TAXATION OF ROYALTY AND FEES FOR TECHNICAL SERVICES

Section 115A Specified Rate on Payment of Royalty or Fees for Technical Services to NonResidents (pdf)
Section 115A(1)(b) provides a specified rate of Tax in case :Eligible
Assessee
(Recepient)

Non-resident (not being a company) or

A Foreign Company
Royalty or Fees for Technical Services (FTS)
Exclusion Income referred to in Section 44DA(1)Section 44DA is applicable if the
recipient carries on business in India through
(i)
a Permanent Establishment (PE) situated in India ; or

Nature of
Income

(ii)
performs professional services from a fixed place of profession situated in
India ; and
the right, property or contract in respect of which Royalty or FTS are paid is
effectively connected with such PE of fixed place of profession.

Government or
Payee

An Indian ConcernBranch of Foreign Company was considered an Indian Concern

SeeCBDT Circular No. 740 dated 17-04-1996 & affirmed in Dresdner Bank AG vs.
Addl. CIT (2006) 108 ITD 375 (MUM) & ABN Amro Bank NV (2011) 198 Taxman 376
(Cal).
Agreement is made on or after 1 April 1976 and

Nature of
Agreement

In case of Agreement with Indian Concern :1. the Agreement is approved by the Central Government; or
2. where it relates to a matter included in the Industrial policy, for the timebeing in force, of the Government of India, the agreement is in accordance
with that policy [See Annex - III New Industrial Policy, 1991]
Exclusion :Where the Royalty is in consideration for the transfer of all or any rights (including
the granting of a license) in respect of any computer software to a person resident in
India and such computer software is permitted for the time-being in force to
imported into India under an Open General License according to the Import Trade

Control Policy the condition relating to the Agreement u/s 115(1)(b) being approval
of the Central Government or the requirement that it relates to a matter included in
the Industrial policy shall be omitted. [See Section 115A(1A) of the Income Tax Act]

Rate of Tax

in respect of income by way of Royalty or Fees for Technical Services [FTS] Income
Tax @ 25% + applicable Surcharge & Education Cess(Applicable with effect from 0104-2014 i.e., Assessment Year 2014-15 and corresponding previous year is Financial
Year 2013-14).

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