Section 115A — Tax on NR - Foreign Co Income (Royalty…

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

Tax on dividends, royalty and technical service fees in the case of foreign companies.

115A. (1) Where the total income of—

(a) a non-resident (not being a company) or of a foreign company, includes any income by way of—

(i) dividends ; or

(ii) interest received from Government or an Indian concern on monies borrowed or debt

incurred by Government or the Indian concern in foreign currency not being interest of the

nature referred to in sub-clause (iia) or sub-clause (iiaa); or

(iia) interest received from an infrastructure debt fund referred to in clause (47) of section 10;

(iiaa) interest of the nature and extent referred to in section 194LC; or

(iiab) interest of the nature and extent referred to in section 194LD; or

(iiac) distributed income being interest referred to in sub-section (2) of section 194LBA;

(iii) income received in respect of units, purchased in foreign currency, of a Mutual Fund

specified under clause (23D) of section 10 or of the Unit Trust of India,

the income-tax payable shall be aggregate of—

(A) the amount of income-tax calculated on the amount of income by way of dividends, if any,

included in the total income, at the rate of twenty per cent :

²⁶[Provided that the amount of income-tax calculated on the amount of income by way of

dividend received from a unit in an International Financial Services Centre, as referred to

in sub-section (1A) of section 80LA, shall be ten per cent;]

(B) the amount of income-tax calculated on the amount of income by way of interest referred

to in sub-clause (ii), if any, included in the total income, at the rate of twenty per cent ;

(BA) the amount of income-tax calculated on the amount of income by way of interest referred

to in,—

(i) sub-clause (iia), if any, included in the total income, at the rate of five per cent;

(ii) sub-clause (iiaa) or sub-clause (iiab) or sub-clause (iiac), if any, included in the

total income, at the rate provided in the respective sections referred to in the said

sub-clauses;

(C) the amount of income-tax calculated on the income in respect of units referred to in

sub-clause (iii), if any, included in the total income, at the rate of twenty per cent ; and

(D) the amount of income-tax with which he or it would have been chargeable had his or its

total income been reduced by the amount of income referred to in sub-clause (i),

sub-clause (ii), sub-clause (iia), sub-clause (iiaa), sub-clause (iiab), sub-clause (iiac) and

sub-clause (iii) ;

(b) a non-resident (not being a company) or a foreign company, includes any income by way of royalty

or fees for technical services other than income referred to in sub-section (1) of section 44DA

received from Government or an Indian concern in pursuance of an agreement made by the foreign

company with Government or the Indian concern after the 31st day of March, 1976, and where

such agreement is with an Indian concern, the agreement is approved by the Central Government

or 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, then, subject to the

provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of,—

(A) the amount of income-tax calculated on the income by way of royalty, if any, included in

the total income, at the rate of ²⁷[twenty] per cent;

(B) the amount of income-tax calculated on the income by way of fees for technical services,

if any, included in the total income, at the rate of ²⁷[twenty] per cent; and

(C) the amount of income-tax with which it would have been chargeable had its total income

been reduced by the amount of income by way of royalty and fees for technical services.

Explanation.—For the purposes of this section,—

(a) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of

sub-section (1) of section 9 ;

(b) "foreign currency" shall have the same meaning as in the Explanation below item (g) of sub-clause

(iv) of clause (15) of section 10 ;

(c) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of

section 9 ;

(d) "Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act,

1963 (52 of 1963).

(1A) Where the royalty referred to in clause (b) of sub-section (1) is in consideration for the transfer of all or

any rights (including the granting of a licence) in respect of copyright in any book to an Indian concern or in

respect of any computer software to a person resident in India, the provisions of sub-section (1) shall apply

in relation to such royalty as if the words the agreement is approved by the Central Government or 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 occurring in the said clause had been omitted :

Provided that such book is on a subject, the books on which are permitted, according to the Import Trade

Control Policy of the Government of India for the period commencing from the 1st day of April, 1977, and

ending with the 31st day of March, 1978, to be imported into India under an Open General Licence :

Provided further that such computer software is permitted according to the Import Trade Control Policy of

the Government of India for the time being in force to be imported into India under an Open General

Licence.

Explanation 1.—In this sub-section, "Open General Licence" means an Open General Licence issued by the

Central Government in pursuance of the Imports (Control) Order, 1955.

