Chapter XIII - Determination of Tax in Special Cases
Section 207
Section 207: tax on royalty and fees for technical services for non-residents
Section 207 fixes the tax rate that applies when a non-resident (other than a company) or a foreign company earns royalty or fees for technical services (FTS) income from India, along with certain other specified categories of income.
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Need advice on Section 207?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) The income-tax payable on the total income of a non-resident (not being a company) or of a foreign company, which includes any income specified in the column B of the Table below, shall be the aggregate of income-tax computed at the rate specified in the column C applied on the corresponding income specified in column B.
| Sl. No. | Income | Rate of 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 moneys 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. Nos. 2, 3 and 4). | Rates specified in section 393(2) (Table: Sl. Nos. 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. | Rates in force. |
(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 with Government or an Indian concern 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 computed at the rate specified in the column C applied on the corresponding income specified in column B of the Table below:––
| Sl. No. | Income | Rate of 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. | Rates in force. |
(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.
(4) For the purposes of 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 may be 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.
(5) No deduction in respect of any expenditure or allowance shall be allowed under sections 28 to 58, 60 and 61 and section 93 for computing income referred to in sub-sections (1) and (2).
(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 and Schedule XV;
(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.
(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.
(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-section (1) (Table: Sl. Nos. 1 to 7) and sub-section (2) (Table: Sl. Nos. 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).
Introduction
Section 207 has two distinct tables: subsection (1) covers listed dividend, interest and unit income, while subsection (2) addresses qualifying royalty and technical-service fee agreements made after 31 March 1976.
The first table contains different rates, so the income category must be matched to its row. Treaty entitlement, if relevant, requires a separate check under section 159.
Key takeaways
Several table rates
Section 207’s first table covers dividends, specified interest and certain unit income at different rates; it does not impose one 20% rate on every item.
Royalty and FTS rule
Royalty or technical-service fees under a qualifying agreement made after 31 March 1976 are addressed separately in subsection (2).
Specified deductions restricted
The section restricts expenses and Chapter VIII deductions against covered income, subject to its stated conditions.
Rates for listed dividends, interest and unit income
Where a non-resident's (or foreign company's) total income includes income listed in subsection (1)'s table - dividends, specified interest or income from certain foreign-currency-purchased units - tax is computed at the rate assigned to each item. Those rates vary: for example, 20% for ordinary dividends, 10% for specified IFSC-unit dividends and 5% for qualifying infrastructure-debt-fund interest. The balance of income is taxed at rates in force. Royalty and technical-services fees are addressed separately in subsection (2).
Royalty and technical-services agreements after 31 March 1976
Where a non-resident's or foreign company's income includes royalty or fees for technical services received from the Government or an Indian concern under an agreement made after 31 March 1976 (approved by the Central Government where made with an Indian concern, or aligned with India's industrial policy at the time), the tax payable is computed at the rate specified in the section's table for that category, subject to a further condition in sub-section (3).
For the specified book-copyright and computer-software royalty, subsection (3) applies the subsection (2) rate without the usual agreement-approval or industrial-policy condition.
No deductions, and return-filing exemption
As with the flat-rate provisions elsewhere in this Chapter, no deduction for expenditure or allowance is permitted under Sections 28 to 58, 60, 61 or 93 against income covered by this section, and Chapter VIII deductions are computed only on any remaining, non-covered income (subject to the Section 147 IFSC-unit exception).
An assessee need not furnish a return of income under Section 263(1) where their total income consisted only of income covered by this section and tax was fully deducted at source at not less than the rate specified here.
Step-by-step flow for applying Section 207
- 1
Is the assessee a non-resident (not a company) or a foreign company?
- No: Section 207 does not apply.
- Yes: Go to the next step.
- 2
Does total income include dividend, specified interest or income from mutual fund or UTI units purchased in foreign currency?
Apply the Section 207(1) Table: dividend 20% (10% if from an IFSC unit); foreign-currency interest from Government or an Indian concern 20%; infrastructure debt fund interest 5%; specified Section 393(2) interest at the rates in that section; foreign-currency units 20%.
- 3
Does it include royalty or fees for technical services from Government or an Indian concern under an agreement made after 31 March 1976 (not income under Section 59(1))?
The agreement must be approved by the Central Government (if with an Indian concern) or be in line with industrial policy. For royalty on copyright in a book to an Indian concern or computer software to a resident, these approval conditions do not apply (Section 207(3)). Rate: 20% on royalty and 20% on fees for technical services.
- 4
Disallow all expenses against this income
No deduction under Sections 28 to 58, 60, 61 or 93 is allowed (Section 207(5)). Chapter VIII deductions are restricted as set out in Section 207(6).
- 5
Is a return required?
- Only Section 207 income and TDS deducted at not less than these rates: No return under Section 263(1) is required (Section 207(8)).
- Otherwise: File a return; the balance of total income is taxed at the rates in force.
Practical checklist
Do
- Match each dividend, interest, unit-income, royalty or technical-services amount to its own statutory table row.
- For royalty or technical services, keep the agreement date, approval or policy evidence and source records.
Avoid
- Apply the royalty rate to all non-resident income without checking the income category.
Illustrative example
Worked example: a foreign company earning royalty and dividend
Hypothetical facts (illustration only, not a real taxpayer): H Inc., a foreign company, licenses a process to an Indian company under an agreement approved by the Central Government and receives royalty of ₹1,00,00,000 (not income referred to in Section 59(1)). It also receives dividend of ₹10,00,000 from an Indian company that is not an IFSC unit. It incurred ₹15,00,000 of costs in servicing the licence.
Royalty at 20%
₹1,00,00,000 x 20% = ₹20,00,000 under the Section 207(2) Table.
Dividend at 20%
₹10,00,000 x 20% = ₹2,00,000 under the Section 207(1) Table, Sl. No. 1.
Expenses
The ₹15,00,000 of costs cannot be deducted (Section 207(5)); tax is on the gross amounts.
Total
₹20,00,000 + ₹2,00,000 = ₹22,00,000.
Outcome
- Tax under Section 207 is ₹22,00,000.
- If these were H Inc.'s only Indian income and tax was deducted at source at not less than these rates, it would not need to file a return under Section 263(1).
- Surcharge and cess, if applicable, are outside this illustration.
Glossary
- Royalty / fees for technical services
- As defined in Section 9 (Section 207(4)(b) and (c)).
- Computer software
- A computer programme recorded on a disc, tape, perforated media or other storage device, or notified customised electronic data or similar product or service transmitted or exported from India (Section 207(4)(a)).
- Rates in force
- The rates that apply to the rest of the total income after removing the income taxed at the special rates in the Tables.
Frequently asked questions
What tax rate applies to royalty earned by a foreign company from India?
The domestic-law table in Section 207(2) lists 20% for qualifying royalty from an agreement made after 31 March 1976. The agreement and source conditions must be checked; any applicable treaty position is a separate analysis.
Can I claim expenses against my royalty/FTS income under this section?
No - no deduction for expenditure or allowance is permitted under Sections 28 to 58, 60, 61 or 93 against income taxed under Section 207.
Does a tax treaty (DTAA) override this rate?
This section sets the domestic-law rate; where India has a Double Taxation Avoidance Agreement with the relevant country offering a lower rate, the assessee can generally opt for whichever is more beneficial - check the specific treaty and consult a professional.
Need help applying this provision to your situation?
Get help with royalty/FTS taxation and treaty reliefLast updated 9 October 2026