Royalty [Sec 9(1)(vi)] and Fees for Technical Services [Sec 9(1)(vii)]
# Royalty & Fees for Technical Services (FTS)
## The Common Rule
Royalty (u/s 9(1)(vi)) and FTS (u/s 9(1)(vii)) are deemed to accrue or arise in India when:
### Situation 1 — Paid/Payable by Government of India
Always deemed to accrue or arise in India.
### Situation 2 — Paid/Payable by a Resident OR a Non-Resident
The royalty / FTS is deemed to accrue in India if the payer uses the right/service for:
Earning income from Business or Profession in India, OR
Earning income from any other source in India
If used outside India / for earning income outside India → NOT deemed to accrue in India.
## Big Difference vs. Interest Rule
For Interest paid by a Non-Resident, only Business/Profession in India use counts. But for Royalty & FTS, any source in India use also counts — even if the payer is a Non-Resident.
## Definitions
### Royalty
Consideration paid/payable for:
Transfer of all or any rights (including granting a licence) in respect of a patent, invention, model, design, secret formula, process, trademark, or similar property
Use of patent, invention, model, design, secret formula, etc.
Use or right to use any industrial, commercial, or scientific equipment
### Fees for Technical Services (FTS)
Consideration paid for rendering of managerial, technical, or consultancy services (including providing the services of technical or other personnel).
## Crucial Rider — Utilisation in India
If the technical service / royalty / interest is utilised in India, it is deemed to accrue or arise in India and is taxable in India, regardless of:
Whether the services were rendered in India
Whether the non-resident has a place of business or business connection in India
This 'source rule' makes the utilisation test paramount.
Worked example
### Example 1
Royalty Example 1: Yash Joota Co. (Resident) pays royalty to Nike USA (NR) for using a trademark in its Indian shoe business. → Deemed to accrue in India in Nike's hands.
Royalty Example 2: Nora Shoe Inc. (NR) pays royalty to Nike USA (NR) for trademark used in Nora's business in India. → Deemed to accrue in India in Nike's hands.
FTS Example: Apple Inc. (NR) pays FTS to Elon Musk (NR) for technical consultancy used by Apple in earning income from any source in India. → Deemed to accrue in India in Elon's hands.
⚠️ Common exam mistakes
Applying the Interest rule (NR payer must use for B/P in India) to Royalty/FTS — for Royalty/FTS, 'any source in India' also triggers taxability.
Thinking the NR provider must have a place of business in India for FTS/Royalty to be taxable — utilisation in India is enough.
Confusing 'managerial services' with ordinary commercial services — only specialised managerial/technical/consultancy work falls within FTS.
Bare-Act text Sections 9(1)(vi) and 9(1)(vii) · Income-tax Act, 1961 · click to expand
Section 9(1)(vi) — Royalty payable by (a) the Government; (b) a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on outside India or for making or earning any income from any source outside India; or (c) a non-resident, where the royalty is payable in respect of any right, property or information used for the purposes of a business or profession carried on in India or for making or earning any income from any source in India.
Section 9(1)(vii) — Fees for Technical Services payable by (a) the Government; (b) a resident, except where the fees are payable in respect of services utilised in a business or profession carried on outside India or for making or earning any income from any source outside India; or (c) a non-resident, where the fees are payable in respect of services utilised for the purposes of a business or profession carried on in India or for making or earning any income from any source in India.
Explanation: Income deemed to accrue or arise in India under (v), (vi), (vii) shall be included whether or not the non-resident has a residence/place of business/business connection in India, or has rendered services in India.