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Non-Resident Taxation Series | June 2026
Once you know what income is taxable in India as a non-resident, the next question is at what rate. Sections 207 to 217 prescribe special flat rates for every category of non-resident income. This article explains every rate with the exact statutory conditions, deduction bars, and ITR filing exemptions.
Non-Resident Taxation Series – fiscalzenith.com
You are reading Article 4: Tax Rates: Sections 207 to 217.
Also in this series: Residential Status – Section 6 | Scope of Income – Section 5 | Deemed Income – Section 9 | TDS on Non-Residents | NRI Provisions | DTAA – Section 159 | Representative Assesse and Agent | PE | ITR Filing
Also in this series: Residential Status – Section 6 | Scope of Income – Section 5 | Deemed Income – Section 9 | TDS on Non-Residents | NRI Provisions | DTAA – Section 159 | Representative Assesse and Agent | PE | ITR Filing
Table of Contents
- 2-Minute Snapshot
- Section 207: General Non-Resident and Foreign Company Dividend, interest, royalty, FTS; deduction bars; ITR exemption
- Section 208: Offshore Fund
- Section 209: Bonds and GDRs
- Section 210: FII and Specified Funds Rs. 1,25,000 LTCG exemption under Section 198
- Section 211: Sportsmen and Entertainers
- Section 214: NRI Investment Income
- Section 61: Presumptive Income for Non-Resident Businesses
- Section 60: Head Office Expenditure
- Practical Compliance Checklist
- Frequently Asked Questions
20%
Standard rate on dividend, interest, royalty, and FTS under Section 207. No expense deductions allowed against this income.
10%
Rate on bonds, GDRs (Section 209), offshore fund income (Section 208), and specified fund securities income (Section 210).
12.5%
Long-term capital gains rate for most non-resident categories including NRI foreign exchange assets, FII equity LTCGs above Rs. 1,25,000.
Rs. 1,25,000
LTCG exemption threshold for STT-paid equity shares and equity funds under Section 198. Only gains above this are taxed at 12.5% for FIIs too.
SnapshotWhy Non-Residents Have Special Rates
When a non-resident receives income from India, applying normal slab rates would create problems. Most non-residents do not file a return in India and the law exempts many of them from filing if TDS is adequate. For this to work cleanly, the tax must be collected at source at a fixed rate. That is why the Act prescribes flat special rates for specific categories of non-resident income: no slab, no basic exemption, a fixed percentage on the gross amount.
| Section | Applies To | Key Rate | 1961 Act Equivalent |
|---|---|---|---|
| 207 | Any non-resident or foreign company: dividend, interest, royalty, FTS | 20% (general), 10% (IFSC dividend), 5% (infra debt fund interest) | Section 115A |
| 208 | Offshore fund: units and LTCG | 10% income, 12.5% LTCG | Section 115AB |
| 209 | Non-resident: bonds and GDRs | 10% interest/dividend, 12.5% LTCG | Section 115AC |
| 210 | FII and specified fund | 20% (FII securities), 10% (specified fund securities), 12.5% LTCG above Rs. 1,25,000 | Section 115AD |
| 211 | Non-citizen non-resident sportsman, entertainer, sports association | 20% flat | Section 115BBA |
| 214 | NRI investment income from foreign exchange assets | 20% income, 12.5% LTCG | Section 115E |
| 61 | Non-resident shipping, aircraft, mineral oil, civil construction, electronics | Deemed %% of gross receipts (5% to 25%) | Sections 44B, 44BB, 44BBA, 44BBB |
Part ISection 207: General Non-Resident and Foreign Company Rates
Section 207 (corresponding to Section 115A of the 1961 Act) applies to any non-resident not being a company, and to any foreign company.
