Tax on dividends, royalty and technical service fees in case of foreign companies
[Section-207 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 207(1) of Income Tax Act 2025
207(1) The income-tax payable on the total income of a non-resident (not being a company) or a foreign company, which includes any income specified in the column B of the Table below, shall be the aggregate of income-tax specified in the column C thereof.
Table
| Income | Income-tax payable |
|---|---|
| 1. Dividend [other than dividends specified against serial number 2. | 20% |
| 2. Dividend received from a unit in an International Financial Services Centre. | 10% |
| 3. Interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency not being interest referred to against serial numbers 4 and 5. | 20% |
| 4. Interest received from an infrastructure debt fund referred to in Schedule VII (Table: Sl. No. 46). | 5% |
| 5. Interest of the nature and extent referred to in section 393(2) (Table: Sl. No. 2), (Table: Sl. No. 3 and 4). | Rates specified in section 393(2) (Table: Sl. No. 2, 3 and 4). |
| 6. Distributed income being interest referred to in section 393(2) (Table: Sl. No. 6). | Rate specified in section 393(2) (Table: Sl. No. 6). |
| 7. Income received in respect of units, purchased in foreign currency, of a Mutual Fund specified in Schedule VII (Table: Sl. No. 20 or 21) or of the Unit Trust of India. | 20% |
| 8. Total income as reduced by income referred to against serial numbers 1 to 7. | Income-tax chargeable on such income. |
Section 207(2) of Income Tax Act 2025
207(2) Where the total income of a non-resident (not being a company) or of a foreign company, includes any income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made after the 31st March,1976, other than income referred to in section 59(1), and—
- (a) the agreement is approved by the Central Government where such agreement is with an Indian concern; or
- (b) where the agreement relates to a matter included in the industrial policy, for the time being in force, of the Government of India, it is as per that policy,
then, subject to the provisions of sub-section (3), the income-tax payable shall be the aggregate of income-tax specified in column C of the Table below:––
Table
| Income | Income-tax payable |
|---|---|
| 1. Royalty [other than income referred to in section 59(1)]. | 20% |
| 2. Fees for technical services [other than income referred to in section 59(1)]. | 20% |
| 3. Total income as reduced by income referred to against serial numbers 1 and 2. | Income-tax chargeable on such income. |
Section 207(3) of Income Tax Act 2025
207(3) Where the royalty referred to in sub-section (2) is in consideration for the transfer or grant of all or any rights (including the granting of a licence)––
- (a) in respect of copyright in any book to an Indian concern; or
- (b) in respect of any computer software to a person resident in India,
then the provisions of sub-section (2) shall apply in relation to such royalty without application of provisions of clause (a) or (b) of that sub-section.
Section 207(4) of Income Tax Act 2025
207(4) In this section,––
- (a) “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device; or any customised electronic data or any product or service of similar nature as notified by the Board, which is transmitted or exported from India to a place outside India by any means;
- (b) “fees for technical services” shall have the meaning assigned to it in section 9;
- (c) “royalty” shall have the meaning assigned to it in section 9.
Section 207(5) of Income Tax Act 2025
207(5) No deduction in respect of any expenditure or allowance shall be allowed under sections 28 to 61 and section 93 for computing income referred to in sub-sections (1) and (2).
Section 207(6) of Income Tax Act 2025
207(6) Where the gross total income of an assessee––
- (a) consists only of the income referred to in sub-section (1)(Table: Sl. No. 1 to 7), no deduction shall be allowed under Chapter VIII;
- (b) includes any income referred to in sub-section (1) (Table: Sl. No. 1 to 7), the gross total income shall be reduced by such income and the deduction under Chapter VIII shall be allowed as if such reduced amount were the gross total income of the assessee;
Section 207(7) of Income Tax Act 2025
207(7) the provisions of sub-section (6) shall not apply to a deduction allowed to Unit of an International Financial Services Centre under section 147.
Section 207(8) of Income Tax Act 2025
207(8) It shall not be necessary for an assessee to furnish a return of income under section 263(1), if—
- (a) the total income during the tax year consisted only of income referred to in sub-sections (1)(Table: Sl. No. 1 to 7) and sub-section (2) (Table: Sl. No. 1 and 2); and
- (b) the tax deductible at source under the provisions of Chapter XIX-B has been deducted from such income at a rate not less than the rate specified in sub-sections (1) and (2).
FAQs on Section 207 of Income Tax Act 2025
What is the tax rate on dividends received by a foreign company from an Indian concern?
The tax rate is 20% for dividends not specified under Sl. No. 2 of the table in section 207(1).
What is the tax rate on dividends received from a unit in an International Financial Services Centre?
The applicable tax rate is 10%.
What is the tax rate on interest income received from the Government or an Indian concern on foreign currency loans?
Such interest income is taxed at 20%, unless it falls under Sl. No. 4 or 5 of the table in section 207(1).
What is the tax rate for interest received from an infrastructure debt fund?
Interest from an infrastructure debt fund is taxed at 5%.
How is interest of the nature referred to in section 393(2) taxed?
It is taxed at the rates specified in section 393(2), Table: Sl. No. 2, 3 and 4.
How is distributed income being interest under section 393(2), Table: Sl. No. 6, taxed?
It is taxed at the rate specified in section 393(2), Table: Sl. No. 6.
What is the tax rate on income from mutual funds or Unit Trust of India purchased in foreign currency?
Such income is taxed at 20%.
What tax rate applies to the remaining total income after excluding the above categories?
The remaining income is taxed as per regular applicable rates on such income.
What is the tax rate on royalty received by a foreign company from the Government or Indian concern?
Royalty (excluding income referred to in section 59(1)) is taxed at 20% under section 207(2).
What is the tax rate on fees for technical services received by a foreign company?
Fees for technical services (excluding income under section 59(1)) is taxed at 20% under section 207(2).
What are the conditions for applying the tax rates under section 207(2) for royalty or technical fees?
The agreement must be made after 31st March, 1976 and either be approved by the Central Government (if with an Indian concern) or be in accordance with the current industrial policy.
Is government approval always necessary for applying 207(2) rates on royalty?
No, if the royalty is for transfer or licensing of copyright in a book or computer software to a resident or Indian concern, sub-section (3) allows application of rates without clause (a) or (b) of sub-section (2).
How is ‘computer software’ defined in section 207?
It includes programs recorded on media, customised electronic data, or similar digital products or services notified by the Board.
What is the meaning of ‘fees for technical services’ and ‘royalty’ for the purpose of section 207?
They are defined as per section 9 of the Act.
Can any expenditure or allowance be claimed against the income covered under section 207(1) or 207(2)?
No, deductions under sections 28 to 61 and section 93 are not allowed for such income.
Are deductions under Chapter VIII allowed when only specified income under section 207(1) is earned?
No, if the income consists solely of the items listed in section 207(1) Table Sl. No. 1 to 7, no deductions under Chapter VIII are permitted.
What happens if the gross total income includes both specified and other income?
The specified income is excluded from gross total income, and deductions under Chapter VIII are allowed on the reduced income.
Is there any exception to the above disallowance for deductions under Chapter VIII?
Yes, units in an International Financial Services Centre can claim deductions under section 147 despite sub-section (6).
Is it necessary for a foreign company to file a return if it only earns the specified income?
No, return filing under section 263(1) is not required if the total income includes only income from section 207(1) (Sl. No. 1 to 7) and section 207(2) (Sl. No. 1 and 2), and tax is deducted at source at or above the specified rates.
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