Section 44DA Income Tax Act 1961 and Current Section 59 Income Tax Act 2025
Royalty and fees for technical services of non-residents with an Indian permanent establishment or fixed place of profession
Updated: 28 September 2026
What does Section 59 of the Income-tax Act, 2025 provide?
Section 59 provides a net-basis computation rule for royalty or fees for technical services received by a specified non-resident where the statutory conditions are satisfied. The income is computed under the head Profits and gains of business or profession, rather than being dealt with as royalty or technical-service income disconnected from the Indian business presence.
Conditions for Section 59 to apply
In substance, Section 59 applies where all of the following conditions are present:
- The income is in the nature of royalty or fees for technical services.
- The income is received from the Government or an Indian concern.
- The income arises under an agreement made by the specified assessee with the Government or Indian concern.
- The specified assessee carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession, situated in India.
- The right, property or contract for which the royalty or fees for technical services is paid is effectively connected with that permanent establishment or fixed place of profession.
Who is a specified assessee?
For Section 59, a specified assessee means a non-resident other than a company, or a foreign company. This identifies the class of taxpayers to whom the provision applies.
How is the income computed?
When Section 59 applies, the relevant royalty or fees for technical services is computed under the head Profits and gains of business or profession. Expenses may therefore be considered on a net-income basis, but the section places specific restrictions on deductions.
Deductions not allowed
No deduction is allowed for:
- expenditure or an allowance that is not wholly and exclusively incurred for the business of the permanent establishment or fixed place of profession in India; or
- amounts paid by the permanent establishment to its head office or another office, except reimbursement of actual expenses.
Books of account and audit requirement
A specified assessee covered by Section 59 must keep and maintain books of account and other documents in accordance with Section 62, have the accounts audited on or before the specified date referred to in Section 63, and furnish the prescribed audit report duly signed and verified by an accountant.
Under the Income-tax Rules, 2026, the audit report for Section 59(4) is Form No. 24 under Rule 43. It corresponds to the earlier Form 3CE used for Section 44DA.
Meaning of royalty and fees for technical services
The current Act contains the source rule and statutory descriptions for royalty and fees for technical services in Section 9. In broad terms, royalty covers specified consideration for rights, use, information or services connected with intellectual property, processes, equipment and related matters. Fees for technical services broadly covers consideration for managerial, technical or consultancy services, subject to the statutory exclusions.
Because tax treaties may contain their own definitions, thresholds and permanent-establishment rules, a cross-border payment should also be examined under the applicable Double Taxation Avoidance Agreement where relevant.
Section 59 and presumptive taxation for non-residents
Section 59 states that the relevant part of Section 61, which contains special presumptive computation provisions for specified business activities of certain non-residents, does not apply to income covered by Section 59. This continues the basic separation that existed between old Section 44DA and the corresponding presumptive regime.
Section 44DA of the Income Tax Act, 1961: legacy position
Section 44DA applied to royalty or fees for technical services received from the Government or an Indian concern under an agreement made after 31 March 2003 by a non-resident other than a company or by a foreign company, where the taxpayer carried on business in India through a permanent establishment or performed professional services from a fixed place of profession in India and the relevant right, property or contract was effectively connected with that Indian presence.
The income was computed under the head Profits and gains of business or profession. The section disallowed expenditure not wholly and exclusively incurred for the Indian PE or fixed place and generally disallowed payments by the PE to its head office or other offices except reimbursement of actual expenses.
Section 44DA also required books of account under Section 44AA and audit by an accountant by reference to Section 44AB. Its Explanation adopted the meanings of fees for technical services from Section 9(1)(vii), royalty from Section 9(1)(vi), and permanent establishment from Section 92F.
Section 44DA and Section 59: practical transition
| Point | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Main provision | Section 44DA | Section 59 |
| Books | Section 44AA | Section 62 |
| Audit reference | Section 44AB | Section 63 |
| Audit report | Form 3CE | Form No. 24 under Rule 43 |
| Relevant non-resident presumptive provision | Section 44BB exclusion for covered income | Corresponding rule through Section 61 as specified in Section 59(3) |
Key points to check in a royalty or technical services case
- Which Act governs the relevant tax year and proceeding?
- Is the receipt royalty or fees for technical services under the applicable domestic-law definition?
- Is there a permanent establishment or fixed place of profession in India?
- Is the relevant right, property or contract effectively connected with that Indian presence?
- Are claimed expenses wholly and exclusively attributable to the Indian PE or fixed place?
- Have the books, audit and prescribed report requirements been complied with?
- Does an applicable tax treaty alter the domestic-law result?
Note: This page is a general statutory overview. Cross-border royalty and technical-service taxation depends on the facts, the governing tax year, the relevant agreement, the existence and role of a permanent establishment, and any applicable tax treaty.