Explanation 2.—In this sub-section, the expression "computer software" shall have the meaning assigned to

it in clause (b) of the Explanation to section 80HHE.

(2) Nothing contained in sub-section (1) shall apply in relation to any income by way of royalty received by

a foreign company from an Indian concern in pursuance of an agreement made by it with the Indian concern

after the 31st day of March, 1976, if such agreement is deemed, for the purposes of the first proviso to

clause (vi) of sub-section (1) of section 9, to have been made before the 1st day of April, 1976; and the

provisions of the annual Finance Act for calculating, charging, deducting or computing income-tax shall

apply in relation to such income as if such income had been received in pursuance of an agreement made

before the 1st day of April, 1976.

(3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under sections

28 to 44C and section 57 in computing his or its income referred to in sub-section (1).

(4) Where in the case of an assessee referred to in sub-section (1),—

(a) the gross total income consists only of the income referred to in clause (a) of that sub-section, no

deduction shall be allowed to him or it under Chapter VI-A;

(b) the gross total income includes any income referred to in clause (a) of that sub-section, the gross

total income shall be reduced by the amount of such income and the deduction under Chapter VI-A

shall be allowed as if the gross total income as so reduced were the gross total income of the

assessee:

Provided that nothing contained in this sub-section shall apply to a deduction allowed to a Unit of an

International Financial Services Centre under section 80LA.

(5) It shall not be necessary for an assessee referred to in sub-section (1) to furnish under sub-section (1) of

section 139 a return of his or its income if—

(a) his or its total income in respect of which he or it is assessable under this Act during the previous

year consisted only of income referred to in clause (a) or clause (b) of sub-section (1); and

(b) the tax deductible at source under the provisions of Part B of Chapter XVII has been deducted

from such income and the rate of such deduction is not less than the rate specified under clause (a)

or, as the case may be, clause (b) of sub-section (1).

Notes

26. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

27. Sub. for "ten" by Act No. 08 of 2023, w.e.f. 1-4-2024.

Function in the statutory architecture

Section 115A sets gross-basis rates for a non-resident (not being a company) or a foreign company. Under clause (a), dividends are taxed at twenty per cent, or ten per cent on dividend from a unit in an International Financial Services Centre referred to in s. 80LA(1A). Interest on money borrowed or debt incurred in foreign currency by Government or an Indian concern is taxed at twenty per cent, and interest from an infrastructure debt fund at five per cent. Interest under s. 194LC, s. 194LD and s. 194LBA(2) is taxed at the rates in those sections, and income from units bought in foreign currency at twenty per cent.

Under clause (b), royalty and fees for technical services from Government or an Indian concern, under an agreement made after the 31st day of March, 1976, are taxed at twenty per cent each. Where the agreement is with an Indian concern it must be approved by the Central Government, or accord with the industrial policy. Income referred to in s. 44DA(1) is excluded. The rate note reads "Sub. for 'ten' by Act No. 08 of 2023, w.e.f. 1-4-2024". Sub-section (1A) waives the approval condition for royalty on copyright in books to an Indian concern, or on computer software to a resident, subject to its provisos.

Operative consequences

No deduction for expenditure or allowance under ss. 28 to 44C or s. 57 is allowed against the income (s. 115A(3)).
Where gross total income consists only of clause (a) income, no Chapter VI-A deduction is allowed; otherwise those deductions are confined to the balance. This does not affect the s. 80LA deduction of an IFSC unit.
No return under s. 139(1) is required if total income consists only of such income and tax has been deducted at source at not less than the section rate (s. 115A(5)).

Status

Section 115A is operative for AY 2026-27. The Finance Act, 2026 does not amend it.

The counterpart is s. 207, which sets out the same rates in two tables. The hint pointing to s. 59 is not the counterpart: that section deals with royalty and fees for technical services connected with a permanent establishment, and s. 207(2) excludes that income.

The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 207.