Section 207(1): Special Rate Income
| Nature of Income | Tax Rate |
|---|---|
| Dividend (other than from IFSC unit) | 20% |
| Dividend from a unit in an International Financial Services Centre | 10% |
| Interest received from Government or Indian concern on money borrowed in foreign currency | 20% |
| Interest from infrastructure debt fund [Schedule VII, Table Sl. No. 46] | 5% |
| Income from units of a Mutual Fund (Schedule VII) or Unit Trust of India purchased in foreign currency | 20% |
| All other income | Rates in force |
Section 207(2): Royalty and FTS Under Approved Agreements
Where a non-resident or foreign company receives royalty or FTS from the Government or an Indian concern under an agreement made after 31st March 1976, and the agreement is (a) approved by the Central Government where the agreement is with an Indian concern, or (b) in accordance with the industrial policy in force where the agreement relates to a matter covered by that policy:
| Nature of Income | Tax Rate |
|---|---|
| Royalty (other than income under Section 59(1)) | 20% |
| Fees for Technical Services (other than income under Section 59(1)) | 20% |
Section 207(3): Copyright and Software Royalty Exception
Where the royalty is for transfer or grant of rights in a copyright in a book to an Indian concern, or for computer software to a resident in India, the 20% rate applies without needing Central Government approval or industrial policy compliance. This is a standalone carve-out.
No Expense Deductions: Section 207(5)
No deduction for any expenditure or allowance is allowed under Sections 28 to 58, 60, 61, and Section 93 when computing income covered under Sections 207(1) and 207(2). Tax is on the gross amount.
Chapter VIII and Schedule XV Deduction Bar: Section 207(6)
Section 207(6)(a): If the gross total income consists only of income listed in Section 207(1) Table Sl. Nos. 1 to 7, no deductions are allowed under Chapter VIII (equivalent to Chapter VI-A deductions such as 80C to 80U) AND under Schedule XV (equivalent to Section 80C investments such as LIC premium, PPF, ELSS).
Section 207(6)(b): Where the gross total income includes (but does not consist only of) Section 207(1) income, the gross total income is reduced by that special rate income, and Chapter VIII deductions are allowed on the reduced amount as if it were the gross total income. Note: The Schedule XV deduction bar applies only under Section 207(6)(a). When there is mixed income under Section 207(6)(b), only Chapter VIII is restricted on the apportioned basis. Schedule XV deductions are not separately barred in the mixed income scenario.
IFSC exception [Section 207(7)]: Section 207(6) does not apply to deductions allowed to a unit in an International Financial Services Centre under Section 147.
Exemption from Filing ITR: Section 207(8)
A non-resident does not need to file a return under Section 263(1) if total income consists only of income under Sections 207(1) (Sl. Nos. 1 to 7) and 207(2) (Sl. Nos. 1 and 2), AND tax has been deducted at a rate not less than the prescribed rates.
Part IISection 208: Offshore Fund
Corresponding to Section 115AB of the 1961 Act. Applies to an overseas financial organisation (Offshore Fund) established outside India with a SEBI-approved arrangement for investment in India.
| Income | Rate |
|---|---|
| Income from units purchased in foreign currency | 10% |
| Long-term capital gains from transfer of those units | 12.5% |
| Other income | Rates in force |
No expense deductions allowed. No Chapter VIII deductions if total income consists only of the above [Section 208(2)(a)].
Part IIISection 209: Bonds and Global Depository Receipts
Corresponding to Section 115AC of the 1961 Act. Applies to non-residents holding bonds of Indian companies or public sector companies purchased in foreign currency, or GDRs issued against Indian company shares.
| Income | Rate |
|---|---|
| Interest on bonds (Indian company or PSU, purchased in foreign currency) | 10% |
| Dividends on GDRs (purchased in foreign currency) | 10% |
| Long-term capital gains from transfer of bonds or GDRs | 12.5% |
| Other income | Rates in force |
Exemption from ITR filing [Section 209(4)]: If total income consists only of interest on bonds and dividends on GDRs as above, and TDS has been deducted, no ITR filing is required.
