Section 10(6A): Exemption for Tax Paid on Royalty and Technical Service Fees
Section 10(6A) of the Income-tax Act, 1961 addresses a specific situation in which the Government of India or an Indian concern pays the Indian income tax on royalty or fees for technical services earned by a foreign company under a qualifying agreement.
What does Section 10(6A) provide?
Under section 10(6A) of the Income-tax Act, 1961, where a foreign company receives royalty or fees for technical services from the Government or an Indian concern under a qualifying agreement, and the agreement requires that payer to pay the tax on such income to the Central Government, the tax so paid is exempt in the foreign company's hands.
This prevents the qualifying tax payment made by the Indian payer from being treated as additional taxable income of the foreign company. The exemption does not eliminate the ordinary taxation of the royalty or fees themselves.
Eligibility conditions for the exemption
- Foreign company: The recipient must be a foreign company within the meaning referred to in the Explanation to section 10(6A), read with section 80B.
- Specified income: The company must derive income by way of royalty or fees for technical services from the Government or an Indian concern.
- Agreement period: The relevant agreement must have been made after 31 March 1976 but before 1 June 2002.
- Industrial policy or approval: If the agreement concerns a matter covered by the Government of India's industrial policy, it must comply with that policy. In other cases, Central Government approval is required.
- Contractual tax obligation: The terms of the agreement must require the Government or Indian concern to pay the income tax on the specified income to the Central Government.
Meaning of key legal terms
Royalty
For this provision, “royalty” has the meaning assigned by Explanation 2 to section 9(1)(vi). Broadly, it covers specified consideration for the use or transfer of rights in intellectual property, know-how, equipment and other rights described in that provision, subject to its precise wording and exclusions.
Fees for technical services
Under Explanation 2 to section 9(1)(vii), this generally means consideration for managerial, technical or consultancy services, including provision of technical or other personnel, subject to the statutory exclusions for certain construction, assembly, mining or similar projects and income chargeable as salaries.
Foreign company
The Explanation to section 10(6A) refers to the meaning of “foreign company” in section 80B. The company's legal classification and the terms of the relevant agreement must be examined before claiming the exemption.
How much is exempt?
The entire qualifying amount of income tax actually paid by the Government or Indian concern under the qualifying agreement is exempt under section 10(6A). This does not mean that the entire royalty or technical service fee is tax-free.
Illustrative example
Assume a foreign company receives royalty under an agreement entered into in 1998 that meets the statutory industrial-policy or approval condition. The agreement requires the Indian payer to bear the Indian tax on that royalty. Subject to all applicable legal conditions, the tax paid by the Indian payer may qualify for exemption under section 10(6A), while the royalty itself remains subject to the applicable tax rules.
Does this exemption apply to new agreements?
No. Section 10(6A) expressly limits eligibility to agreements made before 1 June 2002 and after 31 March 1976. A new agreement executed today cannot qualify merely because an Indian payer agrees to bear a foreign company's tax. Older qualifying agreements may still require examination in light of the law applicable to the relevant tax year and the transition to the Income-tax Act, 2025.
Related provisions and official references
- Income Tax Department: Section 10, including clause (6A)
- Income Tax Department: Section 9, definitions of royalty and fees for technical services
- Income Tax Department e-Filing Portal for current filing guidance and official resources
- Other exemptions under Section 10
- Guide to tax-exempt income
Updated 10 October 2026. This article explains the historical exemption and does not replace examination of the agreement, applicable tax year, treaty provisions or current legislation.