Section 207 — Tax on dividends, royalty and fees for technical service in case of foreign companies. Successor to s.115A of the 1961 Act.
Section 207 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Sub-section (1) fixes the tax on the total income of a non-resident who is not a company, or of a foreign company, where that income includes anything listed in column B of its Table: tax is the aggregate of income-tax at the column C rate on the corresponding column B income. The Table has eight entries. Entry 1 taxes dividend other than dividend under entry 2 at 20%; entry 2 taxes dividend received from a unit in an International Financial Services Centre at 10%; entry 3 taxes interest received from Government or an Indian concern on moneys borrowed or debt incurred in foreign currency, other than interest under entries 4 and 5, at 20%; entry 4 taxes interest received from an infrastructure debt fund referred to in Schedule VII (Table: Sl. No. 46) at 5%; entry 5 carries interest of the nature and extent referred to in section 393(2) (Table: Sl. Nos. 2, 3 and 4) at the rates specified there; entry 6 carries distributed income being interest referred to in section 393(2) (Table: Sl. No. 6) at the rate specified there; entry 7 taxes income in respect of units of a Mutual Fund specified in Schedule VII (Table: Sl. No. 20 or 21) or of the Unit Trust of India, purchased in foreign currency, at 20%; and entry 8 taxes the balance of total income at the rates in force.
Sub-section (2) deals with royalty and fees for technical services received from Government or an Indian concern under an agreement made after the 31st March, 1976, other than income referred to in section 59(1). It applies where the agreement is approved by the Central Government, if made with an Indian concern, or where the agreement relates to a matter included in the industrial policy for the time being in force and is as per that policy. Its Table taxes royalty at 20%, fees for technical services at 20%, and the balance of total income at the rates in force. Sub-section (3) removes the approval and policy conditions where the royalty is in consideration for the transfer or grant of 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.
Sub-section (4) defines "computer software", and takes "fees for technical services" and "royalty" from section 9. Sub-section (5) bars any deduction for expenditure or allowance under sections 28 to 58, 60 and 61 and section 93 in computing the income referred to in sub-sections (1) and (2). Sub-section (6) governs Chapter VIII deductions: under clause (a), where the gross total income consists only of income under sub-section (1) (Table: Sl. Nos. 1 to 7), no deduction is allowed under Chapter VIII and Schedule XV; under clause (b), where it includes such income, gross total income is reduced by that income and Chapter VIII deductions are allowed as if the reduced amount were the gross total income. Sub-section (7) exempts from sub-section (6) a deduction allowed to a Unit of an International Financial Services Centre under section 147.
Sub-section (8) relieves the assessee of filing a return under section 263(1) where two conditions are met: the total income during the tax year consisted only of income referred to in sub-section (1) (Table: Sl. Nos. 1 to 7) and sub-section (2) (Table: Sl. Nos. 1 and 2), and tax deductible at source under Chapter XIX-B has been deducted from that income at a rate not less than the rate specified in sub-sections (1) and (2).
