Updated: 25 October 2026 | Statutory reference: Income-tax Act, 1961
1. When does Section 44DA apply?
Section 44DA(1) provides that qualifying royalty or fees for technical services are computed under the head Profits and gains of business or profession in accordance with the Act. Its key conditions are:
- The recipient is a non-resident other than a company, or a foreign company.
- The payment is royalty or fees for technical services from the Government or an Indian concern under an agreement entered into after 31 March 2003.
- The recipient carries on business through a permanent establishment in India or provides professional services from a fixed place of profession in India.
- The right, property or contract generating the income is effectively connected with that establishment or fixed place.
Merely having a permanent establishment does not automatically bring every royalty receipt within Section 44DA. The effective connection and the remaining statutory conditions must be examined.
2. Meaning of important legal terms
Royalty - Section 9(1)(vi), Explanation 2
The definition generally covers consideration for specified transfers or use of intellectual property and rights, imparting information concerning technical or commercial knowledge, use of equipment and related services, subject to the exact statutory wording and exclusions. The Act also contains additional explanations relevant to the scope of royalty.
Fees for technical services - Section 9(1)(vii), Explanation 2
Generally, consideration for managerial, technical or consultancy services, including provision of technical or other personnel, subject to statutory exclusions such as certain construction, assembly, mining or like projects undertaken by the recipient and consideration chargeable under the head Salaries.
Permanent establishment - Section 92F(iiia)
Includes a fixed place of business through which the business of an enterprise is wholly or partly carried on. The applicable tax treaty may contain a distinct definition and conditions.
Effective connection
The right, property or contract giving rise to the royalty or fees must be effectively connected with the Indian establishment or fixed place. This is a fact-specific determination based on the functions, assets, contractual rights and relevant treaty provisions.
3. Deduction of expenses under Section 44DA
Income falling within Section 44DA is computed under the business-income provisions, but the first proviso specifically denies:
- Expenditure or allowances not wholly and exclusively incurred for the business of the Indian permanent establishment or fixed place of profession.
- Amounts paid by the permanent establishment to its head office or other offices, except reimbursement of actual expenses.
Other deductions remain subject to applicable provisions, documentation and restrictions of the Act. The provision does not impose a general flat-rate tax on the gross receipt.
4. Illustrative computation
| Particulars | Illustrative amount |
|---|---|
| Qualifying royalty / technical service receipts | Rs. 50,00,000 |
| Allowable expenses wholly and exclusively for the Indian PE | Rs. 18,00,000 |
| Illustrative business income before other applicable adjustments | Rs. 32,00,000 |
This example assumes all statutory conditions are satisfied and the expenses qualify. Actual computation may differ due to other provisions, treaty rules and facts.
5. Books of account and audit - Section 44DA(2)
Covered non-residents and foreign companies must maintain books and documents in accordance with Section 44DA read with Section 44AA. They must obtain an audit by an accountant as defined in the Explanation below Section 288(2), before the specified date referred to in Section 44AB, and furnish the prescribed audit report by that date.
The prescribed reporting requirements should be checked for the relevant assessment year. The older wording requiring the report to accompany the income-tax return is not the current wording of Section 44DA(2).
6. Section 44DA compared with related provisions
| Provision | Broad relevance |
|---|---|
| Section 44D | Special computation rules for certain older royalty and technical-service agreements of foreign companies. |
| Section 44DA | Business-income computation where the relevant royalty or technical-service income is effectively connected with an Indian PE or fixed place and other conditions apply. |
| Section 44BB | Special presumptive rules for specified non-resident mineral-oil activities; expressly inapplicable to income covered by Section 44DA. |
| Section 115A | Special tax treatment for certain non-resident incomes, including qualifying royalty and technical-service fees, where its conditions apply. |
7. Double taxation agreements and withholding tax
Where an applicable Double Taxation Avoidance Agreement provides more beneficial treatment, Section 90(2) may be relevant, subject to eligibility and compliance requirements. Treaty provisions can alter the meaning of royalty or technical services, establish a different permanent-establishment test or prescribe business-profits attribution rules. Payments to non-residents may also attract withholding under Section 195 where the amount is chargeable to tax in India.
8. Legislative background
Section 44DA was inserted by the Finance Act, 2003, with effect from 1 April 2004. The second proviso excluding the application of Section 44BB to income covered by Section 44DA was inserted by the Finance Act, 2010, with effect from 1 April 2011. Later changes to subsection (2) concern the timing of furnishing the audit report.
9. Official statutory sources
- Income Tax Department - Section 44DA statutory text
- Income Tax Department - Business or Profession guidance
- Income Tax Department - TDS on royalty and technical-service fees
- Income Tax e-Filing portal
This article explains Section 44DA under the Income-tax Act, 1961. For income years governed by the Income-tax Act, 2025, check the corresponding provisions, transition rules and applicable rules separately. This article is general information and not a substitute for advice on a particular transaction.