Tax on Dividends, Royalty & Technical Fees for Foreign Companies

Section 115A of the Income Tax Act, 1961, provides special tax rates for foreign companies and non-resident individuals earning certain types of income from India. It is mainly applicable on dividends, royalty, interest, and fees for technical services (FTS).
The goal of this section is to offer a clear and simplified taxation framework for foreign entities, especially those without a Permanent Establishment (PE) in India.
✅ Latest Update: The Finance Act, 2025 has introduced key changes to this section, including increased tax rates and TDS threshold limits.

Who is Covered under Section 115A?
👉 Foreign companies
👉Non-resident individuals
👉Other non-resident entities
✅ Applicable only if the income is not connected with a PE in India or if there is no business presence in India.

Conditions for Applicability
1. The non-resident must not have a Permanent Establishment (PE) in India, or
2. If there is a PE, the income must not be effectively connected with such PE.
3. The income must be received in accordance with an agreement approved by the Central Government, or entered into after March 31, 1976

No Deductions Permitted
The gross receipts are fully taxed—no deductions allowed under Sections 28–44C or Section 57

TDS & Return Filing Exemption
Tax is deducted at source (TDS). If appropriate TDS is applied, the non-resident need not file an Indian return

🆕 Changes Introduced by Finance Act, 2025
🔺 1. Increased Tax Rates
Royalty and FTS are now taxed at 20% instead of the earlier 10%.

🔺 2. New TDS Threshold
TDS under Section 195 will apply only if the payment exceeds ₹10,000 (w.e.f. 1st April 2025).

🔺 3. Introduction of Section 44BBD
1. A new presumptive taxation scheme for non-residents offering technical services to electronics manufacturing companies in India.
2. Deemed income: 25% of receipts, taxed separately (excluded from Section 115A).

💼 Types of Income Covered