Section 10(6B) of the Income Tax Act, 1961, provides a tax exemption to non-residents (including foreign companies) on income earned from the Government of India or an Indian concern under an approved agreement. This exemption applies when the Indian government or an Indian concern pays the tax on behalf of the non-resident/foreign company.
Key Features of Section 10(6B)
- Who Can Claim?
- Non-residents (individuals, firms, etc.)
- Foreign companies
- Eligible Income
- Interest, royalty, or fees for technical services (FTS)
- Any other income (if specified in the agreement)
- Conditions for Exemption
- The income must be received from the Government of Indiaor an Indian concern.
- The tax must be paid by the Indian government/concernon behalf of the non-resident/foreign company.
- The agreement must be approved by the Central Government(if related to industrial policy).
- The agreement must have been entered into between 1 June 2002 and 31 March 2020.
- Exemption Scope
- The entire tax paid by the Indian payer is exemptfor the non-resident/foreign company.
- The income remains taxable, but the tax liability is shifted to the Indian payer.
Example of Section 10(6B) in Action
Scenario
A German engineering firm (TechGmbH) enters into an agreement with Indian Railways (Government of India) on 15 July 2015 to provide technical consultancy for a high-speed rail project.
- Fees for Technical Services (FTS): ₹1 crore per year
- Tax Rate on FTS (as per IT Act): 10% (₹10 lakhs)
Tax Treatment Under Section 10(6B)
- Indian Railways pays ₹1 croreto TechGmbH as consultancy fees.
- Indian Railways also pays the tax (₹10 lakhs) on behalf of TechGmbHunder the agreement.
- TechGmbH claims exemption under Section 10(6B)for the ₹10 lakhs tax paid by Indian Railways.
Result:
- TechGmbH’s taxable income in India = ₹1 crore (FTS received)
- Tax liability (₹10 lakhs) already paid by Indian Railways is exempt for TechGmbH
- Net tax burden on TechGmbH = ₹0
Comparison with Section 10(6A) (Royalty/FTS for Foreign Companies)
| ASPECT | SECTION 10(6A) (OLD RULE) | SECTION 10(6B) (NEWER RULE) |
| Applicable Period | Agreements from 1976-2002 | Agreements from 2002-2020 |
| Who Benefits? | Only foreign companies | Non-residents + foreign companies |
| Income Covered | Only royalty & FTS | Royalty, FTS, interest, or other specified income |
| Tax Liability | Indian payer bears tax burden | Indian payer bears tax burden |
Key Points
✅ Tax Shift Mechanism: The Indian entity (Government/concern) pays tax, and the non-resident/foreign company gets full exemption on that amount.
✅ Time-Bound Benefit: Only applies to agreements made between 1 June 2002 and 31 March 2020.
✅ Wider Scope than 10(6A): Covers non-residents (not just companies) and more types of income (interest, etc.).
