Section 44DA Of The Income Tax Act: Tax On NRI Business Income In India

If you are a Non-Resident Indian (NRI) and earn an income from royalties and fees from technical services, you need to know the details of Section 44DA of the Income Tax Act. Read on for the details that you must know.

What is Section 44DA?

The Government of India has made provisions for calculating income earned by non-resident Indians through royalties and technical services fees. They inserted Section 44DA into Income Tax Act with effect from April 1, 2004. It provides the legal framework for calculating income earned from royalties by non-residents.

Eligibility Criteria under Section 44DA

Non-resident Indians, non-corporates and foreign companies are eligible under Section 44DA. If a non-resident earns income in the form of royalties or FTS (Fee for Technical Services), he/she is eligible to seek deductions as per the section’s terms and conditions. 

When is Section 44DA Applicable?

Given below are the situations when Section 44DA of ITA will be applicable:

• If a non-resident Indian has entered into an agreement with either GoI or an Indian company and therefore earns royalties or FTS (Fee for Technical Services)

• If a non-resident Indian has a permanent establishment in India and carries on a business/profession from there

• If the permanent establishment is connected with the rights, contract and property for which the individual earns royalties and FTS 

How to Calculate Income Eligible under Section 44DA?

Income Tax officials calculate the income of eligible taxpayers under Section 44DA under the ‘Profits or gains from business or profession’ category. 

To arrive at the taxable income, one needs to deduct the expenditure incurred for the business carried out from the permanent settlement and Reimbursement costs from the total income. 

The formula given below illustrates it better:

Taxable income = Total Income – (Expenses incurred for the business + Reimbursement of actual expenses by a permanent establishment) 

Also Read: NRI Income Tax Slabs: Details On Taxable Income and Deductions

Expenses That are Not Allowed as Deduction under Section 44DA

Given below is a list of expenses that are not allowed as deductions:

• Expenses are not incurred exclusively for the permanent establishment from where the business is being carried out in India.

• The amount that the permanent establishment pays to the head office or any other office.

Important Points to Remember about Section 44DA

Enumerated below are the points that one must keep in mind with respect to Section 44DA:

• One must remember that the IT department charges taxes as per income tax slab rate on income earned under Section 44DA.

• One must maintain a book of accounts and other relevant documents as per Section 44DA.

• One must get a proper tax audit done by a Chartered Accountant and submit the report while filing the ITR.  

Also Read: Section 44B: Tax On NRIs For Income From Shipping Business On Presumptive Basis

Final Word

To sum up, every non-resident taxpaying entity needs to know Section 44DA of the Income Tax Act. It has laid down the legal framework for the calculation of income tax payable by NRIs on their business in India. This blog provides the essential details related to this section.

FAQs on Section 44DA