Meaning and purpose of Section 5
Section 5 identifies which receipts and accruals enter a person's total income. It works with the residential-status rules in Section 6 and the deemed-accrual rules in Section 9. Being included within the scope of total income does not by itself settle the final tax: exemptions, deductions, applicable rates and treaty relief may still affect the result.
Taxability by residential status
| Residential status | Income generally within Indian total income | Foreign income |
|---|---|---|
| Resident and ordinarily resident (ROR) | Income received or deemed received in India; income accruing or deemed accruing in India; and income accruing abroad | Generally included, subject to applicable relief |
| Resident but not ordinarily resident (RNOR) | Indian receipts and Indian accruals, including deemed amounts | Generally included only when derived from a business controlled in India or a profession set up in India |
| Non-resident (NR) | Income received or deemed received in India, or accruing or deemed accruing in India | Generally excluded if neither received nor deemed received in India and neither accruing nor deemed accruing in India |
Section 5 of the Income-tax Act, 2025
The current official Section 5 text uses the term tax year rather than the 1961 Act's previous year. Its main provisions are:
- Section 5(1): Total income of a resident, including the limited foreign-income rule for a person who is not ordinarily resident under Section 6(13).
- Section 5(2): Total income of a non-resident, covering Indian receipts and Indian accruals or deemed accruals.
- Section 5(3): Foreign income does not become income received in India merely because it is entered in a balance sheet prepared in India.
- Section 5(4): Income already included on an accrual or deemed-accrual basis is not included again merely upon receipt in India.
Practical illustrations
Example 1 - Resident and ordinarily resident: An ordinarily resident individual earns salary in India and interest on an overseas bank deposit. Both can fall within the scope of Indian total income, subject to relevant exemptions and foreign-tax relief.
Example 2 - Non-resident: A non-resident earns rent from a property in India and interest on an overseas account. Indian rent ordinarily falls within the scope of Indian total income; foreign interest may remain outside it if it is neither received nor deemed received in India and does not accrue or become deemed to accrue in India.
Example 3 - RNOR: An RNOR person earns profit from a business controlled in India even though some income arises abroad. That income may be included under the special rule. Foreign income unrelated to such a business or a profession set up in India is generally excluded if it is not otherwise Indian-received or Indian-source income.
Example 4 - Accrual and receipt: If income was already included because it accrued in an earlier period, its subsequent receipt in India does not by itself require inclusion a second time.
Original Section 5, Income-tax Act, 1961 - Statutory text
The following preserves the original provisions supplied on this webpage, formatted into clauses for readability. The text is a historical reference for the 1961 Act and should be checked against the official statutory version for the applicable year.
Section 5(1): Resident
Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-
Clause (a)
is received or is deemed to be received in India in such year by or on behalf of such person; or
Clause (b)
accrues or arises or is deemed to accrue or arise to him in India during such year; or
Clause (c)
accrues or arises to him outside India during such year:
Proviso
Provided that, in the case of a person not ordinarily resident in India within the meaning of subsection (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.
Section 5(2): Non-resident
Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-
Clause (a)
is received or is deemed to be received in India in such year by or on behalf of such person; or
Clause (b)
accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1
Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.
Explanation 2
For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.
Official legal sources and related provisions
- Income-tax Act, 2025 - Section 5 (official Income Tax Department)
- Income-tax Act, 1961 - Section 5 (official Income Tax Department)
- Official guidance on transition between the Acts
For connected topics, see Section 3: Previous year, Section 4: Charge of income-tax and Section 10: Incomes excluded from total income.
Frequently asked questions
Does an Indian resident pay tax on foreign income?
A resident and ordinarily resident person generally includes income accruing outside India in total income, subject to exemptions, relief and treaty provisions.
Is foreign income taxable for a non-resident?
Foreign-source income is generally outside the scope of Indian total income for a non-resident unless it is received or deemed received in India or accrues, arises, or is deemed to accrue or arise in India.
What is the rule for a resident but not ordinarily resident person?
Foreign income is generally excluded unless derived from a business controlled in India or a profession set up in India, while Indian-source and Indian-received income remains within scope.
Can income be taxed twice when received after accrual?
Section 5 prevents the same income being included again merely because income previously included on an accrual basis is later received in India.