Case Laws & Commentary

SECTION 115A — TAX ON DIVIDENDS, ROYALTY AND TECHNICAL SERVICE FEES IN THE CASE OF FOREIGN COMPANIES

Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)

A. SECTION COMMENTARY

A.1 Structural position & legislative purpose

Section 115A is the principal special-rate code for the passive India-source income of non-residents (not being companies) and foreign companies. Where the total income of such an assessee includes dividends, interest of the specified kinds, royalty or fees for technical services (FTS), the tax is charged at the flat rates fixed in the section on the gross amount of that income, and the tax on the balance income is computed separately. Two structural rules complete the scheme: no deduction under sections 28 to 44C or section 57 is allowed in computing the specified income (the gross-basis rule), and where the income consists only of such specified income, the assessee is relieved of the obligation to file a return in certain cases (section 115A(5)).

The rate for royalty and FTS was raised from ten per cent to twenty per cent (plus surcharge and cess) by the Finance Act, 2023 with effect from 1 April 2024. The section operates subject to the treaty-override in section 90(2): where a Double Taxation Avoidance Agreement prescribes a lower rate, the assessee may adopt the more beneficial treaty rate, and section 115A does not compel the higher domestic rate.

A.2 Sub-section / clause taxonomy

Sub-section (1): the charge and rates - dividends and specified interest (generally 20%, with concessional rates for certain interest such as section 194LC/194LD/194LBA categories), and royalty/FTS at 20% (from 1-4-2024). Sub-section (1A): royalty for copyright in books or for computer software. Sub-section (2): exclusion of royalty under agreements deemed made before 1 April 1976. Sub-section (3): the no-deduction (gross-basis) computation under sections 28 to 44C and section 57. Sub-section (4): restriction of Chapter VI-A deductions where gross total income includes income under clause (a) of sub-section (1). Sub-section (5): return-filing relief where income is only the specified income and tax has been deducted at the section rates.

A.3 Core doctrinal themes

Theme (1) - Gross-basis charge: the specified income is taxed on its gross amount without deduction of expenses; the flat rate is the quid pro quo for the denial of deductions.

Theme (2) - Treaty override and taxpayer's choice: under section 90(2) the assessee may take the lower of the section 115A rate and the applicable DTAA rate (Azadi Bachao); a beneficial treaty rate cannot be displaced by section 115A.

Theme (3) - Characterisation gates the charge: whether a receipt is 'royalty' or 'FTS' at all is the threshold question, frequently decisive - software payments (Engineering Analysis) and automated, no-human-intervention services (Kotak Securities) illustrate receipts held to fall outside the royalty/FTS net.

Theme (4) - Return-filing relief: section 115A(5) relieves a non-resident whose India income is confined to the specified income (suffered to tax at the section rates) from filing a return, subject to conditions.

A.4 Legislative evolution / Finance Act amendment trail

Section 115A has been amended repeatedly to align rates with policy and the treaty network. The most consequential recent change is the doubling of the royalty/FTS rate from 10% to 20% by the Finance Act, 2023 (w.e.f. 1-4-2024), which materially affects non-residents from treaty partners whose DTAA rate exceeds the old 10% (commonly 10-15%), and makes treaty-rate optimisation and Tax Residency Certificate compliance central.

Finance Act 2026: no amendment to section 115A. The 20% royalty/FTS rate and the gross-basis scheme continue for AY 2026-27 onward; tax rates for TY 2026-27 are otherwise unchanged.

A.5 CA practitioner pointers

(1) Always test characterisation first - is the receipt truly royalty/FTS within section 9(1)(vi)/(vii) and the treaty Article 12 'make available' test? If not, section 115A does not engage. (2) Compare the section 115A rate with the DTAA rate and adopt the lower under section 90(2), backed by a valid TRC and Form 10F. (3) Remember the gross-basis bar on deductions - do not net expenses against royalty/FTS. (4) Assess the section 115A(5) return-filing relief, but file where there is any other India income or where credit/refund is sought.

B. FINANCE ACT, 2026 - IMPACT NOTE

Section 115A is NOT amended by the Finance Act, 2026. The royalty/FTS rate of 20% (from 1 April 2024, Finance Act, 2023), the gross-basis computation and the treaty-override interaction continue unchanged for AY 2026-27 onward.

C. CASE LAW - CLUSTERED BY ISSUE

Cluster C-1 : Characterisation - what is 'royalty'

Engineering Analysis Centre of Excellence (P) Ltd. v. CIT (2021) 432 ITR 471 (SC).

Facts: Indian end-users/distributors made payments to non-resident suppliers for the use/resale of shrink-wrapped and licensed computer software. The Revenue treated the payments as 'royalty' taxable in India (engaging the section 115A/treaty rate and TDS under section 195).

