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Section 207 Income Tax Act 2025: What Tax Applies to Dividend, Royalty and Technical Fees?

Section 207 prescribes special income-tax rates for specified dividends, interest, income from foreign-currency mutual fund units, royalty and fees for technical services earned by non-resident persons (other than companies) and foreign companies.

Current law: Income-tax Act, 2025 (Act 30 of 2025), as amended by the Finance Act, 2026; effective from 1 April 2026. These are statutory base rates; applicable treaty relief, surcharge and cess require separate consideration.

1. Tax rates for specified non-resident income - Section 207(1)

The tax payable is computed separately for each category of specified income at its applicable rate, with other income taxable at rates in force.

Specified income	Rate
Dividend other than qualifying IFSC dividend	20%
Dividend received from a unit in an International Financial Services Centre (IFSC)	10%
Specified interest from Government or an Indian concern on foreign-currency borrowings, other than separately listed interest	20%
Interest from an infrastructure debt fund referred to in Schedule VII, Table Sl. No. 46	5%
Interest described in Section 393(2), Table Sl. Nos. 2, 3 and 4	Rates specified in Section 393(2)
Distributed interest income described in Section 393(2), Table Sl. No. 6	Rate specified in Section 393(2)
Income from qualifying mutual fund or Unit Trust of India units purchased in foreign currency	20%
Remaining total income	Rates in force

2. Royalty and fees for technical services - Section 207(2) and (3)

Qualifying royalty and fees for technical services received from the Government or an Indian concern under an agreement made after 31 March 1976 are generally subject to a 20% statutory rate, other than income covered by Section 59(1). Where the agreement is with an Indian concern, it must meet the Central Government approval or applicable industrial-policy condition prescribed in sub-section (2).

Under sub-section (3), the approval or industrial-policy conditions do not apply to specified royalty for granting rights in copyright of a book to an Indian concern, or rights in computer software to an Indian resident. Other statutory requirements remain relevant.

3. Important statutory definitions - Section 207(4)

Computer software: Includes a computer programme recorded on a disc, tape, perforated medium or other storage device, and specified customised electronic data or similar notified products or services transmitted or exported from India.

Royalty: Has the meaning assigned under Section 9; its scope must be tested against the relevant statutory definition and, where applicable, the tax treaty.

Fees for technical services: Has the meaning assigned under Section 9.

Foreign company: Under Section 2(46), a company that is not a domestic company.

4. Restrictions on deductions and return filing - Section 207(5) to (8)

Expenses and allowances

Sub-section (5) disallows deductions for expenditure or allowances under Sections 28 to 58, 60, 61 and 93 when computing income covered by sub-sections (1) and (2).

Chapter VIII deductions

Where gross total income consists only of income in the first seven entries of the table under sub-section (1), sub-section (6) disallows Chapter VIII and Schedule XV deductions. Where other income exists, the qualifying special-rate income is excluded when computing the Chapter VIII deduction base. Sub-section (7) preserves the specified IFSC-unit deduction under Section 147.

When is filing a return unnecessary?

Under sub-section (8), a return under Section 263(1) is not necessary if the taxpayer's entire income for the tax year consists only of the specified income in Section 207(1), table entries 1-7, and Section 207(2), table entries 1-2, and tax has been deducted at source at not less than the statutory rates specified in those provisions. Both conditions must be satisfied.

5. Practical illustrations

Example A: A foreign company receives an ordinary Indian dividend of Rs. 10,00,000. At the statutory base rate of 20%, income-tax on that dividend is Rs. 2,00,000 before applicable surcharge, cess and treaty considerations.

Example B: A qualifying dividend of Rs. 10,00,000 received from an IFSC unit is subject to the statutory base rate of 10%, or Rs. 1,00,000 before applicable adjustments.

Tax treaty note: A beneficial Double Taxation Avoidance Agreement may provide relief, subject to eligibility, documentation and anti-abuse rules. The statutory rates above are not necessarily the final withholding rates.

6. Frequently asked questions

Does Section 207 apply only to foreign companies?

No. It also covers non-residents who are not companies, for the income categories specified in the provision.

What is the rate for royalty and technical service fees?

The statutory base rate under Section 207(2) is 20% for qualifying income, subject to the conditions in that sub-section and any applicable treaty relief.

Can expenses be deducted from income taxed under Section 207?

The expenses and allowances covered by Section 207(5) cannot be deducted when computing income within sub-sections (1) and (2).

Is an income-tax return always mandatory?

No. Section 207(8) provides a limited exemption when the taxpayer earns only the specified categories of income and the prescribed level of tax has been deducted at source.

7. Related statutory provisions and source

Read this section with Section 9 (royalty and technical service definitions), Section 59 (specified non-resident royalty and fee income), Section 147 (IFSC deduction), Section 263 (return of income), and Section 393 (specified withholding rates).

Read the official consolidated Income-tax Act, 2025 (Finance Act, 2026 amendments).

Updated: 11 November 2026. This article is for general legal information and should be read with applicable tax treaties and current notifications.