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TMI BlogStreamline, simplify, and update the tax framework applicable to non-residents and foreign companies : Clause 207 of the Income Tax Bill, 2025 Vs. Section 115A of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, fees for technical services, and certain other sources. This clause is intended to replace, update, and, in some respects, expand upon the existing framework provided by Section 115A of the Income-tax Act, 1961. Both provisions are central to the taxation of cross-border income flows and have far-reaching implications for international investors, multinational enterprises, and the Indian economy's integration with global financial markets. The legal context for Clause 207 is the ongoing need to ensure competitiveness, clarity, and compliance in India's international tax regime, especially in light of evolving business models, the emergence of International Financial Services Centres (IFSCs), and the increasing complexity of fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 2025 Clause 207 is structured into eight sub-sections, each dealing with specific aspects of the taxation of non-residents and foreign companies. The clause also includes two detailed tables specifying the tax rates for various categories of income. 3.1 Tax Rates on Specified Incomes Clause 207(1) establishes the core rate structure for non-residents (not being companies) and foreign companies. It introduces a comprehensive table (Table 1) that lists various types of income and the corresponding tax rates: * Dividends (other than from IFSC units): Taxed at 20%. * Dividends from IFSC units: Preferential rate of 10%. * Interest from Government/Indian concern (in foreign currency): 20%. * Interest from infrastructure debt funds: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer or grant of rights in respect of computer software to a person resident in India. In such cases, the requirement for Central Government approval or compliance with industrial policy is waived, facilitating ease of business and technology importation. 3.4 Definitions Clause 207(4) defines key terms for clarity and to avoid interpretational disputes: * Computer software: Broadly defined to include programs recorded on any storage device, customized data, or similar products/services as notified by the Board, including those transmitted or exported from India. * Fees for technical services and royalty: Linked to the definitions in section 9, ensuring consistency with the broader Act. 3.5 Denial of Deductions Clause 207(5) No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment planning. * Ease of Compliance: Exemption from return filing where TDS is at prescribed rates reduces administrative burdens, especially for portfolio investors and passive income recipients. * Targeted Incentives: Lower rates for IFSC-related income and infrastructure debt funds align with policy objectives to attract foreign capital in these sectors. * No Deductions: Gross basis taxation simplifies assessment but may deter investments where significant expenses are incurred to earn the income. 4.2 For the Tax Administration * Simplified Assessment: Gross taxation and TDS-based compliance reduce scope for disputes and administrative workload. * Reduced Evasion: Clear rules and TDS mechanisms minimize opportunities for bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar Income from units purchased in foreign currency 20% 20% Same Royalty & FTS 20% (post-1 June 2005 agreements) 20% Same, but with streamlined approval/policy compliance mechanism 5.3 Deductions and Allowances * Section 115A(3): No deduction u/ss 28 to 44C and section 57. * Clause 207(5): No deduction u/ss 28 to 61 and section 93. The Bill expands the denial of deductions to a broader range of sections, reflecting the reorganization of the new Code. 5.4 Restrictions on Chapter VI-A/Chapter VIII Deductions * Section 115A(4): No deductions under Chapter VI-A if income consists only of specified incomes; if included, such income is excluded for deduction computation. Exception for IFSC units u/s 80LA. * Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Bill, 2025 represents a comprehensive and modernized framework for taxing the Indian-source income of non-residents and foreign companies. It preserves the core policy objectives and rate structures of Section 115A of the Income-tax Act, 1961, while introducing significant improvements in clarity, structure, and alignment with contemporary economic realities. Key features include: * Clear and predictable tax rates for various streams of income, with targeted incentives for IFSCs and infrastructure. * Gross basis taxation, simplifying compliance and administration. * Rationalized definitions and exceptions, particularly for digital and knowledge-based income streams. * Streamlined compliance requirements, including exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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