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Section 44DA of Income Tax Act

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June 5, 2021

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6 mins read

Section 44DA of Income Tax Act – Income by way of Royalties and Fee for technical Services in case of Non Resident

Section Section 44DA of Income Tax Act
Particulars Royalty and fees for technical services which is effectively connected to the PE of non-resident in India
Rate of presumptive income/deduction Income shall be computed after deduction of Expenditure incurred wholly and exclusively for the business of PE and reimbursement of actual expenses by the Permanent Establishment .
Type of business Non-corporate, non-resident or foreign company

Eligible Assessee – Section 44DA of Income Tax Act

In certain cases, a non-resident may derive certain income, which is in the nature of fee for Technical Services. Additionally, such a non-resident may also have a permanent establishment in India. The question which arises is, how would such income be taxable in India ?

Section 44DA of Income Tax Act provides  method of computation of “income by way of royalty or fees for technical services” in such cases. It is applicable, when the following conditions are satisfied : –

a. Royalty or FTS arises from the agreement made by the non-resident with the Indian company or Government of India after 31.03.2003.

b. Such non-resident carries on business in India through permanent establishment or profession in India through fixed base.

c. The right, property or contract in respect of which the royalty or fees for technical services are paid is effectively connected with such permanent establishment or fixed base.The time effectively connected implies, that royalty fee for Technical Services arise due to activities which are connected to the permanent establishment in India.

International Taxation Services

Expenses not allowed as deduction – Section 44DA of Income Tax Act

While computing income under Section 44DA, following expenses are not allowed as deduction: –

a. Any expenditure which is not wholly and exclusively incurred for such permanent establishment or fixed place of service in India

b. Any amount paid by the permanent establishment to head office or to any of its other offices. However, Reimbursement of actual expenses incurred by HO on behalf of the PE are allowed as a deduction.

Non Applicability of Section 44BB

In case a has certain income by way of royalty or fees for technical services, for providing services in connection with extraction or production of oil, etc., they cannot opt for presumptive taxation provision under Section 44BB, in relation to  such income , which is covered under this Section.

Requirement to maintain Books of Account and get then Audited.

The non-resident is mandatorily required to keep and maintain the books of account under section 44AA, and get them audited and furnish a report of such audit under Section 44AB.

For any queries, please write them in the Comment Section or Talk to our tax expert

Presumptive Taxation Provisions for Non residents

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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