Section 9 for NRIs: What Income India Can Actually Tax When You Live Abroad

You are a product manager in London. Your salary lands in a UK account, your employer is British, and you have not worked a single day in an Indian office this year. Yet you still hold a flat in Pune that earns rent, a demat account full of Indian shares, and an NRO fixed deposit throwing off interest. Which of these can the Indian tax department reach, and which are none of its business? The answer is not a feeling, and it is not your passport. It is one section of the Income-tax Act that almost no NRI has read but every NRI is governed by.

The 30-second answer: As a non-resident, India taxes you only on income that is received in India, that accrues or arises in India, or that is deemed to accrue or arise in India under Section 9. Section 9 catches five things: salary for services physically rendered in India (Section 9(1)(ii)), income from any property or asset or source in India, capital gains on assets situated in India including shares of an Indian company (Section 9(1)(i)), business income attributable to a business connection in India, and interest, royalty or fees for technical services that meet a source test (Sections 9(1)(v), (vi), (vii)). Your foreign salary, foreign rent and gains on foreign assets sit outside India's net. A DTAA can narrow even what Section 9 catches.

This guide is the conceptual backbone the rest of your Indian tax life hangs from. Once you know your residency status, the very next question is always the same: of all the income flowing through your life, which slice does India get to tax? Section 9 is the answer to that question. For the residency test that comes first, read the residency and RNOR rules. For the full filing picture once you know what is taxable, start with the ITR filing guide for AY 2026-27. What follows is the source rule itself: salary apportioned by work-days, property and share gains, the indirect transfer rule that grew out of the Vodafone fight, the interest, royalty and FTS source tests, business connection, and the clean list of what India simply cannot touch.

Why Section 9 is the rule everything else depends on

Indian tax for a non-resident works on a charging section and a deeming section, and you have to read them together. Section 5(2) is the charge: a non-resident is taxed on income that is received or deemed to be received in India, and income that accrues or arises or is deemed to accrue or arise in India. That word "deemed" is doing enormous work, and Section 9 is where it is defined.

Without Section 9, "accrues or arises in India" would be a vague phrase that armies of lawyers could argue about forever. Section 9 turns it into a set of specific, mechanical rules. It is a legal fiction: it says certain income shall be deemed to accrue or arise in India, whether or not it actually does in any natural sense, and whether or not the non-resident ever set foot in the country. That fiction is precisely how India taxes a royalty paid to a German licensor, or a capital gain made by a Mauritius fund, without either of them living here.

The practical effect for you is a clean two-step test for any rupee or dollar of income you receive. First, is it received in India? Second, if not, is it deemed under Section 9 to accrue or arise in India? If both answers are no, India cannot tax it as a non-resident, full stop. If either answer is yes, it enters the Indian net, and only then do you ask the next question, which is whether a treaty rescues you. Section 9 sets the outer boundary of India's reach; the DTAA can only shrink that boundary, never expand it.

Salary: India taxes the work-days, not the payslip

The single most common misconception I see among NRIs is that Indian salary means salary paid by an Indian company or paid into an Indian account. It does not. Under Section 9(1)(ii), salary is deemed to accrue or arise in India only to the extent it is earned in India, and "earned in India" has been settled to mean services rendered in India. The test is physical work-days on Indian soil, nothing else.

This cuts both ways, and both directions surprise people.

If you are a non-resident who renders all your services abroad, none of your salary is India-taxable, even if your employer is Infosys or TCS and the money is credited to your NRE account every month. The payer and the payment route are irrelevant. What matters is where your feet were when you did the work.

If, on the other hand, you spend part of the year physically working in India, say on a project deputation or an extended visit where you log into work, that portion of your salary is earned in India and is taxable here, even if your employer is foreign and the salary is paid abroad in dollars. The fiction reaches the work-days wherever the payslip is cut.

There is one carve-out worth naming. Salary paid by the Government of India to an Indian citizen for services rendered outside India is deemed to accrue or arise in India under Section 9(1)(iii), regardless of where the work is done. A diplomat posted to Washington is taxed in India on that government salary. For the rest of the private-sector world, the work-day rule of 9(1)(ii) governs. For how this interacts with RSUs and stock that vest while you work across borders, see the RSU and ESOP taxation guide and the India-source apportionment in the RSU guide.

