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Section 115A – Tax on Interest, Dividend, Royalty and Technical Service Fee for Non-Resident or Foreign Company

Last Update Date : August 12, 2018

section 115a

It is known that investment causes growth. But it is also true that growth causes investment. And Foreign Investment is what keeps the show going. Henceforth, it is necessary to keep attracting investment in foreign currency and provide tax relaxations to Non-Residents and Foreign Companies. Section 115A provides for taxation in respect of income by the way dividend, interest, royalty and technical service fee to Non-Residents and Foreign Companies. Get the detailed information under this guide on section 115A by H&R Block, India.

List of Incomes covered under Section 115A and Applicable Tax Rates

The following table gives the tax rates applicable on various types of incomes covered under section 115A.

Type of Income Rate of Tax
Interest income received by a Non-Resident (not being a company) or a Foreign Company

For monies borrowed by an Indian Company or Govt. of India in foreign currency

 

20% plus applicable surcharge and cess

From a notified infra debt fund as specified u/s 10(47) 5% plus applicable surcharge and cess
For monies borrowed by specified companies or business trust in foreign currency subject to interest being paid at approved rates.

§  Under a loan agreement on or after 1st July, 2012 but before 1st July, 2017.

§  By way of issue of long term bonds including long term infra bonds on or after 1st October, 2014 but before 1st July, 2017.

 

 

 

5% plus applicable surcharge and cess

Dividend income received by a Non-Resident (not being a company) or a Foreign Company

Other than that specified under section 115-O

20% plus applicable surcharge and cess
Royalty income received by a Non-Resident (not being a company) or a Foreign Company

From Government or an Indian Concern for the agreements made after 31st March, 1976.

 

10% plus applicable surcharge and cess

Technical services fees received by a Non-Resident (not being a company) or a Foreign Company

From Government or an Indian Concern for the agreements made after 31st March, 1976.

 

10% plus applicable surcharge and cess

Other income received by a Non-Resident (not being a company) or a Foreign Company

In respect of units, purchased in foreign currency of a mutual fund specified u/s 10(23D) or of the UTI.

 

20% plus applicable surcharge and cess

In respect of an investment in a securitization fund.

 

Application for lower deduction of tax can be made under section 197. (as amended in the Finance Act, 2016).

Tax at the rates in force at the time of credit of such income or at the time of payment.
Income by the way of renting, leasing, letting out any real estate owned directly by the business trust being a Real Estate Investment Trust, distributed by such business trust to unit holders being NR or Foreign Company shall be chargeable.  

 

30% plus applicable surcharge and cess

Income other than profits and gains of business of Alternative Investment Fund (category I and II) is not taxable in the hands of the fund. However, income received by non-resident unit holder of an investment fund is taxable.

 

Application for lower deduction of tax can be made under section 197. (as amended in the Finance Act, 2016).

 

 

 

Tax at the rates in force

Important Points to be Considered While Calculating Tax Payable

Income tax payable shall be the aggregate of:

  • Tax calculated on income by way of dividends, if any, included in the total income, at the rate of twenty per cent;
  • Tax calculated on income by way of interest, if any, included in the total income, at the rates prescribed;
  • Tax calculated on income in respect of units, if any, included in the total income, at the rate of twenty per cent; and
  • Tax calculated on income in respect of royalty, if any, included in the total income, at the rate of ten per cent;
  • Tax calculated on income in respect of fee for technical services, if any, included in the total income, at the rate of ten per cent; and
  • Slab rate under which an assessee shall be chargeable to tax on the total income been reduced by the incomes under section 115A.
  • No deduction shall be allowed in respect of any expenditure or allowance under section 28 to section 44C and section 57 in computing the interest, royalty, dividend, technical service fee income of the assessee.
  • If the total income of the assessee includes income only by the way of dividend or interest, NO deductions under Chapter VI-A shall be allowed.
  • If the income of the assessee includes any income by the way of dividend or interest, the total income shall be reduced by such interest or dividend income and the deductions under Chapter VI-A shall be allowed only on the reduced income as if such reduced income were the total income of the assessee.
  • It is not necessary for an assessee to furnish his Income Tax Returns if the total income of the assessee consisted income only by the way of Dividend or Interest and provided that TDS on such interest and dividend income has been deducted.

As stated, the income in the form of Interest and Dividend for a Non-resident or a Foreign Company is chargeable to tax at the rates prescribed. However, the income from Royalty and Technical Service Fee is charged at the rate of 10% plus applicable surcharge and cess. Do not worry to declare your income. Connect to our advisors for expert advice and filing your NRI returns at H&R Block, India.

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