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Direct Tax Laws and International Taxation · Interest and Fees

Section 207 Income-tax Act 2025: Foreign Company Income

Updated 11 October 2026 · Fact-checked

Section 207 of the Income-tax Act, 2025 taxes certain income of a non-resident (not a company) or a foreign company at special flat rates, such as 20% on dividend, and on royalty or fees for technical services under approved agreements. Identify the receipt, check the conditions, apply the column C rate, and allow no expense deduction.

Understand Scope of Section 207 and Foreign Company Income

Most income of a non-resident is taxed at normal rates on a net basis. Section 207 is a special regime. It picks out some passive or service-type receipts and taxes them at fixed rates in column C of its Tables.

Who is covered? The text of the section covers a non-resident (not being a company) or a foreign company. So a foreign company, a non-resident individual or a non-resident firm can fall under it. A resident, or an Indian company, cannot.

Sub-section (1) covers dividends, interest and fund units. Dividend is taxed at 20%, but dividend received from a unit in an International Financial Services Centre is taxed at 10%. Interest received from Government or an Indian concern on money borrowed in foreign currency is taxed at 20%. Interest from an infrastructure debt fund is taxed at 5%. Units of a specified Mutual Fund or the Unit Trust of India, purchased in foreign currency, are taxed at 20%. Any other income is taxed at the rates in force.

Sub-section (2) covers royalty and fees for technical services received from Government or an Indian concern. The agreement must be made after 31 March 1976. It must also be approved by the Central Government if it is with an Indian concern, or it must be as per the industrial policy if it relates to a matter in that policy. The rate is 20% on each. Income referred to in section 59(1) is excluded from this rate.

The tax is on a gross basis. Expenses and allowances under sections 28 to 58, 60, 61 and 93 are not allowed against this income. That is why the regime is simple but harsh if the real costs are high.

Key rules to remember

Dividend (general)
Tax = 20% × dividend
Section 207(1), Sl. No. 1. Applies to a non-resident (not a company) or a foreign company.
Dividend from IFSC unit
Tax = 10% × dividend
Section 207(1), Sl. No. 2. Only dividend received from a unit in an International Financial Services Centre.
Interest on foreign currency borrowing
Tax = 20% × interest
Interest from Government or an Indian concern on money borrowed or debt incurred in foreign currency. Interest covered by Sl. Nos. 4 and 5 is excluded.
Infrastructure debt fund interest
Tax = 5% × interest
Interest received from an infrastructure debt fund referred to in Schedule VII (Sl. No. 46).
Fund units bought in foreign currency
Tax = 20% × income from units
Units of a specified Mutual Fund or of the Unit Trust of India purchased in foreign currency.
Royalty and fees for technical services
Tax = 20% × (royalty + FTS)
Section 207(2). Needs an agreement after 31 March 1976 with Government or an Indian concern, approved or as per industrial policy. Excludes income under section 59(1).
Other income
Tax = rates in force × (total income − income at special rates)
Sl. No. 8 of sub-section (1) and Sl. No. 3 of sub-section (2).
No deduction rule
No deduction under sections 28 to 58, 60, 61 and 93
Applies to income in sub-sections (1) and (2). The tax is on the gross amount.
Chapter VIII deductions
GTI reduced by Sl. Nos. 1 to 7 income, then deduction allowed on the balance
Section 207(6). If GTI has only such income, no Chapter VIII or Schedule XV deduction is allowed.
Return exemption
No return if total income = only listed income AND TDS rate ≥ section 207 rate
Section 207(8). Covers Sl. Nos. 1 to 7 of sub-section (1) and Sl. Nos. 1 and 2 of sub-section (2).

How to solve Scope of Section 207 and Foreign Company Income questions

Use this order for any question on foreign company or non-resident income under section 207.

  1. 1Check the assessee. It must be a non-resident (not a company) or a foreign company. If it is a resident or an Indian company, section 207 does not apply.
  2. 2List each receipt separately: dividend, interest, fund units, royalty, fees for technical services and other income.
  3. 3Match each receipt to the Table. For dividend, check whether it is from an IFSC unit (10%) or other (20%). For interest, check which Sl. No. applies.
  4. 4For royalty and fees for technical services, test the conditions: payer is Government or an Indian concern, agreement after 31 March 1976, and approval or industrial policy. Also check the section 59(1) exclusion.
  5. 5Apply the column C rate on the gross amount. Do not deduct any expense or allowance under sections 28 to 58, 60, 61 and 93.
  6. 6Tax the remaining income at rates in force. Allow Chapter VIII deductions only on the balance, as per sub-section (6).
  7. 7Check whether a return is needed under sub-section (8). Then state the final tax and give a clear conclusion.

Quickest way: Rate-match and gross-tax shortcut

When to use it: Use for MCQs and short numerical questions where you must give the tax on a list of receipts.

  1. Learn four rates: 20% for most receipts, 10% for IFSC dividend, 5% for infrastructure debt fund interest, rates in force for the rest.
  2. Ignore all expenses given in the question for the special-rate items. They are a trap.
  3. Multiply gross receipt by the rate for each item and add them.
  4. Add tax on the remaining income at rates in force, using only the balance of total income.
  5. Before finalising, confirm the payer, the agreement date and the approval condition for royalty or fees.

Common mistakes in Scope of Section 207 and Foreign Company Income

  • Deducting expenses from royalty or fees for technical services before applying 20%.

