foreign company tax rate

Tax rate for royalty payable to a foreign company is 10% on gross amount of royalty plus surcharge and education cess, provided the agreement for royalty relates to the industrial policy of the Government of India or the agreement is approved by the central Government (section 115A). No deduction can be claimed for any expenses in connection with royalty. No deduction under Chapter VI-A from the amount of royalty  can be claimed.However, if the Double Tax Avoidance Agreement between India and the country of residence of the tax payer provides for a lower rate of tax, then the rate prescribed in the DTAA shall apply.

However, if the royalty is effectively connected with a permanent establishment of the foreign company  in India, then deduction for related expenses can be claimed and in that case net amount of royalty is to be taxed at usual tax rate for foreign company i.e.40% plus surcharge plus education cess.