Worked example: apportioning salary for India work-days

Priya is a non-resident based in Dubai, employed by a UAE company on an annual salary equivalent to Rs 60 lakh. During the financial year she is sent to the Mumbai office for a 45-working-day project. Her total working days in the year are 240.

The India-taxable portion is the salary attributable to those Indian work-days:

• Annual salary: Rs 60,00,000
• Total working days: 240
• Days physically worked in India: 45
• India-earned salary: Rs 60,00,000 x (45 / 240) = Rs 11,25,000

So Rs 11,25,000 is deemed to accrue or arise in India under Section 9(1)(ii) and enters her Indian return, even though the entire Rs 60 lakh was paid in Dirhams into a UAE account by a UAE employer. The remaining Rs 48,75,000, earned for work done in Dubai, is outside India's net entirely. She would then check the India-UAE DTAA and the dependent-services article to see whether even the Rs 11.25 lakh is relieved, which often turns on whether her stay crossed the treaty's day threshold and who bore the cost of her remuneration.

The arithmetic is simple, but the discipline of counting work-days is what most people skip. Keep a calendar. If a query ever comes, the days are your defence.

Property and any "source" in India

The next limb of Section 9(1)(i) is broad and intuitive: income that arises from any property, asset or source of income in India is deemed to accrue or arise here. This is the limb that catches your Pune flat's rent.

Rental income from immovable property situated in India is India-source income, taxed under the head "Income from house property" regardless of where you live or where the tenant pays you. The tenant is even required to deduct TDS before paying you, which trips up many NRI landlords who assumed only resident landlords faced this. For the mechanics, see the rental income guide and the tenant TDS and Form 15CA guide.

The word "source" is wider than property. Interest on an NRO deposit is income from a source in India and is taxable, which is exactly why NRO interest is taxed while, by a separate exemption, NRE and FCNR interest is not while you remain a non-resident. The tax on NRO interest guide walks through this, and the interest taxation after return guide covers what changes when you come home. Dividends from Indian companies are likewise India-source income; the dividend tax guide covers the 20% TDS and treaty relief.

Capital gains: the asset's location is everything

For capital gains, the deeming rule under Section 9(1)(i) turns on a single question: where is the asset situated? A gain on the transfer of a capital asset situated in India is deemed to accrue or arise in India, taxable here regardless of where the seller is resident, where the sale contract is signed, or where the money is settled.

For an NRI, the assets that are unambiguously situated in India include:

• Immovable property in India (your flat, your inherited land).
• Shares of an Indian company, whether listed or unlisted, because a share derives its situs from the company being Indian.
• Units of Indian mutual funds.
• Most other Indian financial assets.

The rates, for transfers on or after July 23, 2024: listed equity and equity mutual funds carry long-term capital gains tax at 12.5% on gains above Rs 1.25 lakh under Section 112A, and short-term gains under Section 111A at 20%. Other long-term assets, including unlisted shares and immovable property, are taxed at 12.5% without indexation. The buyer must deduct TDS under Section 195 before paying an NRI seller. The full mechanics are in the capital gains on shares and mutual funds guide and the property sale TDS guide.

A point NRIs consistently miss: there is no basic exemption limit sheltering these gains for a non-resident in the way it can for a resident. The no basic exemption guide explains why.

Worked example: capital gain on Indian shares

Arjun, a non-resident in Canada, sells listed shares of an Indian company in January 2026. He bought them in 2019.

• Sale consideration: Rs 40,00,000
• Cost of acquisition: Rs 18,00,000
• Long-term capital gain: Rs 22,00,000
• Less the LTCG exemption under Section 112A: Rs 1,25,000
• Taxable LTCG: Rs 20,75,000
• Tax at 12.5%: Rs 20,75,000 x 0.125 = Rs 2,59,375 (plus applicable surcharge and 4% cess)

The gain is deemed to accrue or arise in India under Section 9(1)(i) purely because the shares are of an Indian company. Arjun's Canadian residence is irrelevant to whether India can tax this; it matters only for his Canadian return and his foreign tax credit there. He should then check the India-Canada DTAA deep dive, because Canada will tax the same gain and the foreign tax credit timing guide explains the mismatch that often arises between the two countries' tax years.

One technical relief worth naming: under the first proviso to Section 48, a non-resident who acquired unlisted shares of an Indian company in foreign currency can compute the gain in that foreign currency to neutralise rupee depreciation, which can materially reduce the taxable gain. It is narrow but valuable; the rupee depreciation and real returns guide gives the wider context.

