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

A non-resident receives Rs 6,00,000 as royalty for transfer of rights in computer software to a person resident in India, under an agreement that is not approved by the Central Government and is not covered by industrial policy. Which statement follows from section 207(3) of the Income-tax Act, 2025?

The royalty is taxed at 20%. Under section 207(3), for royalty on rights in computer software granted to a person resident in India, section 207(2) applies without needing central government approval or conformity with industrial policy, so the unapproved agreement does not prevent the 20% rate.

  1. ASection 207(2) cannot apply because the agreement is unapproved
  2. BSection 207(2) applies without the approval or industrial policy condition in clauses (a) or (b), so the royalty is taxed at 20%Correct
  3. CThe royalty is taxed at 5% as it relates to software
  4. DThe royalty is taxed at 20% only if the software is exported from India

Explanation

Section 207(3) provides that for royalty on rights in computer software to a person resident in India, sub-section (2) applies without clause (a) or (b). So the missing approval does not matter and 20% applies, giving Rs 1,20,000 tax. Option A ignores sub-section (3).

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