Section 44DA: Royalties & Fees For Technical Services For Non-Residents

What is section 44DA all about ?

This provision is applicable for Non-Resident Indians, in the case of income arising by way of royalties & fees for technical services. First of all, let’s understand important terms in relation to this section:

“What is the meaning of royalty”?

Royalty as defined under section 9(1)(vi) of the Income Tax Act 1961 means any lump sum consideration given for:

Exclusion : Following shall not be treated as royalty :

1. Any consideration, which would be chargeable as income of recipient under head ‘capital gain’
2. Any consideration for the sale, distribution or exhibition of cinematographic films.

What is the meaning of Fees For Technical Service?

Section 9(1)(vii) defined Fees for Technical services as any consideration or lump sum consideration for the rendering of any

1. Managerial
2. Technical or Consultancy Services (It includes the provision of services of technical or other personnel)

"Fees for technical service" does not include

1. Consideration for any construction,
2. Assembly,
3. Mining or alike undertaken by the recipient or consideration which would be considered as Salary income of the recipient.

Now moving further, let’s understand

“What is the meaning of permanent establishment”?

As per section 92F (iiia) of Income Tax Act, 1961,Permanent establishment" includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

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When is section 44-DA applicable ?

Section 44DA is applicable in case

• The assessee is a non resident (not being company) or a foriegn company and receiving income by way of royalty or fees for technical services. Such income is received in accordance with the agreement made by assessee with government or an Indian concern provided agreement is made after 31 March, 2003.
• Assessee carries on business in India through a permanent establishment or performs professional services from a fixed place of profession situated in India.
• The right, property or contract in respect of which the royalties or fees for technical services are being paid shall be effectively connected with such permanent establishment or fixed place of profession.

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How to compute income as per section 44-DA ?

The income of such assessee shall be computed under the head ‘Profit and gains of business or profession’ as per the provisions of this act provided no deduction in respect of following payments shall not allowed :

1. Any expenditure which is not wholly or exclusively incurred for the purpose of business of such permanent establishment or fixed place of profession
2. Amount paid by permanent establishment to its head office or to any of its other office.

What are some important points of section-44DA ?

• Requirement of maintenance of books of account and get it audited: assessee shall
  1. Keep & maintain books of accounts & other documents as per the requirement of section 44AA
  2. Get his accounts audited by a Chartered Accountant and furnish the report of such audit along with return of income.
• What shall be the tax rate applicable on such income?

  Income under this section shall be chargeable to income tax as per normal slab rates applicable on assessee.

• Applicability of section 115A :- If royalty or fees for technical services is received by non resident or foriegn company as per the agreement with government or indian concern and NOT carrying business through a permanent establishment or fixed place of profession in India. In such case, the tax rate shall be 10%.