Interest, royalty and fees for technical services: the source test

Sections 9(1)(v), (vi) and (vii) are the limbs most NRI employees never touch but most NRI consultants, freelancers and business owners do. They deem interest, royalty and fees for technical services (FTS) to accrue or arise in India based on who pays and where it is used, not on where the recipient lives or where the service was performed.

The structure is consistent across all three:

• If paid by the Government of India, it is deemed to arise in India, with essentially no exception.
• If paid by a resident, it is deemed to arise in India, unless it relates to a business or profession carried on by that resident outside India, or to earning income from a source outside India.
• If paid by a non-resident, it is deemed to arise in India only where it relates to a business or profession carried on by that payer in India, or to earning income from a source in India.

The defining feature, introduced through the 1976 source-rule amendments, is that these can be deemed to arise in India even where the service is rendered entirely abroad, as long as it is utilised in India. An Explanation below Section 9(2), inserted with retrospective effect from June 1, 1976, makes this explicit: such income is taxable whether or not the non-resident has a residence, place of business or business connection in India, and whether or not the services were rendered in India. This is the broadest reach in the whole section.

For a freelancing or consulting NRI, the practical takeaway is direct. If an Indian company pays you a fee for technical or professional services that it uses in its Indian business, that fee is India-source income deemed to arise here under 9(1)(vii), even if you did every hour of the work from your desk in Toronto. The Indian payer will deduct TDS, and you will look to the relevant DTAA's FTS or independent-services article for relief. The presumptive taxation guide for professionals and the DTAA mechanics and Form 10F guide are the next reads here.

Business connection: India's reach into business profits

The first and oldest limb of Section 9(1)(i) deems income to arise in India where it accrues through a business connection in India. This is the domestic-law cousin of the treaty concept of a permanent establishment, and it is what allows India to tax the Indian profits of a foreign business.

A business connection exists, broadly, where there is a real and intimate relationship between a business activity carried on outside India and one carried on in India, contributing to the earning of income. It famously includes an agent in India who habitually concludes contracts, or habitually secures orders, on behalf of the non-resident. Crucially, where there is a business connection, only the income reasonably attributable to the operations carried out in India is deemed to arise here, not the worldwide profit.

For the typical salaried or investing NRI this limb rarely bites. It matters most for NRIs who run a consulting practice, a trading operation or a small business with a genuine Indian footprint, an Indian agent, an Indian office, or staff in India. If that describes you, the line between "no business connection" and "business connection" is where real tax exposure begins, and it is worth professional advice. The treaty PE article usually offers a higher, more protective threshold than the domestic business-connection test, which is one more reason to read the relevant DTAA deep dive.

Edge cases

The general rules above cover the great majority of NRI situations. Three corners deserve their own treatment because they are where the law is either aggressive, contested, or easy to get wrong.

The indirect transfer rule

This is the most aggressive extension of Section 9, and it has a famous backstory. In the Vodafone case, a foreign company bought a single share of a foreign holding company that, several layers down, controlled an Indian business. The Supreme Court held in 2012 that India had no power to tax this offshore share transfer, because the asset transferred was a foreign share. The government's response was the Finance Act, 2012, which retrospectively amended Section 9(1)(i) by inserting Explanation 5 with effect from 1962, deeming a share or interest in a foreign company to be situated in India if it derives its value substantially from assets located in India.

The contours were later clarified. Under Explanation 6, the foreign share is treated as deriving value substantially from Indian assets only if the fair market value of the Indian assets exceeds Rs 10 crore and represents at least 50% of the value of all the company's assets. Under Explanation 7, a small shareholder exemption protects a transferor who, throughout the twelve months before the transfer, held no right of management or control and held 5% or less of the voting power, share capital or interest. And in 2021, the much-criticised retrospective limb was rolled back: indirect-transfer income arising before May 28, 2012 is no longer taxed under this rule.

For most individual NRIs the indirect transfer rule is academic. It bites on private equity, fund and M&A structures, not on an NRI selling listed Indian shares directly. But if you hold a stake in an offshore entity whose value comes substantially from India, this rule, and the small shareholder exemption, is the one to study. The honest read here: the law remains genuinely complex and litigation-heavy, and a structure that looks clean can attract a notice. This is advice-territory, not DIY-territory.

