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CMA Final · Direct Tax Laws and International Taxation · Interest and Fees

A non-resident (not a company) has total income for the tax year of Rs 10,00,000, consisting of Rs 4,00,000 of royalty from an Indian concern under an approved agreement made in 2020 (not income under section 59(1)) and Rs 6,00,000 of other income taxable at rates in force. Ignoring surcharge and cess, how is the tax computed under section 207(2)?

Tax is 20% on the Rs 4,00,000 royalty plus tax at rates in force on the remaining Rs 6,00,000. Section 207(2) prescribes a flat 20% only for the qualifying royalty and fees, and the rest of total income, after reducing that royalty, is taxed at normal rates in force.

  1. A20% on Rs 4,00,000 plus rates in force on Rs 6,00,000Correct
  2. BRates in force on the entire Rs 10,00,000
  3. C20% on the entire Rs 10,00,000
  4. D10% on Rs 4,00,000 plus rates in force on Rs 6,00,000

Explanation

Section 207(2) taxes qualifying royalty at 20% (serial 1) and the total income reduced by that royalty at rates in force (serial 3). So Rs 4,00,000 bears 20% and the remaining Rs 6,00,000 is taxed at rates in force. The whole-income options ignore the split in the Table.

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