Concessional Tax Rate on Royalty to NRIs and foreign companies lead to surge in royalty outflows

Concessional Tax Rate on Royalty may surge in royalty outflows

Concessional Tax Rate on Royalty
Concessional Tax Rate on Royalty

Concessional Tax Rate on Royalty may surge in royalty outflows

A surge in Royalty outflows has prompted the Indian Government to setup an inter-ministerial group to analyse payment norms and see whether there is excessive payout by Indian companies to foreign collaborators.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]R[/dropcap]oyalty is paid to a foreign collaborator for transfer of technology, usage of brands or trademarks. The panel will be headed by an additional secretary level officer of the Department of Industrial Policy and Promotion (DIPP). It also has representatives from departments of revenue, economic affairs and the Reserve Bank. It will submit its report by June 2017, ‘the Times of India report’ adds

Very few people would now remember that the Finance Minister in his union budget speech, 2015 had reduced the income tax on royalty paid to foreign companies / non-residents from 25% to a mere 10% stating

“110. Today I see a lot of young entrepreneurs running business ventures or wanting to start new ones. They need the latest technology. Therefore, to facilitate technology inflow to small businesses at low costs, I propose to reduce the rate of income tax on royalty and fees for technical services from 25% to 10%.”

The irony is that no conditions were attached / safeguards built-in provisions to ensure that the benefits intended for young entrepreneurs and small businesses were not hijacked by large multinationals and established corporate houses in India.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]his is in clear contrast to Section 80IAC introduced in the Union Budget 2016 to provide an Income-tax deduction to Startups provides for various conditions including the approval by an Inter-ministerial board specifically created for this purpose. There is also a sunset clause for this benefit as well as a cap on turnover (Rs. 25 crores) breaching which the startup would not be entitled to claim a tax deduction.

Further, every year the Finance Minister along with Budget documents lays down revenue foregone due to various deduction, exemptions and rebates to taxpayers but does not include revenue foregone due to concessional tax rates such as 10% rate on royalty paid to non-residents and foreign companies.

Copy of the Budget 2015-16

Budget2015-16 by PGurus on Scribd

1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.


  1. If the Unilever copies & adopts the formulations invented in India, thanks to the pressure put by Patanjali products, yet Unilever may be using those formulations in Europe. Will they pay royalty to Indian unit ?? Who tracks it ?? Is it another way of siphoning money ?? is the royalty “claim” really valid / genuine consistent with the actual value ?


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