Section 5 of ITA, 1961 : Section 5: Scope Of Total Income

Explanation using Example

Let's consider a hypothetical scenario where Mr. Sharma, an Indian citizen, is a software consultant who works for a multinational company. He is a resident of India for tax purposes.

In the financial year 2022-23, Mr. Sharma received the following incomes:

• Salary received in his Indian bank account for services rendered in India: ₹8,00,000
• Dividends from a UK-based company, credited to his UK bank account: ₹2,00,000
• Rental income from a property in India: ₹1,20,000
• Interest on a fixed deposit in an Indian bank: ₹50,000

As per Section 5(1) of the Income-tax Act, 1961:

1. The salary and rental income are received in India, and the interest income accrues in India, so they are included in Mr. Sharma's total income.
2. The dividends from the UK-based company accrue to him outside India. Since Mr. Sharma is a resident, this income is also included in his total income, irrespective of whether it is brought into India or not.

Therefore, Mr. Sharma's total income for the year would include all the above earnings, amounting to ₹11,70,000, and he would have to file his income tax returns in India based on this total income.