Deduction limits on head office expenditure restrict non-resident business deductions and cap foreign company royalty expense claims.

Prescribes that non-residents may deduct head office expenditure only to the extent of the least of: five per cent of adjusted total income (or five per cent of average adjusted total income where adjusted total income is a loss), the average head office expenditure, or that portion attributable to Indian business; defines adjusted total income, averaging rules, and head office expenditure. For foreign companies, caps deductions for royalty and technical service receipts under pre-cutoff agreements by limiting allowable deductions to a proportion of gross receipts (after excluding lump-sum transfers of technical documentation) and disallows deductions for such receipts under agreements made after the cutoff, with definitions for key terms.

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