Fees for technical services under Taxability of different kinds of income :
For the purpose of taxation, technical services fees are treated similarly as royalty income.
Explanation 2 to section 9(1)(vii) defines “fees for technical services‟ as any consideration (including lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient.
Further, any income of the recipient chargeable under the head “salaries” will also not form part of fees for technical services.
The taxability of fees received for technical services is on similar lines as royalty income. Under section 115A, fees for technical services received by a non-corporate non-resident or foreign company is taxable@10%, if the agreement is entered into on or after 31st March, 1976. No deduction shall be allowed under sections 28 to 44C and section 57 in respect of any expenditure or allowance, for the purpose of computing the aforesaid income. In this regard, the following issues are relevant.
Section 115A, however, does not apply in respect of fees for technical services covered under section 44DA(1).
Note: Income deemed to accrue or arise in India to a non-resident by way of interest, royalty and fee for technical services to be taxed irrespective of territorial nexus [Explanation to section 9]: Income by way of interest, royalty or fee for technical services which is deemed to accrue or arise in India by virtue of clauses (v), (vi) and (vii) of sect ion 9(1), shall be included in the total income of the non-resident, whether or not –
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.
In effect, the income by way of fee for technical services, interest or royalty, from services utilized in India would be deemed to accrue or arise in India in case of a non -resident and be included in his total income, whether or not such services were rendered in India.