Section 10 Income not included in total income

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The Tax Publishers 10. Income not included in total income. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included (1) agricultural income; (2) [1][subject to the provisions of sub-section (2) of Section 64], any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family; [2][(2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation: For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits;] [3][(3) * * * * ] [4][(4) (i) in the case of a non-resident, any income by way of interest on such securities or bonds as the Central Government may, by notification in the Official Gazette[5], specify in this behalf, including income by way of premium on the redemption of such bonds; [6][Provided* that the Central Government shall not specify, for the purposes of this sub-clause, such securities or bonds on or after the 1st day of June, 2002;] [7][[8](ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with [9][the Foreign Exchange Management Act, 1999 (42 of 1999)], and the rules made thereunder : Provided that such individual is a person resident outside India as defined in [10][clause (w)] of Section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account;]] [11][* * * ] [12][(4B) in the case of an individual, being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued [13][before the 1st day of June, 2002] by the Central Government as that Government may, by notification in the Official Gazette[14], specify in this behalf : Provided* that the individual has subscribed to such certificates in convertible foreign exchange remitted from a country outside India in accordance with the provisions of [15][the Foreign Exchange Management Act, 1999 (42 of 1999)], and any rules made thereunder. Explanation : For the purposes of this clause, (a) a person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India; (b) convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of [16][the Foreign Exchange Management Act, 1999 (42 of 1999)], and any rules made thereunder;] [17][(4C) any income by way of interest payable to a non-resident, not being a company, or to a foreign company, by any Indian company or business trust in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond, as referred to in clause (ia) of sub-section (2) of Section 194LC, during the period beginning from the 17th day of September, 2018 and ending on the 31st day of March, 2019; [18][(4D) any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of Section 47, on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in [19][convertible foreign exchange or as a result of transfer of securities (other than shares in a company resident in India) or any income from securities issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India or any income from a securitisation trust which is chargeable under the head 'profits and gains of business or profession', to the extent such income accrued or arisen to, or is received, is attributable to units held by non-resident (not being the permanent establishment of a non-resident in India)[20][21][or is attributable to the investment division of offshore banking unit, as the case may be,] computed in the prescribed[22] manner]. Explanation.For the purposes of this clause, the expression (a) convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder; [23][(aa) investment division of offshore banking unit means an investment division of a banking unit of a non-resident located in an International Financial Services Centre, as referred to in sub-section (1A) of Section 80LA and which has commenced its operations on or before the 31st day of March, 2024;] (b) manager shall have the meaning assigned to it in clause (q) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); [24][(ba) 'permanent establishment' shall have the same meaning assigned to it in clause (iiia) of Section 92F; (bb) 'securities' shall have the same meaning as assigned to it in clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and shall also include such other securities or instruments as may be notified by the Central Government in the Official Gazette in this behalf; (bc) 'securitisation trust' shall have the same meaning assigned to it in clause (d) of the Explanation to Section 115TCA;] [25][(c) specified fund means, (i) a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate, (I) which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or [26][regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the] International Financial Services Centres Authority Act, 2019 (50 of 2019); (II) which is located in any International Financial Services Centre; and (III) of which all the units other than unit held by a sponsor or manager are held by [27][non-residents: Provided that the condition specified in item III shall not apply where any unit holder or holders, being non-resident during the previous year when such unit or units were issued, becomes resident under clause (1) or clause (1A) of Section 6 in any previous year subsequent to that year, if the aggregate value and number of the units held by such resident unitholder or unitholders do not'exceed five per cent, of the total units issued and fulfill such other conditions as may be prescribed[28]; or] (ii) investment division of an offshore banking unit, which has been (I) granted a certificate of registration as a Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 and which has commenced its operations on or before the 31st day of March, 2024; and (II) fulfils such conditions including maintenance of separate accounts for its investment division, as may be prescribed;] (d) sponsor shall have the meaning assigned to it in clause (w) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (e) trust means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force; (f) unit means beneficial interest of an investor in the fund and shall include shares or partnership interests;] [29][(4E) any income accrued or arisen to, or received by a non-resident as a result of (i) transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives; or (ii) distribution of income on offshore derivative instruments, entered into with an offshore banking unit of an International Financial Services Centre referred to in sub-section (1A) of Section 80LA, which fulfils such conditions as may be prescribed;] (4F) any income of a non-resident by way of royalty or interest, on account of lease of an aircraft [30][or a ship] in a previous year, paid by a unit of an International Financial Services Centre as referred to in sub-section (1A) of Section 80LA, if the unit has commenced its operations on or before the 31st day of March, 2024. [31][Explanation.For the purposes of this clause, (i) aircraft means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof; (ii) ship means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof;] [32][(4G) any income received by a non-resident from, (i) portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident; or (ii) such activity carried out by such person, as may be notified by the Central Government in the Official Gazette, in an account maintained with an Offshore Banking Unit in any International Financial Services Centre, as referred to in sub-section (1A) of Section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India. Explanation.For the purposes of this clause, 'portfolio manager' shall have the same meaning as assigned to it in clause (2) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021, made under the International Financial Services Centres Authority Act, 2019 (50 of 2019); SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

10. Income not included in total income.

In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included

(1) agricultural income;

(2) [1][subject to the provisions of sub-section (2) of Section 64], any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family;

[2][(2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm.

