Non-Compete fees
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
24 September 2010
Hi all any amount recieved on sale of technical know-how for manufacture is chargeble to tax....?
If yes what s the reason?
Under which section?
If yes what s the reason?
Under which section?
24 September 2010
The above transaction will fall in to professional , technical and consultancy service and the payer will deduct TDS u/s 194 J @ 10 %.
Querist : Anonymous
Querist :
Anonymous
(Querist)
24 September 2010
No payer is not deducted
Querist : Anonymous
Querist :
Anonymous
(Querist)
24 September 2010
and moreover we are recieving against sharing a knw hw
04 August 2024
Yes, amounts received from the sale of technical know-how or non-compete fees can be taxable under certain conditions. Here’s a detailed explanation of how this income is treated under Indian tax laws:
### **Tax Treatment of Technical Know-How Fees:**
#### **1. **Nature of Income:**
- **Technical Know-How Fees:** Income received for the sale of technical know-how is generally considered as income from "Intellectual Property Rights" or "Royalty." It refers to payments for the transfer of technical expertise, patents, copyrights, or other intellectual property.
#### **2. **Taxability Under Income Tax Act:**
- **Section 28 (i):** According to Section 28 of the Income Tax Act, any income from the transfer of technical know-how is treated as business income. Specifically:
- **Section 28 (i)** includes income from the transfer of technical know-how or patents and copyrights as business income.
- **Section 9 (1)(vi):** If the income is received from a non-resident, it may be considered as "Royalty" under Section 9(1)(vi) of the Income Tax Act and taxed accordingly:
- The term "royalty" under this section includes payments for the transfer of technical know-how.
#### **3. **Reason for Taxability:**
- **Intellectual Property Rights:** Payments for technical know-how are considered income from intellectual property rights, which are taxable under the provisions governing royalty or business income.
- **Business Income:** If the transaction is part of your business activities, it is treated as business income under Section 28. This means it is subject to tax under the head "Profits and Gains of Business or Profession."
#### **4. **Tax Deducted at Source (TDS):**
- **TDS Provisions:** While the payer is required to deduct tax at source (TDS) under Section 194J (which applies to payments for professional services and royalty), the absence of TDS does not affect the taxability of the income. You are still required to report and pay tax on this income while filing your income tax return.
#### **5. **Filing and Reporting:**
- **Declare in ITR:** When filing your income tax return, you need to declare this income under the appropriate head:
- If it is part of your business operations, report it under "Profits and Gains of Business or Profession."
- If it is not part of your business but a one-time receipt, it should be reported under "Other Sources" if applicable.
- **Claim TDS Credit:** If any TDS was deducted and not reflected in your return, claim the TDS credit appropriately using Form 26AS or through the income tax return filing process.
### **Action Steps:**
1. **Determine the Nature of Income:** Confirm if the amount received qualifies as technical know-how fees or royalty under the Income Tax Act.
2. **Declare the Income:** Report this income under the correct head in your income tax return.
3. **Ensure Compliance:** Even if TDS was not deducted by the payer, you must declare the income and pay the applicable tax.
### **Additional Points:**
- **Consult a Tax Professional:** For specific advice, especially if the amount is substantial or involves complex transactions, consult with a tax advisor or chartered accountant.
- **Maintain Documentation:** Keep records of the transaction, including agreements or contracts, to substantiate the nature of the income and ensure proper reporting.
By following these guidelines, you can ensure proper reporting and compliance with tax regulations for amounts received from the sale of technical know-how.
### **Tax Treatment of Technical Know-How Fees:**
#### **1. **Nature of Income:**
- **Technical Know-How Fees:** Income received for the sale of technical know-how is generally considered as income from "Intellectual Property Rights" or "Royalty." It refers to payments for the transfer of technical expertise, patents, copyrights, or other intellectual property.
#### **2. **Taxability Under Income Tax Act:**
- **Section 28 (i):** According to Section 28 of the Income Tax Act, any income from the transfer of technical know-how is treated as business income. Specifically:
- **Section 28 (i)** includes income from the transfer of technical know-how or patents and copyrights as business income.
- **Section 9 (1)(vi):** If the income is received from a non-resident, it may be considered as "Royalty" under Section 9(1)(vi) of the Income Tax Act and taxed accordingly:
- The term "royalty" under this section includes payments for the transfer of technical know-how.
#### **3. **Reason for Taxability:**
- **Intellectual Property Rights:** Payments for technical know-how are considered income from intellectual property rights, which are taxable under the provisions governing royalty or business income.
- **Business Income:** If the transaction is part of your business activities, it is treated as business income under Section 28. This means it is subject to tax under the head "Profits and Gains of Business or Profession."
#### **4. **Tax Deducted at Source (TDS):**
- **TDS Provisions:** While the payer is required to deduct tax at source (TDS) under Section 194J (which applies to payments for professional services and royalty), the absence of TDS does not affect the taxability of the income. You are still required to report and pay tax on this income while filing your income tax return.
#### **5. **Filing and Reporting:**
- **Declare in ITR:** When filing your income tax return, you need to declare this income under the appropriate head:
- If it is part of your business operations, report it under "Profits and Gains of Business or Profession."
- If it is not part of your business but a one-time receipt, it should be reported under "Other Sources" if applicable.
- **Claim TDS Credit:** If any TDS was deducted and not reflected in your return, claim the TDS credit appropriately using Form 26AS or through the income tax return filing process.
### **Action Steps:**
1. **Determine the Nature of Income:** Confirm if the amount received qualifies as technical know-how fees or royalty under the Income Tax Act.
2. **Declare the Income:** Report this income under the correct head in your income tax return.
3. **Ensure Compliance:** Even if TDS was not deducted by the payer, you must declare the income and pay the applicable tax.
### **Additional Points:**
- **Consult a Tax Professional:** For specific advice, especially if the amount is substantial or involves complex transactions, consult with a tax advisor or chartered accountant.
- **Maintain Documentation:** Keep records of the transaction, including agreements or contracts, to substantiate the nature of the income and ensure proper reporting.
By following these guidelines, you can ensure proper reporting and compliance with tax regulations for amounts received from the sale of technical know-how.
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