Part IVSection 210: FII and Specified Funds
Corresponding to Section 115AD of the 1961 Act. Applies to Foreign Institutional Investors (FIIs) and specified funds as defined in Schedule I.
| Nature of Income | Applies to | Rate |
|---|---|---|
| Income from securities (other than Section 208 units) | FII | 20% |
| Income from securities (other than Section 208 units) | Specified fund | 10% |
| Short-term capital gains NOT under Section 196 (non-STT transactions) | Both | 30% |
| Short-term capital gains under Section 196 (STT-charged equity, equity funds, business trusts) | Both | 20% |
| Long-term capital gains NOT under Section 198 | Both | 12.5% |
| Long-term capital gains under Section 198 (STT-charged equity LTCGs) exceeding Rs. 1,25,000 | Both | 12.5% |
Rs. 1,25,000 LTCG exemption: For LTCGs covered by Section 198 (STT-paid equity shares and equity-oriented mutual funds), the first Rs. 1,25,000 of gains in a tax year is not taxable [Section 198(2)(a)]. Only gains above Rs. 1,25,000 are taxed at 12.5%. This applies to FIIs too, not just resident individuals.
For specified funds, Section 210 applies only to income attributable to units held by non-residents who are not a PE in India [Section 210(2)].
Part VSection 211: Non-Resident Sportsmen, Entertainers, and Sports Associations
Corresponding to Section 115BBA of the 1961 Act.
| Nature of Income | Rate |
|---|---|
| Income of a non-citizen non-resident sportsman from participation in India, advertisement, or articles about the game or sport | 20% |
| Income of a non-resident sports association from guaranteed amounts for games or sports played in India | 20% |
| Income of a non-citizen non-resident entertainer from performances in India | 20% |
No expense deductions allowed [Section 211(2)]. No ITR filing required if total income consists only of the above and TDS has been deducted [Section 211(3)].
Note: This provision applies to non-citizen non-residents. An Indian citizen who is also a non-resident is NOT covered under Section 211 for sporting or entertainment income.
Part VISection 214: NRI Investment Income
Corresponding to Section 115E of the 1961 Act. Applies specifically to NRIs as defined in Section 212.
| Nature of Income | Rate |
|---|---|
| Investment income (income from a foreign exchange asset) | 20% |
| Long-term capital gains on a specified foreign exchange asset | 12.5% |
| Other income | Rates in force |
No deductions for any expenditure in computing investment income [Section 213(1)]. No Chapter VIII deductions if gross total income consists only of investment income and LTCGs from foreign exchange assets [Section 213(2)(a)].
Part VIISection 61: Presumptive Income for Non-Resident Businesses
Corresponding to Sections 44B, 44BB, 44BBA, 44BBB of the 1961 Act. Income computed as a deemed percentage of gross receipts or amounts paid or payable.
| Business | Assessee | Deemed Income |
|---|---|---|
| Shipping (excluding cruise ships) | Non-resident | 7.5% of gross receipts (A+B) |
| Cruise ship operation | Non-resident | 20% of gross receipts (A+B) |
| Aircraft operation | Non-resident | 5% of gross receipts (A+B) |
| Civil construction or erection in Central Government approved turnkey power project | Foreign company | 10% of amounts paid or payable |
| Services or facilities for mineral oil prospecting, extraction, or production | Non-resident | 10% of gross receipts (A+B) |
| Services or technology in India for electronics manufacturing facility | Non-resident | 25% of amounts paid or payable |
In the above, A = amounts paid or payable to the assessee in connection with the specific business (in or outside India); B = amounts received or deemed received in India by the assessee.
Part VIIISection 60: Head Office Expenditure Deduction
Corresponding to Section 44C of the 1961 Act. For non-residents computing income under Profits and gains of business or profession, head office expenditure attributable to Indian operations is deductible but restricted to:
- 5% of adjusted total income if the current year adjusted total income is positive [Section 60(2)(b)], or
- 5% of the average adjusted total income of the three preceding tax years if the current year adjusted total income is a loss [Section 60(2)(a)]
“Head office expenditure” means executive and general administration expenditure incurred outside India, including rent, taxes, repairs, salaries, and travelling expenses in respect of any office outside India [Section 60(3)(c)].
