TAXATION OF ROYALTY AND FEES FOR TECHNICAL SERVICES – 1

Section 115A – Specified Rate on Payment of Royalty or Fees for Technical Services to Non-Residents (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
Nature of Income 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 (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.
Payee Government or
an Indian ConcernBranch of Foreign Company – was considered an Indian Concern – See CBDT 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).
Nature of Agreement Agreement is made on or after 1 April 1976 and
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 time-being 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 01-04-2014 i.e., Assessment Year 2014-15 and corresponding previous year is Financial Year 2013-14).
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