Simplified Overview of Section 115A of the Income Tax Act

What is Section 115A?

Section 115A specifies the tax rates for certain types of income earned by non-residents or foreign companies in India. These include interest, dividends, royalties, and fees for technical services.

Who does it apply to?

This section is relevant for non-residents and foreign companies that earn income in India.

Key Tax Rates

• Dividends: Income from dividends paid by an Indian company is taxed at 20%.
• Mutual Fund Income: Earnings from mutual funds are also taxed at 20%. This covers:
• Mutual funds registered under the SEBI Act, 1992.
• Mutual funds set up by public sector banks or public financial institutions, or authorized by the RBI.
• Units of UTI Mutual Fund (Unit Trust of India).

Types of Interest Income Covered

Interest can be received from several sources, each with its own tax rate:

• Infrastructure Debt Funds (S.10(47)): 5%
• Indian Companies (S. 194LC): 5%
• Government or Indian Concerns: 20%
• Units of Business Trust (S. 194LBA): 5%
• Foreign Institutional Investors or Qualified Foreign Investors (S. 194LD): 5%

Royalties and Fees for Technical Services

• Taxed at 10% if the non-resident does not have a permanent establishment in India.
• "Royalty" is as defined under Section 9(vi) of the Income Tax Act, 1961.

Deductions and Allowances

• No deductions for expenses or allowances are allowed under Sections 28 to 44C and 57 when computing income under Section 115A.
• Deductions under Chapter VI-A are not allowed unless income includes other sources besides those covered under Section 115A.

Filing Requirements

• If the only income is from sources listed under Section 115A, filing a return under Section 139(1) is not mandatory.
• Units located in an International Financial Services Centre can claim deductions under Section 80LA.

By offering a clearer understanding of Section 115A, we hope to make navigating these tax complexities simpler and more approachable for non-residents and foreign companies.