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

A non-resident (not a company) receives Rs 10,00,000 as fees for technical services from an Indian concern under an agreement made after 31 March 1976 and approved by the Central Government. Under section 207(2) of the Income-tax Act, 2025, the assessee claims expenses of Rs 3,00,000 incurred to earn this income. What is the tax before surcharge and cess, assuming the FTS is the only income?

The tax is Rs 2,00,000. FTS under an approved agreement is taxed at 20% under section 207(2), and no deduction of expenses is permitted for such income. The rate therefore applies to the gross Rs 10,00,000, not to the net amount after the Rs 3,00,000 expenses.

  1. ARs 1,40,000
  2. BRs 2,00,000Correct
  3. CRs 60,000
  4. DRs 1,00,000

Explanation

Section 207(5) disallows deductions under sections 28 to 58, 60, 61 and 93 for income covered by sub-sections (1) and (2). The FTS is therefore taxed on the gross Rs 10,00,000 at 20%, giving Rs 2,00,000. Rs 1,40,000 wrongly allows the expenses.

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