Reduction in rater of tax on income by way of Royalty and Fees for technical services in case of non-residents

[Admin TMI]

Question - What are the proposed in Finance Bill 2015 to reduce the hardship faced by the small entities in respect of income to royalty and fees for technical services ?

[Admin TMI]

Reduction in rate of tax on Income by way of Royalty and Fees for technical services in case of non-residents

The existing provisions of section 115A 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.

AI Summary

Tax on royalty and fees for technical services: reduced withholding rate for non residents effective from the 2016-17 assessment year.
Finance Bill 2015 proposes reducing the withholding tax rate on gross receipts of royalty and fees for technical services paid to non-residents where such income is not effectively connected with a permanent establishment in India; the reduced rate is intended to relieve hardship for small non-resident recipients and applies from the assessment year commencing after 1 April 2016.