset or source of income in India, property in India, a business connection in India, or the transfer of a capital asset situated in India.
• Salary (9(3)). Salary earned in India, which includes pay for services rendered in India and for a rest or leave period that falls between, and is part of the same contract as, services rendered in India. Salary paid by the Government to an Indian citizen for services outside India is also covered.
• Dividend (9(4)). Any dividend paid by an Indian company outside India.
• Interest, royalty and fees for technical services (9(5), 9(6), 9(7)). When paid by the Government, by a resident, or by a non-resident for a business or income source in India. A resident payer is excluded where the money is used for a business carried on outside India or to earn income from a source outside India.
• Business connection (9(9)). Includes business carried out in India and a significant economic presence in India.

This is why Karan's Singapore salary stays out (services rendered abroad) while a non-resident consultant paid for work done in India is taxed on that fee.

What is deemed to be received in India (section 7)?

Section 7(1) deems three items received in the tax year: the annual accretion to an employee's balance in a recognised provident fund (to the extent provided in Schedule XI, Part A, paragraph 6), the transferred balance of a recognised provident fund (paragraphs 11(4) and (5)), and an employer's contribution to the employee's account under a pension scheme mentioned in section 124. Section 7(2) fixes the year in which a dividend counts as income: the year it is declared, distributed or paid (interim dividend: when it is unconditionally made available to the member).

Does a tax treaty change what is in scope?

Section 5 decides what is in total income under the Act. Section 159 separately lets the Central Government enter agreements with other countries or specified territories to give relief where tax has been paid in both places, and to avoid double taxation. So a person can be in scope here and still claim relief under the relevant agreement. Check the specific agreement and section 159 before relying on it.

Does one source make you resident for every source?

Yes. Under section 6(12), if a person is resident in India in a tax year for any source of income, the person is deemed resident for each of the other sources too. Status is decided once for the person and the year, not per income.

What are the common mistakes with residential status and scope?

• Treating "resident" and "ordinarily resident" as the same thing. A NOR is a resident, but section 5(1)(c) narrows the foreign income taxed.
• Counting only the 182-day rule. The 60-day plus 365-day test in 6(2)(b) catches people who visit often. Check the four preceding years.
• Ignoring the Rs 15 lakh tests. They sit in 6(5), 6(7) and 6(13)(b), and the income measured excludes foreign-source income.
• Assuming foreign income is never taxable for a returning NRI. Foreign income from a business controlled in India is in scope even for a NOR.
• Using last year's status. Section 6(1) fixes status per tax year. It can change every year.
• Forgetting the deeming rule for citizens. Section 6(7) can make a citizen resident despite living abroad, if no other country taxes them and Indian-sourced income is above Rs 15 lakh.

Quick reference: tests at a glance

Test	Threshold	Section
Days in India in the tax year	182 or more	6(2)(a)
Days this year plus preceding four years	60 or more, and 365 or more	6(2)(b)
Visitor citizen or person of Indian origin, higher income	120 days instead of 60 when income exceeds Rs 15 lakh	6(4), 6(5)
Citizen deemed resident	Not taxed elsewhere, income above Rs 15 lakh	6(7)
NOR, past years	Non-resident in 9 of 10 years, or 729 days or less in 7 years	6(13)(a)
NOR, visitor	120 to under 182 days and income above Rs 15 lakh	6(13)(b)

Where is this in the Act?

• Section 3: "tax year" (1 April to 31 March)
• Section 4: charge of income-tax on total income of every person
• Section 5: scope of total income (resident, NOR, non-resident)
• Section 6: residence in India, including the NOR tests in 6(13) and "income from foreign sources" in 6(14)
• Section 7: income deemed to be received, and the year of dividend income
• Section 9: income deemed to accrue or arise in India
• Section 159: agreements for double taxation relief

How can CA firms track residential status across clients?

Residential status depends on day counts across several years, so the useful data is each client's travel history and income by country. Finexo's practice management software keeps client records, documents and task deadlines in one place so a returning-NRI file has its day-count working attached to it. It does not decide residential status for you.

This article explains sections 3 to 6 of the Income-tax Act, 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.