The royalty and FTS source rule and its overreach

The reach of 9(1)(v), (vi) and (vii) is so wide that it routinely collides with treaties, and the collision usually favours the taxpayer. India's domestic definition of royalty and FTS is broader than what most DTAAs allow, particularly after retrospective expansions of the royalty definition to cover software and certain transmission payments. The honest framing is this: a payment that is royalty or FTS under Section 9 may not be taxable under the narrower treaty definition, and where the treaty is more favourable, the treaty prevails under Section 90(2). Several of these positions, especially on software and standardised services, remain contested. Do not assume that because Section 9 catches a payment, the tax actually sticks; check the treaty, and where the position is unsettled, say so and document it.

Business connection versus a one-off transaction

A business connection requires continuity and a real relationship; an isolated, one-off transaction generally does not create one. The line is fact-heavy. An NRI who sells goods into India once is in a different position from one who maintains a dependent agent placing orders month after month. The risk is treating a recurring arrangement as if it were casual. If your Indian activity has any pattern, regularity or local presence, assume a business connection may exist and price the risk accordingly.

What is OUTSIDE India's net for an NRI

It is just as important to know what India cannot tax you on as a non-resident, because over-reporting out of caution costs real money. None of the following is deemed to accrue or arise in India, and none is taxable in India while you are a non-resident:

• Foreign salary for services rendered abroad, whoever the employer is and wherever it is paid.
• Foreign rental income from property situated outside India.
• Foreign dividends and interest from non-Indian companies, banks and bonds.
• Capital gains on foreign assets: your US brokerage account, your UK ISA, your Canadian shares, your overseas property.
• NRE and FCNR interest, which, though Indian-source, is specifically exempt while you are a non-resident under separate exemptions.

The single rule to hold onto is that your worldwide income becomes taxable in India only when you become an ordinary resident, not before. As a non-resident, and largely as an RNOR, the foreign side of your life is invisible to the Indian return. That is the whole point of the residency status, and it is why the RNOR window guide treats those years as a planning runway. The mirror image, your obligation to report foreign assets once you are an ordinary resident, lives in Schedule FA.

The closing read

Section 9 is not a topic you file away after reading; it is the lens you hold up to every income stream you have. The discipline is mechanical and the same each time. Take the income, ask where it was earned, where the asset sits, who paid and where it was used, and the section tells you whether India can reach it. Salary follows your work-days. Property and shares follow their Indian situs. Interest, royalty and FTS follow the payer and the place of use, even across borders. Business profits follow the Indian footprint of the business. Everything foreign stays foreign until the day you become an ordinary resident.

The honest answer at the end: most salaried NRIs over-worry about Section 9 and most consulting or business-owning NRIs under-worry about it. If your only Indian income is rent, NRO interest, dividends and the occasional share sale, the section is straightforward and the worked examples above will see you through. If you have an offshore structure with Indian value, an Indian agent, or fees flowing from Indian payers for work you do abroad, the section turns sharp-edged, the treaty interaction matters, and the indirect-transfer and business-connection limbs are where a notice can come from. Know which NRI you are, count your work-days, keep your situs clear, and do not pay tax on foreign income that India was never entitled to.

Related guides

• NRI residency and RNOR rules
• ITR filing for NRIs, AY 2026-27
• Capital gains tax on NRI shares and mutual funds
• Property buyer TDS under Section 195
• Tax on Indian rental income for NRIs
• Tenant TDS on rent and Form 15CA
• Tax on NRO interest
• NRI dividend tax in India
• RSU and ESOP taxation for NRIs
• DTAA relief for NRIs
• DTAA mechanics, TRC and Form 10F
• India-UAE DTAA deep dive
• No basic exemption on NRI capital gains
• Schedule FA foreign asset reporting
• Presumptive taxation under 44ADA for NRIs

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This guide explains the general operation of Section 9 of the Income-tax Act and is for information only. It is not tax advice. The application of the source rule, the indirect transfer provisions, business connection and treaty relief turns entirely on your specific facts and on the DTAA between India and your country of residence, and several positions discussed here, particularly on royalty, fees for technical services and indirect transfers, remain subject to ongoing litigation and may change. The Income-tax Act, 2025 reorganises these provisions for tax years beginning on or after April 1, 2026, though the substance of the source rule carries forward. Confirm your position with a qualified chartered accountant or cross-border tax adviser before acting.