Income Tax Act 1961 Section 115H

Income Tax Act Section 115H addresses the tax implications for resident individuals who become non-residents during the previous year. It specifies how their income earned before changing residential status is taxed in India. This section is crucial for taxpayers who change their residency to avoid double taxation and comply with Indian tax laws.

Understanding Section 115H is essential for individuals, tax professionals, and businesses dealing with cross-border income and residency changes. It ensures correct tax treatment and prevents evasion through status changes.

Income Tax Act Section 115H – Exact Provision

This means if a person was resident in India for any of the four years before the current year but becomes a non-resident in the current year, their income for the current year is taxed as if they were still a resident. This prevents tax avoidance by changing residential status.

• Applies to individuals changing from resident to non-resident.

• Considers residency status in previous four years.

• Taxes total income as if still resident.

• Prevents tax evasion through residency change.

• Ensures continuity in tax liability.

Explanation of Income Tax Act Section 115H

This section states that a person who was resident in India in any of the four preceding years but becomes non-resident in the current year will be taxed as a resident for that year.

• Applies to individual taxpayers only.

• Relevant when residential status changes from resident to non-resident.

• Considers residency in any of the four previous years.

• Triggers taxation of total income as if resident.

• Income includes global income, not just Indian-sourced.

Purpose and Rationale of Income Tax Act Section 115H

The section aims to prevent tax avoidance by individuals who change their residential status to non-resident to escape Indian tax liability. It ensures fair taxation and continuity in tax obligations.

• Ensures fair taxation despite residency changes.

• Prevents tax evasion through status manipulation.

• Encourages compliance with tax laws.

• Supports consistent revenue collection.

When Income Tax Act Section 115H Applies

This section applies during the previous year in which the individual changes residential status from resident to non-resident, considering their residency in the four preceding years.

• Relevant in the previous year of status change.

• Applies if resident in any of four prior years.

• Impacts total income computation for that year.

• Does not apply if no prior residency in last four years.

Tax Treatment and Legal Effect under Income Tax Act Section 115H

Under this section, the individual's total income for the year of becoming non-resident is computed as if they were resident. This means global income is taxable in India for that year. It overrides normal non-resident tax rules for that year only, ensuring no income escapes taxation due to status change.

• Income taxed on global basis for that year.

• Overrides usual non-resident tax treatment.

• Ensures inclusion of all income in total income.

Nature of Obligation or Benefit under Income Tax Act Section 115H

This section creates a tax liability for individuals changing residency by mandating resident tax treatment for the year. It imposes compliance duties on such taxpayers to declare global income and pay tax accordingly.

• Creates mandatory tax liability.

• Applies conditionally upon residency change.

• Benefits revenue collection, not taxpayer exemption.

• Requires compliance with resident tax provisions.

Stage of Tax Process Where Section Applies

The section applies at the income computation stage for the previous year when the residential status changes. It affects return filing, assessment, and tax calculation for that year.

• Income accrual and receipt during previous year.

• Return filing reflecting resident status.

• Assessment based on resident income rules.

Penalties, Interest, or Consequences under Income Tax Act Section 115H

Failure to comply with this section by not declaring global income or misrepresenting residential status can lead to penalties and interest under general provisions. Prosecution is possible for willful evasion.

• Interest on unpaid tax due to non-compliance.

• Penalties for concealment or misreporting.

• Possible prosecution for tax evasion.

• Enforcement ensures compliance with residency rules.

Example of Income Tax Act Section 115H in Practical Use

Assessee X was resident in India for the last four years but moved abroad and became non-resident in the current year. Under Section 115H, Assessee X’s total income, including foreign income, is taxed as if resident for the current year. This prevents Assessee X from avoiding tax by changing status.

• Ensures tax on global income despite status change.

• Prevents tax avoidance by shifting residency.

Historical Background of Income Tax Act Section 115H

Section 115H was introduced to address tax avoidance by individuals changing residential status. Amendments over the years clarified residency definitions and tax implications. Judicial interpretations have reinforced its application to ensure tax compliance.

• Introduced to curb residency-based tax evasion.

• Amended for clarity on residency periods.

• Supported by judicial rulings on applicability.

Modern Relevance of Income Tax Act Section 115H

In 2026, with increased global mobility and digital filings, Section 115H remains vital. It ensures individuals cannot escape Indian tax by changing residency. Digital compliance and faceless assessments enhance enforcement of this provision.

• Supports digital tax compliance and AIS reporting.

• Relevant for NRIs and expatriates.

• Facilitates faceless assessment and TDS reconciliation.

Related Sections

• Income Tax Act Section 4 – Charging section.

• Income Tax Act Section 5 – Scope of total income.

• Income Tax Act Section 6 – Residential status.

• Income Tax Act Section 115I – Taxation of resident individuals becoming resident but not ordinarily resident.

• Income Tax Act Section 139 – Filing of returns.

• Income Tax Act Section 143 – Assessment.

Case References under Income Tax Act Section 115H

No landmark case directly interprets this section as of 2026.

Key Facts Summary for Income Tax Act Section 115H

• Section: 115H

• Title: Taxation of Resident Individuals Becoming Non-Resident

• Category: Income, Residential Status

• Applies To: Individual taxpayers changing residency

• Tax Impact: Total income taxed as resident for year of status change

• Compliance Requirement: Declare global income, file returns as resident

• Related Forms/Returns: ITR applicable to residents

Conclusion on Income Tax Act Section 115H

Section 115H plays a crucial role in Indian tax law by ensuring that individuals who change their residential status from resident to non-resident do not avoid tax on their global income for that year. It maintains the integrity of the tax system by preventing tax evasion through residency manipulation.

Taxpayers, professionals, and businesses must understand this provision to comply with tax obligations accurately. Proper application of Section 115H ensures fair taxation and supports the government’s revenue interests in an increasingly globalized economy.

FAQs on Income Tax Act Section 115H

Who does Section 115H apply to?

It applies to individuals who have been residents in India in any of the four years immediately before the current year and become non-residents in the current year.

What income is taxable under Section 115H?

The total income of the previous year, including global income, is taxable as if the individual remained a resident for that year.

Does Section 115H apply to companies or firms?

No, this section applies only to individual taxpayers changing their residential status.

Can an individual avoid tax by becoming a non-resident?

No, Section 115H prevents tax avoidance by treating income as if the individual remained resident for the year of change.

How does Section 115H affect return filing?

The individual must file income tax returns as a resident for the year they become non-resident, declaring all income accordingly.