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CS Professional · Advanced Direct Tax Laws and Practice · Computation of Total Income, Tax Liability and Filing of Return of Companies

A foreign company's total income for the tax year is ₹50,00,000, comprising royalty of ₹12,00,000 under an approved agreement with an Indian concern made after 31 March 1976 (not covered by section 59(1)) and other business income of ₹38,00,000. Under section 207(2) of the Income-tax Act, 2025, how much of the income is taxed at the flat 20% rate and how much at rates in force?

₹12,00,000 of royalty is taxed at 20% and the remaining ₹38,00,000 at rates in force. Section 207(2) applies the flat 20% only to qualifying royalty and fees for technical services, while the total income reduced by those items is taxed at rates in force.

  1. A₹12,00,000 at 20%; ₹38,00,000 at rates in forceCorrect
  2. B₹50,00,000 at 20%
  3. C₹38,00,000 at 20%; ₹12,00,000 at rates in force
  4. DEntire ₹50,00,000 at rates in force

Explanation

Section 207(2) Table taxes royalty at 20% (Sl. 1) and the total income as reduced by royalty and fees for technical services at rates in force (Sl. 3). So royalty ₹12,00,000 is at 20% and the balance ₹38,00,000 at rates in force. Option 3 swaps the two bases.

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