Source of income

The term “source of income” describes the jurisdiction in which a particular item of income is regarded as arising for tax purposes. Each country has its own rules for determining the source, and this classification affects whether the income is taxable there, which domestic or treaty provisions apply, and whether a foreign tax credit may be claimed. Countries may base the source on different factors—for example, the location of the underlying activity, the residence of the payer, or the situs of the asset that generates the income.

Example: Employment income Consider an individual in India who performs work remotely for a company based in the United States. Since the services are carried out in India, the income is regarded as arising in India even though the employer is abroad. Consequently, India treats the earnings as Indian-sourced income.