A non-resident earning dividend, interest, royalty or technical fees from India has no Indian cost base to speak of and often no Indian presence, so the Act taxes these receipts gross at flat rates rather than computing a net figure. Sub-section (5) makes that explicit by shutting out expenditure, and sub-section (6) stops Chapter VIII deductions being used to reduce income that has already been taxed at a concessional flat rate. Sub-section (8) completes the design: where the flat rate has been collected at source at not less than the specified rate, there is nothing left for a return to do.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Tax on dividend other than ifsc unit dividend | 20% | Dividend other than dividend specified against serial number 2 of the Table | Sub-section (1), Table Sl. No. 1 |
| Tax on dividend from an ifsc unit | 10% | Dividend received from a unit in an International Financial Services Centre | Sub-section (1), Table Sl. No. 2 |
| Tax on foreign currency interest from Government or an Indian concern | 20% | On moneys borrowed or debt incurred in foreign currency, not being interest referred to against serial numbers 4 and 5 | Sub-section (1), Table Sl. No. 3 |
| Tax on interest from an infrastructure debt fund | 5% | Interest received from an infrastructure debt fund referred to in Schedule VII (Table: Sl. No. 46) | Sub-section (1), Table Sl. No. 4 |
| Tax on interest of the nature referred to in section 393(2) | The rates specified in section 393(2) (Table: Sl. Nos. 2, 3 and 4) | Interest of the nature and extent referred to in those Table entries; the section states no rate of its own | Sub-section (1), Table Sl. No. 5 |
| Tax on distributed income being section 393(2) interest | The rate specified in section 393(2) (Table: Sl. No. 6) | Distributed income being interest referred to in that Table entry; the section states no rate of its own | Sub-section (1), Table Sl. No. 6 |
| Tax on income from units purchased in foreign currency | 20% | Units of a Mutual Fund specified in Schedule VII (Table: Sl. No. 20 or 21) or of the Unit Trust of India, purchased in foreign currency | Sub-section (1), Table Sl. No. 7 |
| Tax on the balance of total income | Rates in force | Total income as reduced by the income against serial numbers 1 to 7 | Sub-section (1), Table Sl. No. 8 |
| Tax on royalty | 20% | Royalty other than income referred to in section 59(1), under a qualifying agreement made after 31 March 1976 | Sub-section (2), Table Sl. No. 1 |
| Tax on fees for technical services | 20% | Fees for technical services other than income referred to in section 59(1), under a qualifying agreement made after 31 March 1976 | Sub-section (2), Table Sl. No. 2 |
| Cut-off date for the agreement under sub-section (2) | After the 31st March, 1976 | The agreement with Government or an Indian concern must have been made after that date | Sub-section (2) |
| Rate test for the return exemption | Tax deducted at a rate not less than the rate specified in sub-sections (1) and (2) | Together with total income consisting only of income under sub-section (1) (Table: Sl. Nos. 1 to 7) and sub-section (2) (Table: Sl. Nos. 1 and 2) | Sub-section (8)(b) |
Two Table entries in sub-section (1) state no rate of their own: entries 5 and 6 borrow the rates specified in section 393(2), so the figure for that income cannot be read off this section at all. The 20% and 10% rates are gross-basis rates — sub-section (5) denies expenditure and allowances under sections 28 to 58, 60 and 61 and section 93, so nothing is netted against them. Sub-section (6) is the trap for anyone with mixed income: the specified income is stripped out of gross total income first, and Chapter VIII deductions are computed only on what is left, with the single exception in sub-section (7) for a section 147 deduction to an ifsc Unit. The return exemption in sub-section (8) needs both conditions together — income of only the listed kinds and tax deducted at not less than the specified rate — so a shortfall in deduction, or a single rupee of other income, brings the section 263(1) obligation back. Sub-section (3) matters where a book copyright licence to an Indian concern or a computer software licence to a resident is involved: for those, sub-section (2) applies without needing Central Government approval or conformity with industrial policy.
A foreign company receives during the tax year dividend of Rs 2 crore from an Indian company, interest of Rs 50 lakh from an infrastructure debt fund, and royalty of Rs 1 crore under an approved agreement with an Indian concern. Tax is Rs 40 lakh on the dividend at 20% under Table Sl. No. 1, Rs 2.5 lakh on the interest at 5% under Table Sl. No. 4, and Rs 20 lakh on the royalty at 20% under the sub-section (2) Table, with no deduction for any expenditure incurred in earning any of it. If tax at those rates or higher has been deducted at source under Chapter XIX-B and the company has no other income, sub-section (8) means it need not furnish a return under section 263(1); if the deduction on the royalty was made at 10%, the exemption is lost for the whole of its income.
In the withholding done by the Indian payer under Chapter XIX-B and in the certificate it issues, and in a non-resident's decision whether to file a return at all — sub-section (8) is the provision relied on when no return is filed. It is also the section an Assessing Officer applies when disallowing expenses or Chapter VIII deductions claimed against dividend, interest, royalty or technical fees.
Dividend received from a unit in an International Financial Services Centre. 10%
No deduction in respect of any expenditure or allowance shall be allowed under sections 28 to 58, 60 and 61 and section 93 for computing income referred to in sub-sections (1) and (2).
It shall not be necessary for an assessee to furnish a return of income under section 263(1)
See the full 1961 to 2025 concordance.
See the circulars index.
