Section 10(6D)-Royalty or Fees income to a Non-Resident

Section 10(6D) provides a tax exemption to non-residents (other than foreign companies) on income received as:

• Royalty(payments for use of patents, copyrights, trademarks etc.)
• Fees for Technical Services (FTS)(consultancy, technical assistance etc.)

when the Indian payer (Government or Indian concern) bears the tax liability under an approved agreement.

Key Conditions

1. Applicable Period: Agreements made between 1st June 2002 and 31st March 2024
2. Approval Required: Must be approved by the Central Government
3. Tax Paid by Indian Entity: The Indian payer must pay tax on behalf of the non-resident
4. Exemption Scope: The tax paid by the Indian entity is exemptfor the non-resident
5. Exclusion: Does not apply to foreign companies (they fall under Section 10(6C))

Practical Example of Section 10(6D)

Scenario

• Non-Resident: Dr. Robert Chen (US-based AI expert, non-company)
• Indian Company: DataTech Solutions Pvt. Ltd.
• Agreement Date: 10th January 2023 (approved by Indian Govt.)
• Nature of Payment: FTS for AI consulting services(₹50 lakhs/year)
• Tax Rate: 10% (₹5 lakhs)

Tax Treatment Under Section 10(6D)

1. DataTech Solutions pays ₹50 lakhsto Dr. Chen as consultancy fees
2. DataTech also pays tax (₹5 lakhs)on behalf of Dr. Chen
3. Chen claims exemptionunder Section 10(6D) for the ₹5 lakhs tax paid by DataTech
4. Result:

• Chen’s taxable income in India = ₹50 lakhs
• Tax liability (₹5 lakhs) already paid by DataTech is exempt
• Net tax burden on Dr. Chen = ₹0

Comparison with Similar Sections

Key Points

✅ Purpose: Facilitates foreign expertise inflow by reducing tax burden

✅ No Double Taxation: Indian entity’s tax payment exempts non-resident

✅ Approval Mandatory: Requires Central Government approval

✅ Time-Bound: Applies only to agreements till 31st March 2024

✅ Exclusion: Doesn’t cover foreign companies (they use Section 10(6C))

✅ PE Consideration: If non-resident has Permanent Establishment in India, normal tax rates apply

✅ Post-2024 Scenario: For new agreements, standard TDS rates (10%) or DTAA benefits would apply

✅ Documentation: Must maintain agreement copy and tax payment proof