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Indian Income Tax | Foreign Company Exemptions

Section 10(6C): Tax Exemption for Royalty and Technical Service Fees on Security Projects

Section 10(6C) of the Income-tax Act, 1961 provides a specific income-tax exemption for certain royalty and fees for technical services received by a foreign company for services connected with projects relating to the security of India. It applies only when the statutory agreement and Central Government notification requirements are met.

Key distinction: This exemption concerns qualifying royalty or fees for technical services themselves, not merely tax paid on behalf of a foreign company. A foreign company is not eligible solely because its services are related to defence or security.
Original statutory provisionSection 10(6C), Income-tax Act, 1961
Eligible recipientA foreign company notified by the Central Government
Nature of incomeRoyalty or fees for technical services from qualifying security-related projects
Extent of exemptionFull qualifying income, subject to the notification and statutory conditions

Meaning of Section 10(6C)

Under Section 10(6C) of the Income-tax Act, 1961, specified income by way of royalty or fees for technical services received by a foreign company may be excluded from total income when it is received under an agreement with the Government of a foreign State for providing services in or outside India in projects connected with the security of India, and the company is notified for the purpose by the Central Government in the Official Gazette.

This is a narrowly targeted exemption for notified companies and qualifying arrangements, not a blanket exclusion for all foreign contractors or technology providers.

Who can claim the exemption?

  1. Foreign company: The recipient must be a foreign company within the meaning of the applicable income-tax law.
  2. Central Government notification: The company must be specifically notified by the Central Government in the Official Gazette for the exemption.
  3. Agreement with a foreign government: The royalty or technical service fees must arise under an agreement with the Government of a foreign State.
  4. Security-linked projects: The services must relate to projects connected with the security of India.
  5. Services in or outside India: The statutory provision contemplates qualifying services provided in India or outside India, as applicable under the agreement.

What income is exempt?

Where the company, agreement, project and notification meet the statutory conditions, the entire qualifying royalty or fees for technical services may be excluded from taxable total income. The provision does not itself prescribe a general monetary cap, but the notification and facts of the arrangement must be reviewed carefully.

Other income of the same foreign company, including income from unrelated contracts or projects, does not automatically become exempt merely because the company has been notified for a qualifying security project.

Definitions of important legal terms

Foreign company

A foreign company is a company that is not a domestic company under the relevant income-tax definitions. The legal classification of the recipient must be established independently of where the contract is performed.

Royalty

Royalty generally refers to consideration for specified rights or uses of intellectual property, technical know-how, equipment and other rights covered by the applicable statutory definition. The precise classification depends on the contract and relevant law.

Fees for technical services

Fees for technical services generally refer to consideration for managerial, technical or consultancy services, subject to statutory exclusions and any applicable tax treaty. The nature of the services, not merely the invoice description, determines the classification.

Official Gazette notification

An Official Gazette notification is a formal governmental instrument. For Section 10(6C), the existence and scope of the relevant Central Government notification are essential; a contract or an internal project approval alone is insufficient.

Practical example

Assume a foreign company provides specialised technical services under an agreement with the government of another country for a project connected with India's security. If the Central Government has duly notified that company under the relevant provision and the receipts meet all prescribed conditions, the qualifying technical service fees may be exempt. Without the necessary notification, the exemption cannot be assumed.

Records and documents to verify

  • The agreement with the Government of the foreign State and relevant amendments.
  • The Central Government Gazette notification identifying the foreign company.
  • Project documents establishing the connection with the security of India.
  • Invoices and payment records showing the royalty or technical service fees covered by the agreement.
  • Evidence supporting the foreign-company status and the applicable tax year.

Income-tax law applicable from 1 April 2026

Section 10(6C) is the reference under the Income-tax Act, 1961. The Income Tax Department provides current compliance information for the Income-tax Act, 2025, which applies from 1 April 2026. For income relating to tax year 2026-27 or later, the corresponding provisions and transitional rules under the 2025 Act should be checked. The older section number should not be assumed to be the operative citation for a later tax year.

Official legal references

Updated: 10 October 2026. This article is general legal and tax information. Exemption eligibility depends on the operative law for the relevant tax year, the exact agreement and the applicable Central Government notification.