    Students are used to net computation under business income.

    Fix: Remember that no deduction is allowed under sections 28 to 58, 60, 61 and 93 for this income. Apply the rate on gross receipts.

  • Applying section 207 to an Indian company or a resident.

    Students see the word dividend or royalty and rush to the rate.

    Fix: Check the status first. The section covers a non-resident (not a company) or a foreign company.

  • Applying 20% on IFSC dividend.

    Students remember the general 20% rate only.

    Fix: Dividend received from a unit in an International Financial Services Centre is taxed at 10%.

  • Taxing royalty at 20% without checking the agreement conditions.

    Students treat the rate as automatic.

    Fix: Check the payer, that the agreement was made after 31 March 1976, and that it is approved or as per industrial policy. Also exclude section 59(1) income.

  • Allowing Chapter VIII deductions against special-rate income.

    Students apply the general rule on deductions from gross total income.

    Fix: Reduce GTI by the Sl. Nos. 1 to 7 income first. Allow the deduction only on the reduced amount. If GTI has only such income, allow no deduction.

  • Assuming a return is always required.

    Students ignore the relief in sub-section (8).

    Fix: No return is needed if total income consists only of the listed income and tax was deducted at source at a rate not less than the section 207 rate.

Worked examples

Example 1

Alpha Inc., a foreign company, has the following income in the tax year 2026-27: dividend from an Indian company ₹10,00,000; dividend from a unit in an IFSC ₹5,00,000; interest from an Indian concern on a foreign currency loan ₹8,00,000. It has no other income. Compute the tax under section 207 before any cess or surcharge, and state whether it must file a return, assuming tax was deducted at the same rates.

Show the solution
  1. Alpha Inc. is a foreign company, so section 207(1) applies.
  2. Dividend from the Indian company: 20% × ₹10,00,000 = ₹2,00,000.
  3. Dividend from the IFSC unit: 10% × ₹5,00,000 = ₹50,000.
  4. Interest on foreign currency loan, not covered by Sl. Nos. 4 and 5: 20% × ₹8,00,000 = ₹1,60,000.
  5. Total tax = ₹2,00,000 + ₹50,000 + ₹1,60,000 = ₹4,10,000.
  6. Return: total income consists only of Sl. Nos. 1 to 7 income and tax deducted at source at not less than these rates, so section 207(8) exempts it from filing a return.

Answer: Tax is ₹4,10,000 before cess or surcharge. No return is needed under section 207(8) if tax was deducted at not less than the section 207 rates.

Example 2

Beta Ltd., a foreign company, received ₹20,00,000 as royalty and ₹6,00,000 as fees for technical services from an Indian concern under an approved agreement made in 2024. It claims expenses of ₹4,00,000 on the royalty and ₹1,00,000 on the fees. Neither receipt is income under section 59(1). It also has other income of ₹7,00,000 taxed at rates in force. Compute the tax on the royalty and fees, and state how the other income is taxed.

Show the solution
  1. The payer is an Indian concern, the agreement is after 31 March 1976, and it is approved. Section 207(2) applies.
  2. Expenses cannot be deducted, as section 207 bars deductions under sections 28 to 58, 60, 61 and 93. The claims of ₹4,00,000 and ₹1,00,000 are ignored.
  3. Royalty: 20% × ₹20,00,000 = ₹4,00,000.
  4. Fees for technical services: 20% × ₹6,00,000 = ₹1,20,000.
  5. Tax on these two receipts = ₹4,00,000 + ₹1,20,000 = ₹5,20,000.
  6. The other income of ₹7,00,000 is the total income reduced by the royalty and fees. It is taxed at rates in force (Sl. No. 3 of the Table).

Answer: Tax on royalty and fees is ₹5,20,000, with no deduction for expenses. The other ₹7,00,000 is taxed at rates in force.

Exam tips

  • Start every answer by naming the assessee type. A one-line status check earns marks and avoids wrong application.
  • Write the Table rate against each receipt in a small list. Examiners look for the correct rate for each item, including 10% and 5%.
  • When a question gives expenses against royalty or fees, state clearly that they are not allowed, and quote the sections barred.
  • In case scenarios, read the agreement date and approval details closely. These decide whether sub-section (2) applies.
  • Remember the two side rules that are easy to test: no Chapter VIII deduction when GTI has only special-rate income, and the return exemption in sub-section (8).

Practice questions from Interest and Fees

Scope of Section 207 and Foreign Company Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Scope of Section 207 and Foreign Company Income: frequently asked questions

Who is covered by section 207 of the Income-tax Act, 2025?

It covers a non-resident who is not a company, and a foreign company. It applies only where their total income includes the incomes listed in the Tables. Residents and Indian companies are outside it.

What is the rate of tax on royalty and fees for technical services under section 207?

The rate is 20% on each, applied on the gross receipt. The income must be received from Government or an Indian concern under an agreement made after 31 March 1976. It must be approved by the Central Government or be as per the industrial policy. Income referred to in section 59(1) is excluded.

Can I claim expenses against income taxed under section 207?

No. Section 207 bars deductions under sections 28 to 58, 60, 61 and 93 for the income in sub-sections (1) and (2). The tax is on the gross amount.

Does a foreign company have to file a return if only section 207 income is earned?

Not necessarily. Under sub-section (8), no return under section 263(1) is needed if total income consists only of the listed income, and tax deductible at source has been deducted at a rate not less than the section 207 rate.