If you are an NRI receiving dividend or interest from India
- Tax is 20% on dividend and 20% on interest from Government or Indian concern (in foreign currency). TDS will be deducted at source. No expenses can be claimed against this income.
- If a DTAA provides a lower rate, furnish TRC and Form No. 41 to the Indian payer before the payment is made.
If you are an FII or specified fund
- Track your total STT-paid equity LTCGs across all transactions in the tax year. The first Rs. 1,25,000 is exempt under Section 198(2)(a). Tax at 12.5% applies only on the excess.
- STT-paid equity short-term capital gains are taxed at 20% under Section 196. Non-STT transactions attract 30% STCG rate under Section 210.
If you are a foreign entertainer or sportsperson performing in India
- 20% TDS applies on gross earnings from Indian participation, advertisement, and articles. No expense deductions are available. No ITR is required if TDS is adequate.
- This applies only to non-citizen non-residents. Indian citizen non-residents are taxed under the general provisions, not Section 211.
If you run a non-resident shipping or aircraft business
- Income is computed at 7.5% (shipping, non-cruise) or 5% (aircraft) of gross receipts under Section 61. No books of account are required for these deemed income computations.
- The deemed income is the only income assessable from these activities. Actual profits above or below the deemed rate are irrelevant for Indian tax purposes.
Wrapping Up
The rate structure for non-residents is built around simplicity: flat rates on gross income, no complicated deduction claims, and in many cases no need to file a return at all if TDS is done correctly. Understanding which section applies to your specific income type ensures correct withholding and avoids notices for short deduction or underpaid tax.
Once you know the rate that applies, the next question is how TDS is withheld from non-resident payments in practice. That is covered in the next article on Section 393(2).
Frequently Asked Questions
If the royalty agreement was not approved by the Central Government and does not fall under Section 207(3) (which covers copyright in books to Indian concerns, or computer software to Indian residents), then the 20% rate under Section 207(2) does not apply. The income falls under “rates in force” in Section 207(1). In practice, the rate for a non-resident would be 20% on royalty income under the general provisions of the Act, but the specific approved-agreement route under Section 207(2) is not available. If a DTAA provides a lower rate, that applies with proper documentation.
Yes, partially. Since your gross total income is not composed only of Section 207 special rate income (you also have salary), Section 207(6)(b) applies, not Section 207(6)(a). Under 207(6)(b), the dividend is removed from gross total income, and Chapter VIII deductions are allowed on the remaining Rs. 5 lakh salary income. The Schedule XV deduction bar under Section 207(6)(a) does not apply in this mixed-income scenario. So your LIC premium under Schedule XV is deductible against the Rs. 5 lakh salary income.
No. Under Section 198(2)(a), STT-paid equity LTCGs up to Rs. 1,25,000 in a tax year are exempt from tax. Since your total is Rs. 80,000, which is below Rs. 1,25,000, no LTCG tax is payable. Tax at 12.5% under Section 210 applies only on the amount exceeding Rs. 1,25,000. This exemption applies to FIIs under Section 210, not just to resident individuals under Section 198.
Yes, if the services are for prospecting for, or extraction or production of, mineral oils. Under Section 61 (Table Sl. No. 5), a non-resident providing such services or facilities has income deemed at 10% of gross receipts (A+B). A and B cover amounts paid or payable in or outside India plus amounts received or deemed received in India for those services. No deduction for actual expenses is available since the income is the deemed amount.
Disclaimer: For informational and educational purposes only. Based on the Income Tax Act 2025 (30 of 2025), Income Tax Rules 2026, and provisions as amended by the Finance Act 2026, current as of June 2026. Does not constitute legal or tax advice.
