Union Budget 2015 benefits tech companies looking to save taxes

BENGALURU: Finance minister Arun Jaitley’s move to cut tax rate on royalty and fees for technical services will help technology companies bring down their tax rates.

In the 2015 union budget, the minister cut the tax rate on royalty and fees for technical services from 25% to 10% saying that it will ‘facilitate technology inflow to small businesses at low costs.’

“Tech companies have a host of fees and royalties that they pay to overseas entities. This will benefit all of them,” said Kalpesh Maroo, Partner at BMR Advisors.

For instance, a company that has to pay a licensing fee to another company in the US will only have to pay 10% of tax on the fee, as compared to 15% prescribed by the double taxation treaty between India and the United States.

Jaitley’s predecessor P Chidambaram had raised the tax rate on royalty and fees for technical services in 2013 to 25% saying that it will help correct ‘anomalies’ in the in taxation because tax on royalty in the income tax act was lower than the rates of many double tax avoidance agreements.

Companies making overseas payments have to pay taxes as per the income tax act or as per double tax avoidance agreements between countries.