Explanation: For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits;]

[3][(3) * * * * *]

[4][(4) (i) in the case of a non-resident, any income by way of interest on such securities or bonds as the Central Government may, by notification in the Official Gazette[5], specify in this behalf, including income by way of premium on the redemption of such bonds;

[6][Provided that the Central Government shall not specify, for the purposes of this sub-clause, such securities or bonds on or after the 1st day of June, 2002;]

[7][[8](ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with [9][the Foreign Exchange Management Act, 1999 (42 of 1999)], and the rules made thereunder :

Provided that such individual is a person resident outside India as defined in [10][clause (w)] of Section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account;]]

[11][* * * *]

[12][(4B) in the case of an individual, being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued [13][before the 1st day of June, 2002] by the Central Government as that Government may, by notification in the Official Gazette[14], specify in this behalf :

Provided that the individual has subscribed to such certificates in convertible foreign exchange remitted from a country outside India in accordance with the provisions of [15][the Foreign Exchange Management Act, 1999 (42 of 1999)], and any rules made thereunder.

Explanation : For the purposes of this clause,

(a) a person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India;

(b) convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of [16][the Foreign Exchange Management Act, 1999 (42 of 1999)], and any rules made thereunder;]

[17][(4C) any income by way of interest payable to a non-resident, not being a company, or to a foreign company, by any Indian company or business trust in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond, as referred to in clause (ia) of sub-section (2) of Section 194LC, during the period beginning from the 17th day of September, 2018 and ending on the 31st day of March, 2019;

[18][(4D) any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of Section 47, on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in [19][convertible foreign exchange or as a result of transfer of securities (other than shares in a company resident in India) or any income from securities issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India or any income from a securitisation trust which is chargeable under the head 'profits and gains of business or profession', to the extent such income accrued or arisen to, or is received, is attributable to units held by non-resident (not being the permanent establishment of a non-resident in India)[20][21][or is attributable to the investment division of offshore banking unit, as the case may be,] computed in the prescribed[22] manner].

Explanation.For the purposes of this clause, the expression

(a) convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder;

[23][(aa) investment division of offshore banking unit means an investment division of a banking unit of a non-resident located in an International Financial Services Centre, as referred to in sub-section (1A) of Section 80LA and which has commenced its operations on or before the 31st day of March, 2024;]

(b) manager shall have the meaning assigned to it in clause (q) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

[24][(ba) 'permanent establishment' shall have the same meaning assigned to it in clause (iiia) of Section 92F;

(bb) 'securities' shall have the same meaning as assigned to it in clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and shall also include such other securities or instruments as may be notified by the Central Government in the Official Gazette in this behalf;

(bc) 'securitisation trust' shall have the same meaning assigned to it in clause (d) of the Explanation to Section 115TCA;]

[25][(c) specified fund means,

(i) a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate,

(I) which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or [26][regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the] International Financial Services Centres Authority Act, 2019 (50 of 2019);

(II) which is located in any International Financial Services Centre; and

(III) of which all the units other than unit held by a sponsor or manager are held by [27][non-residents:

Provided that the condition specified in item III shall not apply where any unit holder or holders, being non-resident during the previous year when such unit or units were issued, becomes resident under clause (1) or clause (1A) of Section 6 in any previous year subsequent to that year, if the aggregate value and number of the units held by such resident unitholder or unitholders do not'exceed five per cent, of the total units issued and fulfill such other conditions as may be prescribed[28]; or]

(ii) investment division of an offshore banking unit, which has been

(I) granted a certificate of registration as a Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 made under the Securities and Exchange Board of India Act, 1992 and which has commenced its operations on or before the 31st day of March, 2024; and

(II) fulfils such conditions including maintenance of separate accounts for its investment division, as may be prescribed;]

(d) sponsor shall have the meaning assigned to it in clause (w) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(e) trust means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force;

(f) unit means beneficial interest of an investor in the fund and shall include shares or partnership interests;]

[29][(4E) any income accrued or arisen to, or received by a non-resident as a result of

(i) transfer of non-deliverable forward contracts or offshore derivative instruments or over-the-counter derivatives; or

(ii) distribution of income on offshore derivative instruments,

entered into with an offshore banking unit of an International Financial Services Centre referred to in sub-section (1A) of Section 80LA, which fulfils such conditions as may be prescribed;]

(4F) any income of a non-resident by way of royalty or interest, on account of lease of an aircraft [30][or a ship] in a previous year, paid by a unit of an International Financial Services Centre as referred to in sub-section (1A) of Section 80LA, if the unit has commenced its operations on or before the 31st day of March, 2024.

[31][Explanation.For the purposes of this clause,

(i) aircraft means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any part thereof;

(ii) ship means a ship or an ocean vessel, engine of a ship or ocean vessel, or any part thereof;]

[32][(4G) any income received by a non-resident from,

(i) portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident; or

(ii) such activity carried out by such person, as may be notified by the Central Government in the Official Gazette,

in an account maintained with an Offshore Banking Unit in any International Financial Services Centre, as referred to in sub-section (1A) of Section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.

Explanation.For the purposes of this clause, 'portfolio manager' shall have the same meaning as assigned to it in clause (2) of sub-regulation (1) of regulation 2 of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021, made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);