Section 9 deems certain income to "accrue or arise in India" even when it is received outside India, so a non-resident can be taxed here. It covers income from a business connection (including significant economic presence), property/assets in India, indirect transfer of Indian assets, salary for services rendered in India, and interest, royalty and fees for technical services (FTS) paid by an Indian resident. A DTAA overrides Section 9 where the treaty rate is lower — claimed with a TRC + Form 10F.
The familiar reference is Section 9 of the Income-tax Act, 1961 — that is the search intent and it stays valid. The rewritten Income-tax Act, 2025 (effective 1 April 2026, AY 2026-27) re-enacts the same rules under Section 9 with a cleaner structure — business connection, SEP, indirect transfer, royalty/FTS and interest survive unchanged in substance. The clause labels (e.g. 9(1)(i), 9(1)(vi)) are the well-known 1961 references used below.
What Income Does Section 9 Deem to Arise in India?
Each head fixes an Indian tax nexus regardless of where the income is actually received. The clause numbers below are the well-known Section 9(1) sub-clauses.
| Income type | Clause | Key condition | TDS |
|---|---|---|---|
| Business-connection profits | 9(1)(i) | Attributable to Indian operations / SEP | s.195 |
| Capital gains on Indian asset | 9(1)(i) | Capital asset situated in India | 20% / 12.5% |
| Indirect transfer of Indian assets | 9(1)(i) Expl.5 | Foreign shares deriving value from India | s.195 |
| Salary for services in India | 9(1)(ii) | Services rendered in India | s.192 slab |
| Govt salary (citizen abroad) | 9(1)(iii) | Paid by Indian Government | s.192 |
| Interest paid by Indian resident | 9(1)(v) | Paid to non-resident (few exceptions) | 20% |
| Royalty from Indian resident/Govt | 9(1)(vi) | IP used or usable in India | 20% |
| Fees for technical services (FTS) | 9(1)(vii) | Services utilised in India | 20% |
Domestic rates shown; a DTAA can reduce royalty/FTS/interest to 10-15%. Rates are before surcharge and 4% cess.
Business Connection & Significant Economic Presence
A non-resident has a business connection where there is a real and intimate relationship between its business and India — the profits attributable to Indian operations are then taxable here.
- Dependent agent who habitually concludes contracts, maintains stock, or secures orders in India creates a business connection.
- Independent agents acting in the ordinary course, mere purchasing of goods for export, or only collecting news/information are excluded.
- Significant Economic Presence (SEP): digital transactions above a prescribed payment threshold, or systematic soliciting of / interaction with a prescribed number of Indian users, is a business connection even without any physical presence.
- POEM (Place of Effective Management): a foreign company effectively managed from India becomes a resident and its global income is taxable in India.
Only the profit reasonably attributable to the Indian operations is taxable under the business-connection rule — not the non-resident's entire global income. Getting the attribution and any PE position right (and the DTAA that applies) is where most disputes and TDS defaults arise.
Foreign company with an Indian agent, users or a PE? Get your business-connection and attribution position reviewed.
Talk to a Tax Expert →Indirect Transfer of Indian Assets
If a non-resident transfers shares of a foreign company that derives its value substantially from assets located in India, the gain is deemed to arise in India and is taxable here — the rule introduced to counter offshore holding structures.
Deemed to arise in India
- Indian assets exceed Rs 10 crore in value, and
- They represent more than 50% of the foreign company's global assets
- Gain computed on the India-attributable portion
Outside the net
- Small holder: <5% shareholding and voting rights
- Shares of a listed foreign company (subject to conditions)
- Qualifying reorganisations / amalgamations
The Indian concern whose assets are indirectly transferred must report the transaction and furnish information to the tax department. Missing this reporting attracts penalty even where the ultimate gain is small — a common trap in cross-border M&A.
TDS on Payments to Non-Residents & DTAA Override
When you pay a Section-9 income to a non-resident, you must deduct TDS under Section 195 before remitting, and file Form 15CA/15CB. Domestic rates are steep, but a DTAA usually lowers them if the payee furnishes a Tax Residency Certificate (TRC), Form 10F and a No-PE declaration.
| Payment | Domestic rate | Typical DTAA | Requirement |
|---|---|---|---|
| Royalty | 20% + SC + cess | 10-15% | TRC + Form 10F |
| Fees for technical services | 20% + SC + cess | 10-15% | TRC + Form 10F |
| Interest | 20% + SC + cess | 10-12.5% | TRC + Form 10F |
| Capital gains on shares | 20% STCG / 12.5% LTCG | Some exempt | TRC + Form 10F |
| Business profits (PE) | Slab / corporate | Per DTAA | PE determination |
Royalty/FTS 20% is the Section 115A rate (Finance Act 2023). Surcharge and 4% health & education cess apply on domestic rates only, not on DTAA rates. No PAN → higher rate under Section 206AA (relief if TRC/10F conditions met).
DTAA relief usually applies if
- Payee is a tax resident of a treaty country with a valid TRC
- Form 10F filed online and a No-PE declaration given
- No permanent establishment in India for the income
Full domestic rate if
- No TRC / Form 10F, or no treaty with the payee's country
- Income is attributable to an Indian PE / business connection
- PAN not furnished (Section 206AA) and conditions unmet
- Determine the correct Section 9 head and clause
- Check whether a DTAA gives a lower rate
- Collect TRC + Form 10F + No-PE declaration
- Deduct TDS under Section 195 and file Form 15CA / 15CB
- Report indirect transfers where the Indian concern is involved
Section 9 — Frequently Asked Questions
Related TaxClue services
Section 9, DTAA & Section 195 — Sorted by CAs
Whether you are an NRI with India income or an Indian business remitting royalty, FTS or interest abroad, TaxClue's CA-led team handles business-connection analysis, DTAA relief, TRC + Form 10F, Section 195 TDS and 15CA/15CB — 100% online, across India.