Income-tax Act 2025, Section 5: What changed, what didn't from the 1961 Act for NRIs and others

For a non-resident Indian weighing whether a dividend, a rent cheque or a capital gain has to be declared in India, one provision settles the question. It is Section 5, and with effect from April 2026 it has been re-drafted without being rewritten under the Income-tax Act, 2025.

Section 5 of the Income-tax Act, 2025 sets out the scope of total income; in other words the reach of Income Tax Department's charge. Its predecessor is Section 5 of the Income-tax Act, 1961.

How do they compare?

Section 5 under both Acts cover the same issue. Moreover, the main substance of Section 5 under both Acts is also identical. What has changed is how the section is built, and where a reader is sent to check residential status.

Section 5 basically provides for the "Scope of income", defining what constitutes the total income of an individuals, including NRIs, on which tax can be levied.

For a salaried employee or a freelancer with no overseas income, the section is of little consequence as their tax is settled at source followed by the return follows.

However, for non-resident Indians, returning residents and anyone holding foreign assets or a foreign bank account, Section 5 has the provision that decides which income enters the return and which can stay out.

Under Section 5(1) of the 1961 Act, a resident's total income included all income "from whatever source derived" that is received or deemed to be received in India, that accrues or arises or is deemed to accrue or arise in India, or that accrues or arises outside India. These were mentioned in three clauses. A proviso was then carved out for the not-ordinarily-resident case, leaving out income accruing outside India unless derived from a business controlled in, or a profession set up in, India. Section 5(2) of the old Act confined a non-resident's total income to income received or accruing in India.

In contrast, Section 5(1) of the 2025 Act states the same three clauses but includes the proviso into clause (c) itself. So it now reads as part of the charging language, rather than as an exception to it.

The cross-reference has also moved in the new Act. Not-ordinarily-resident status is defined in Section 6(13) of the new Act, against Section 6(6) of the old one.

Two explanations attached to Section 5 of the 1961 Act have been promoted to sub-sections.

Explanation 1, which said income arising outside India is not treated as received in India merely because it appears in an Indian balance sheet, has become Section 5(3). Explanation 2, which stopped the same income being taxed twice, once on accrual and again on receipt, has become Section 5(4).

However, there is no financial implications for taxpayers due to these changes. The provisions have merely been rearranged. The practical point significance is the cross-reference. Advice on not-ordinarily-resident status for an earlier year will cite Section 6(6) of the 1961 Act; the same question for tax year 2026-27 now turns to Section 6(13) of the 2025 Act.