A Singapore-based fund manager arranges placement of debentures for a Mumbai-listed Indian company. Commission: ₹8 crore. F never sets foot in India during the engagement. Negotiations via Zoom. Documents emailed. Money wired to F's Singapore bank.
F's view: "I'm Singapore-resident. The service was performed in Singapore. Singapore tax applies."
The Indian payer's view (and the Indian tax department's): "You're providing fees for technical services to an Indian payer. Sec 9(1)(vii) deems the income to accrue in India. Sec 195 TDS applies. We withhold 10% (treaty rate) on payment."
F's ₹8 crore = ₹80 lakh Indian tax via TDS. F can claim credit in Singapore via DTAA. But the Indian tax happens first, on his Singapore-sourced commission.
- Section 9 of Income Tax Act creates "deeming fictions" — situations where income is treated as accruing in India even if it didn't physically arise here.
- Why it matters: non-residents are taxed in India only on Indian-source income. Sec 9 expands "Indian-source" to include several economically-linked-to-India situations.
- Sec 9(1) has 7 sub-clauses: (i) business connection / Indian property, (ii) salary for services in India, (iii) dividend from Indian co, (iv) interest from Indian source, (v) royalty, (vi) fees for technical services, (vii) indirect transfer of Indian-asset-derived value.
- DTAA can override: if a treaty provides a lower rate or narrower definition, the treaty prevails (Sec 90(2)).
- Sec 195 is the matching TDS provision: payer must withhold before paying a non-resident, at the deemed-Indian-tax rate.
The 7 sub-clauses of Sec 9(1)
9(1)(i)
Business connection / asset / source
Income from any business connection in India, or through/from any property/asset/source in India, or via transfer of capital asset in India. This is the broadest sub-clause + includes indirect transfer via foreign holding companies (the Vodafone-Hutch hook).
9(1)(ii)
Salary for services in India
Salary earned for services rendered in India. Even if paid offshore by foreign parent, even if employee is technically employed by foreign company — if work happened in India, India taxes.
9(1)(iii) & (iv)
Dividends + Interest
Dividend paid by an Indian company: deemed Indian-source (post Sec 115O removal, dividends are taxed in shareholder's hands). Interest paid by Indian Government / Indian-resident borrower: deemed Indian-source — 20% TDS for non-resident lenders, lower under treaty.
9(1)(v)
Royalty
Royalty paid by Indian-resident / for use of intellectual property in India. Includes software licences, patents, copyrights, designs, transmission rights. The "tax-treaty hot zone" — many disputes over what counts as royalty.
9(1)(vi) & (vii)
FTS + indirect transfer
Fees for Technical Services (managerial, technical, consultancy services) paid by Indian-resident: deemed Indian-source. Plus Explanation 5-6 to Sec 9(1)(i) extending indirect-transfer rules post-2012.
How DTAA overrides Sec 9
For non-residents from countries with which India has a tax treaty, the treaty's "source rule" can override Sec 9. Examples:
- Royalty: Sec 9(1)(v) deems all Indian-payer royalty as Indian-source. DTAA Article 12 typically allows source-country taxation at a capped rate (10-15%). Treaty rate prevails.
- FTS: Sec 9(1)(vii) deems all Indian-payer FTS as Indian-source. DTAA Article 12 (FTS) typically caps rate at 10-15%. Some treaties (e.g., India-USA) have narrower FTS definition requiring "make available" condition — many services fall outside.
- Business profits: Sec 9(1)(i) wide; DTAA Article 7 requires "Permanent Establishment" in India before business profits taxable. Often shields non-residents without PE.
The taxpayer must invoke DTAA by furnishing Tax Residency Certificate + Form 10F + No-PE declaration to the Indian payer. Payer then withholds at the lower treaty rate under Sec 195.
The equalisation levy — a parallel digital-economy tax
To capture digital-economy revenue that escaped Sec 9's pre-2016 net, India introduced the Equalisation Levy (2016):
- 6% on online advertising payments to non-resident service providers (Google Ads, Meta Ads etc.) by Indian businesses.
- 2% on e-commerce supply / service by non-resident e-commerce operators to Indian residents (expanded in 2020).
- Withdrawn 2024-25: the 2% equalisation levy on e-commerce was abolished in 2024 as part of OECD Pillar 1 / 2 alignment. The 6% advertising levy continues.
Quick answers
Yes — Sec 9(1)(ii). Salary for the 2 weeks of services in India is Indian-source. Treaty may exempt short-stay employees (e.g., 183-day rule in many DTAAs), but the basic rule under Sec 9 is taxable.
Sec 9(1)(vii) deems FTS as Indian-source even without physical presence. India-UK DTAA Article 13: 10-15% rate, may have "make available" qualifier. Indian payer withholds at treaty rate under Sec 195.
Highly contested. Indian tax department position: payment for use of software = royalty under Sec 9(1)(v) + DTAA. Supreme Court (Engineering Analysis Centre, 2021) ruled most off-the-shelf SaaS payments are NOT royalty under most DTAAs — business profits without PE = not taxable. Position is now favourable to taxpayer, but documentation matters.
Yes — Sec 195 TDS at 20% (or lower DTAA rate). Post Sec 115O abolition (2020), dividends are taxed in shareholder's hands. NR shareholder gets DTAA credit in their home country.
Real and intimate connection between NR's business activities and India that contributes to NR's income. Includes: PE, agency, business through Indian agents who habitually exercise authority. Narrower than treaty's "PE" in some respects, broader in others.
When you might want help
Two situations: (1) Indian-resident paying foreign vendor / consultant — Sec 195 TDS rate + Form 15CA/CB + DTAA validation. (2) Non-resident receiving Indian payment — treaty position, TRC, ITR filing if required.
Cross-border payment question?
Sec 195 / DTAA analysis + Form 15CA/CB + treaty documentation. Fixed scope.
"Fund Manager F" is a composite illustration. Your specific Sec 9 application depends on the nature of services + treaty + facts.