Amended and updated notes on section 115A of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to tax on dividends, royalty and technical service fees in the case of foreign companies.
Chapter XII (Sections 110 to 115BBG) of the Income Tax Act 1961 deals with the provisions related to determination of tax in certain special cases. Section 115A of IT Act 1961-2023 provides for tax on dividends, royalty and technical service fees in the case of foreign companies.
Recently, we have discussed in detail section 113 (Tax in the case of block assessment of search cases) of IT Act 1961. Today, we learn the provisions of section 115A of Income-tax Act 1961. The amended provision of section 115A is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 115A of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-115A: Tax on dividends, royalty and technical service fees in the case of foreign companies
Section 115A(1) of Income Tax Act
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
other than dividends referred to in section 115-O; or [Strikethrough words shall be omitted w.e.f. 01.04.2021 by the Finance Act 2020] - (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; or
- (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 other than dividends referred to in section 115-O, if any, included in the total income, at the rate of twenty per cent; [Strikethrough words shall be omitted w.e.f. 01.04.2021 by the Finance Act 2020]
(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 sub-clause (iia) or sub-clause (iiaa) or sub-clause (iiab) or sub-clause (iiac), if any, included in the total income, at the rate of five 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;
[Clause (BA) of sub-section (1) of section 115A has been substituted w.e.f. 01.04.2021 by the Finance Act, 2020]
(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 ten 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 ten 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).
Section 115A(1A) of Income Tax Act
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.
Section 115A(2) of Income Tax Act
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.
Section 115A(3) of Income Tax Act
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).
Section 115A(4) of Income Tax Act
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.
Section 115A(5) of Income Tax Act
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).
[Clause (b) of sub-section (5) of section 115A has been amended w.e.f. 01.04.2020 by the Finance Act 2020]