Amendment to s. 115A of the Income Tax Act

 

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If you are earning income in India but living outside the country, taxation can feel confusing.

Different rules. Different rates. Different obligations.

That’s exactly where Section 115A of the Income Tax Act comes in.

It simplifies how certain types of income earned by non-residents are taxed in India.

And if you understand it properly, it can actually help you plan better & avoid unnecessary complications.

What is Section 115A of the Income Tax Act?

Section 115A of the Income Tax Act, 1961 is a special provision that defines how certain income earned by non-residents is taxed in India.

In simple terms:

• It provides for determination of tax on dividends, interest, royalty & technical service fees
• It applies mainly to non-residents (including foreign companies)
• It offers fixed concessional tax rates

This means instead of complex calculations, the tax is applied at a flat rate.

What Type of Income is Covered Under Section 115A?

This section specifically deals with certain income streams.

As per the law:

•  It outlines the taxation of dividends, royalty, & technical service fees
•  It also includes interest on monies borrowed or debt incurred by Government or Indian concern in foreign currency

So the major categories are:

• Dividends
• Interest
• Royalty
• Fees for technical services (FTS)

👉 This is why it is often described as:
“Tax on dividends, royalty and technical service fees”

Applicable Tax Rates Under Section 115A

Under section 115A, concessional rates apply:

• 20% on dividends
• 20% on interest
• 20% on royalty and FTS (for agreements after May 31, 1997)

These rates are applied on:

 Gross income (without deductions)

This means:

• You cannot claim expenses”
• No standard deductions”
• Tax is directly calculated on total income”

What Does “Gross Basis Taxation” Mean?

This is a key concept.”

Under this section:”

• Tax is calculated on the total amount received”
•  No expenses are deducted”

Example:

If a non-resident earns ₹10 lakh as royalty:

• Tax is calculated on ₹10 lakh
• Not on profit after expenses

 

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Who Can Use Section 115A?

This provision applies to:

• Non-resident individuals
• Foreign companies

So if you are:

• An NRI earning interest income
• A foreign company earning royalty
• A consultant receiving technical service fees

This section may apply to you.

Do Non-Residents Need to File Income Tax Return?

This is a common confusion.

In some cases:

Section 115A exempts non-residents from filing income-tax returns in India

But this is conditional.

If:

• Tax has already been deducted at source (TDS)
• And there is no other income

Then filing may not be required.

However:

In other situations, non-residents are required to file an income tax return

So it depends on your income profile.

Why Section 115A Exists

Let’s understand the intent.

India wants to:

• Attract foreign investment
• Simplify taxation for non-residents
• Ensure tax collection without complexity

So instead of complicated rules:

 The law provides fixed tax rates
No need for detailed expense calculations

This creates a balance between compliance & simplicity.

Important Conditions Under Section 115A

This section does not apply blindly.

Some key conditions:

• Income must fall under specified categories
• Agreements should meet required timelines (like post-1997 for FTS/royalty)
• TDS provisions must be followed

Section 115A vs Regular Taxation

Here’s the difference:

Under Section 115A

• Fixed tax rate
• No deductions
• Simple compliance

Under Normal Provisions

• Tax based on slab or corporate rates
• Deductions allowed
• More complex calculations

Common Mistakes to Avoid

Many non-residents make these mistakes:

• Assuming all income is covered under section 115A
• Ignoring DTAA (Double Taxation Avoidance Agreement) benefits
• Not checking TDS deductions
• Skipping return filing when required

These small mistakes can lead to penalties.

Practical Tip: Always Check DTAA

This is important.

India has tax treaties with many countries.

Sometimes:

•  DTAA rates may be lower than Section 115A

So always compare both before calculating tax.

Key Takeaway

Section 115A of the Income Tax Act is designed to:

• Provide concessional tax rates
• Simplify taxation for non-residents
• Ensure smooth compliance

It mainly deals with:

• Dividends
• Interest
• Royalty
• Technical service fees

And applies tax on a:

Gross basis (no deductions)

Final Thought

Tax rules for non-residents can feel complicated.

But provisions like Section 115A are designed to make things easier.

If you understand how it works, you can:

• Plan better
• Avoid unnecessary tax burden
• Stay compliant without stress

Need expert help in handling non-resident taxation, DTAA benefits, or compliance under Section 115A? Get professional assistance from Callmyca.com & manage your taxes the smart way.