What is Section 44DA?
This provision is applicable for non-resident Indians or foreign companies, in the case of income arising by way of royalties & fees for technical services. This is in pursuance of an agreement entered into by the foreign company with the Indian government after 31st March 2003, where such company carries on business in India through a permanent establishment situated in India or provides professional services from a fixed place in India.
Royalty
Royalty as defined under section 9(1)(vi) of the Income Tax Act 1961 means any lump sum consideration given for:
| 1 |
Transfer of any or all rights in relation to
(The transfer of rights under this section also includes granting of a licence) |
- Patent
- Invention
- Model
- Design
- Secret Formula
- Process
- Trade mark and alike
|
| 2 |
Imparting any information concerning the use or working of |
| 3 |
Use of any |
| 4 |
Imparting any information relating to |
- Technical
- Industrial
- Commercial or
- Scientific
- Knowledge
- Experience or
- Skill
|
| 5 |
Use or right to use
(but not including those referred to in section
44BB) |
- Industrial
- Commercial or
- Scientific Equipment
|
| 6 |
Transfer of any or all rights in relation to
(The transfer of rights under this section also includes granting of a licence) |
- Copyright
- Literary
- Artistic or
- Scientific work
- Films or
- Video tapes
(Tapes here do not include consideration for the sale, distribution or exhibition of cinematographic films) |
| 7 |
Rendering of any services |
In specified cases |
Exclusion: Following shall not be treated as royalty:
- Any consideration, which would be chargeable as income of recipient under head ‘capital gain’
- Any consideration for the sale, distribution or exhibition of cinematographic films.
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
- Managerial
- Technical or Consultancy Services (It includes the provision of services of technical or other personnel)
"Fees for technical service" does not include
- Consideration for any construction,
- Assembly,
- Mining or alike undertaken by the recipient or consideration which would be considered as Salary income of the recipient.
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.
Applicability of Section 44DA
The assessee is a non-resident (not being a company) or a foreign company and receiving income by way of royalty or fees for technical services. Such income is received in accordance with the agreement made by the assessee with the government or an Indian concern, provided the 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.
How to Compute Income as per Section 44DA?
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 the following payments shall not allowed:
- Any expenditure which is not wholly or exclusively incurred for the purpose of the business of such permanent establishment or fixed place of profession
- Amount paid by a permanent establishment to its head office or to any of its other offices.
What are the Compliance Requirements Under Section 44DA?
Foreign companies that earn income in India through technical services fees, royalties, or the transfer of certain assets have to comply with certain requirements and provisions of the Income Tax Act. Here are some provisions that must be complied with -
- Obtaining a TRN (Tax Registration Number) from the tax authorities.
- Filing a tax return in India for the income earned in India.
- Paying tax on the income earned within the due dates specified under the Income Tax Act.
What are Some Important Points of Section44DA?
Requirement of maintenance of books of account and get it audited: assessee shall
- Keep & maintain books of accounts & other documents as per the requirement of section 44AA
- Get his accounts audited by a Chartered Accountant and furnish the report of such audit along with the return of income.
What shall be the tax rate applicable to such income?
Income under this section shall be chargeable to income tax as per the normal slab rates applicable to the assessee.
Applicability of section 115A:- If royalty or fees for technical services are received by a non-resident or foriegn company as per the agreement with the government or indian concern and NOT carrying business through a permanent establishment or fixed place of profession in India. In such a case, the tax rate shall be 10%.
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