Budget 2015-16 Reduction in rate of tax on Income by way of Royalty and Fees for technical services in case of non-residents from 25% to 10% wef A.Y. 2016-17.

The existing provisions of section 1 15A of the Act provide that in case of a non-resident taxpayer, where the total income includes any income by way of Royalty and Fees for technical services (FTS) received by such non-resident from Government or an Indian concern after 31.03.1976, and which is not effectively connected with permanent establishment, if any, of the non-resident in India, tax shall be levied at the rate of 25% on the gross amount of such income. This rate of 25% was provided by Finance Act, 2013.

In order to reduce the hardship faced by small entities due to high rate of tax of 25%, it is proposed to amend the Act to reduce the rate of tax provided under section 115A on royalty and FTS payments made to non-residents to 10%.

This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

NOTE ON RELEVANT CLAUSES  OF FINANCE BILL 2015

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Clause 27 of the Bill seeks to amend section 115A of the Income-tax Act relating to tax on dividends, royalty and technical service fees in the case of foreign companies.

The existing provisions of the aforesaid section provide for determination of tax in case of a non-resident taxpayer where the total income includes any income by way of Royalty and Fees for technical services received by such non-resident from Government or an Indian concern after the 31st March, 1976, and which is not effectively connected with permanent establishment, if any, of the non-resident in India. The rate of tax currently provided is twenty-five per cent. and is applicable on the gross amount of such income.

It is proposed to amend the said section to provide that in case of a non-resident taxpayer, where the total income includes any income by way of Royalty and Fees for technical Services received under an agreement entered after the 31st March, 1976, and which are not effectively connected with permanent establishment, if any, of the non-resident in India, the rate of tax on the gross amount of such income shall be ten per cent.

This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to assessment year 2016-17 and subsequent assessment years.

Extract of Relevant Clauses from Finance Bill 2015 proposing amendment to Income tax Act, 1961

27. Amendment of section 115A.

In section 115A of the Income-tax Act, in sub-section (1), in clause (b), with effect from the 1st day of April, 2016,—

(a)      in sub-clause (A), for the words “twenty-five per cent.”, the words “ten per cent.” shall be substituted;

(b)      in sub-clause (B), for the words “twenty-five per cent.”, the words “ten per cent.” shall be substituted.

( Compiled by CA Ankit Banka & Taxguru Team)

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15 responses to “Reduction in rate of tax on Royalty & Fees for technical services in case of non-residents”

  1. 1] I am an indian resident professional and my partnership firm is receiving income from USA person in the form of FTS or Royalty. Will I be charged to income tax on this income as per marginal rate of taxes or 10% as per 115A section of income tax? 2] Is threshold limit of gross receipts of 60000$/year for GST registration is correct. Will it be necessary for my firm to get GST enrolled if such income is 60000$ or less? I will apreciate your comments on this.

  2. vivek says:

    I have to prepare 15CB, for company in Singapore as technical fees,what is the rate of TDS

  3. Usha Gavali says:

    Dear Sir,
    1.I have to prepare 15CB being made to person in India but he is resident in UK as technical fees the foreigner has PAN no. in India
    2.What is the rate of TDS to be used.
    3.Which Section
    4.Wheather DTAA is clause applicable or not with above transactions with UK.
    If applicable please mention what clause alongwith TDS rate to be used for
    to above transactions

    Pl. reply.

  4. CA RAMAN R says:

    Kindly advise me whether the TDS Rate of 10% on FTS payments to Foreign Companies is same even if the Foreign Company does not have Permanent Establishment in India and they do not have PAN No.?

    An early reply is requested please.

  5. CA RAMAN R says:

    Kindly advise me whether the rate of 10% TDS on FTS payments to Foreign Company is same even if they do not have a Permanent Establishment in India and they do not have PAN No.?

    RAMAN R

  6. deepa khatri says:

    deducted TDS 10.30% or 10.36% Pls.clarify

  7. deepa khatri says:

    We have deducted TDS Strateforward 10.30% or 10.36%

  8. Nidhi mahajan says:

    Is this rate applicable from 01.04.2015. As no confirmation notification or communication received ?

  9. Sannidi says:

    Thanks all.

  10. Tarun says:

    This amendment is apllicable from 01.04.2015.

  11. Tarun says:

    clause 28, not clause 27.

  12. Virendra rathore says:

    Whether tds would be deducted @ 25 % or 10%

  13. Geethika says:

    Sir , please clarify from when the reduced rates applies 1.4 .2015 or 1.4.2016

    Please reply …..

    Thanks..

  14. Manish Marwah says:

    Above para have this line.

    This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

    Is it correct as your saying in heading

    Budget 2015-16 Reduction in rate of tax on Income by way of Royalty and Fees for technical services in case of non-residents from 25% to 10% wef A.Y. 2016-17.

    i.e., 01/04/2015

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