Issue: Whether payment for the resale/use of computer software, where what is transferred is a copyrighted article and not the copyright itself, is 'royalty' under the DTAA (and section 9(1)(vi)).

Held: The Supreme Court held that the amounts paid by resident end-users/distributors to non-resident manufacturers/suppliers for software were not 'royalty'; the transaction conferred the right to use a copyrighted article, not the copyright. Such payments are business profits, not royalty, and, absent a permanent establishment, are not taxable in India; consequently no TDS obligation arose under section 195. The DTAA definition, being narrower and more beneficial, prevailed over the wider section 9(1)(vi) Explanation.

Ratio: Characterisation under the treaty controls; payment for a copyrighted article is not royalty. Where the treaty definition is narrower than the domestic Explanation, the treaty prevails under section 90(2).

Relevance: The leading authority delimiting 'royalty' for section 115A purposes; decisive in cross-border software, distribution and licensing structures and the linked section 195 TDS question.

CIT v. Kotak Securities Ltd. (2016) 383 ITR 1 (SC) (FTS - human element).

Facts: The question concerned whether stock-exchange transaction charges for fully automated trading facilities were fees for technical services.

Issue: Whether a standardised, automated facility available to all users, provided without individualised human intervention, constitutes 'technical services'.

Held: The Supreme Court held that services rendered through an automated facility, available to all members without any exclusive or individualised human technical input, do not amount to 'technical services'; routine, facility-type services are outside FTS.

Ratio: 'Technical services' connotes a human element and a specialised, individualised service; standardised automated facilities are not FTS.

Relevance: A key characterisation authority - if a receipt is not FTS at all, section 115A's FTS rate cannot apply; widely cited in technology and platform-fee disputes.

Cluster C-2 : Treaty override and the taxpayer's choice of rate

Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC).

Facts: The reach of the treaty-override principle and the legitimacy of adopting a beneficial DTAA position were in issue.

Issue: Whether a taxpayer may adopt the more beneficial of the domestic provision and the DTAA, and whether the treaty prevails over the Act where more favourable.

Held: The Supreme Court affirmed that where a DTAA applies, its provisions, if more beneficial than the Act, prevail by virtue of section 90(2); the taxpayer may rely on the treaty to reduce or negate a liability imposed by the Act.

Ratio: Section 90(2) entitles the assessee to the more beneficial of the Act and the treaty; section 115A's domestic rate yields to a lower treaty rate.

Relevance: The foundation for adopting a lower DTAA rate in place of the (now 20%) section 115A royalty/FTS rate - the central planning point after the Finance Act, 2023 increase.

D. PRACTITIONER'S NOTE

Section 115A advisory is a two-stage exercise: characterise, then rate-optimise. First decide whether the receipt is dividend/interest/royalty/FTS at all (Engineering Analysis for software-royalty; Kotak Securities for the human element in FTS) - if it is not, section 115A does not bite. If it is, compare the 20% domestic rate (from 1-4-2024 for royalty/FTS) with the DTAA rate and claim the lower under section 90(2), supported by a TRC and Form 10F, remembering the gross-basis bar on deductions and the section 115A(5) return-filing relief.

E. SOURCES & CITATIONS

Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. Treaty rates, the 'make available' clause and MFN-clause developments vary by DTAA; verify the current statutory text, the applicable treaty, TRC/Form 10F requirements and the latest appellate position before relying on any proposition.

← ITA 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 115A(1)(a): dividends, interest on foreign-currency borrowings, interest from an infrastructure debt fund, interest under ss. 194LC, 194LD and 194LBA(2), and income from units bought in foreign currency	s. 207(1), Table Sl. Nos. 1 to 8
s. 115A(1)(b) and (1A): royalty and fees for technical services under approved agreements made after 31 March 1976; copyright in books and computer software	s. 207(2) and (3)
s. 115A(2): royalty under agreements deemed made before 1 April 1976	No corresponding provision in the Income-tax Act, 2025
s. 115A(3): no deduction under ss. 28 to 44C and s. 57	s. 207(5)
s. 115A(4) and (5): Chapter VI-A deductions; return not required	s. 207(6) to (8)

Section 115A — Tax on NR - Foreign Co Income (Royalty - FTS - Interest - Dividend)