Sections 59 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 59 says how a non-resident's royalty or fees for technical services are taxed as business income when the non-resident works in India through a permanent establishment or a fixed place of profession. Section 60 allows a non-resident a deduction for head office expenditure attributable to the Indian business, but caps it. This article reads both sections as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. A non-resident with an Indian permanent establishment can get help with these provisions through our NRI tax filing service.
Under section 59, royalty or fees for technical services received by a "specified assessee" (a non-resident who is not a company, or a foreign company) are computed as business or profession income, provided four conditions are met, and no deduction is allowed for expenditure that is not wholly and exclusively for the Indian permanent establishment, or for amounts paid to the head office or other offices (other than actual reimbursement). Under section 60, head office expenditure is allowed only up to 5% of adjusted total income (or 5% of the average adjusted total income where the assessee has a loss).
Section 59: when royalty and technical fees become business income
Section 59(1) applies to income in the nature of royalty or fees for technical services received by a specified assessee during a tax year. That income is computed under the head "Profits and gains of business or profession" if all four conditions in the sub-section are satisfied:
- the income is received from the Government or an Indian concern;
- the income is in pursuance of an agreement made by the specified assessee with the Government or the Indian concern;
- the specified assessee carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession situated in India; and
- the right, property or contract in respect of which the royalties or fees are paid is effectively connected with that permanent establishment or fixed place of profession.
The word "and" joins the conditions, so missing any one of them takes the income outside this section. The Act does not, in section 59, say how such income is taxed when the conditions are not met; that is for the other provisions of the Act, including the charging provisions covered in our note on section 4 of the Act.
Who is a "specified assessee"
Section 59(5) defines the term for this section only: a non-resident (not being a company) or a foreign company. An Indian-resident company or an individual who is resident in India is therefore not a specified assessee. Whether a person is resident or non-resident is decided under section 6; see section 6 on residential status.
What cannot be deducted
Section 59(2) bars any deduction against the income computed under sub-section (1) for two kinds of amounts:
| Clause | Amount for which no deduction is allowed |
|---|---|
| 59(2)(a) | Any expenditure or allowance that is not wholly and exclusively incurred for the business of the permanent establishment or fixed place of profession in India |
| 59(2)(b) | Amounts, if any, paid by the permanent establishment to its head office or to any of its other offices, otherwise than towards reimbursement of actual expenses |
So a payment to the head office is not deductible under section 59 unless it is a reimbursement of actual expenses. Section 60, discussed below, deals with the separate head office deduction for non-residents.
Interaction with section 61
Section 59(3) says that section 61 does not apply, so far as it relates to the business in the Table at serial number 5 of section 61(2), to the income referred to in section 59. That business is providing services or facilities (including supply of plant and machinery on hire) for prospecting, extraction or production of mineral oils. Section 61 is explained in our article on section 61 and presumptive income of non-residents. Section 61(6) works from the other side and says the section 61 provisions for serial number 5 do not apply where sections 54, 59, 207 or 527 apply.
Books of account and audit
Section 59(4) requires the specified assessee to keep and maintain books of account and other documents as per section 62, to get the accounts audited on or before the specified date referred to in section 63 by an accountant, and to furnish the audit report in the prescribed form, signed and verified by the accountant. The form and particulars are left to the rules ("as may be prescribed"); the detail is in the Income-tax Rules, 2026. For the substance of the obligations see section 62 on books of account and section 63 on tax audit.
Section 60: head office expenditure of a non-resident
Section 60(1) applies "irrespective of anything to the contrary contained in sections 26 to 54". In the case of a non-resident assessee, deduction of head office expenditure incurred by the assessee, as attributable to the business or profession in India, is allowed in computing business or profession income, subject to the limit in sub-section (2).
The cap in section 60(2)
| Situation | Upper monetary limit of deduction |
|---|---|
| Adjusted total income of the assessee is a loss | 5% of the average adjusted total income |
| Any other case | 5% of the adjusted total income |
Key definitions in section 60(3)
Adjusted total income means the total income computed under the Act, without giving effect to:
- the allowance referred to in section 60 itself or in section 33(11);
- the deduction referred to in section 32(i)(A);
- any loss carried forward under section 111(1), 112(1), 113(2) or 115(2); or
- the deductions under Chapter VIII.
Average adjusted total income depends on how many of the three tax years immediately preceding the relevant tax year the assessee is assessable for:
| Assessable for | Average adjusted total income |
|---|---|
| Each of the three preceding tax years | Arithmetic mean of adjusted total income over the three tax years |
| Only two of the three | Arithmetic mean over those two tax years |
| Only one of the three | Adjusted total income for that tax year |
Head office expenditure means executive and general administration expenditure incurred by the assessee outside India, including expenditure on:
- rent, rates, taxes, repairs or insurance of premises outside India used for the business or profession;
- salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of, or in addition to, salary, paid or allowed to any employee or other person employed in, or managing the affairs of, any office outside India;
- travelling by any such employee or person; and
- such other matters connected with executive and general administration as may be prescribed.
Worked example
Kestrel Marine Services Inc., a foreign company with a permanent establishment in India, has an adjusted total income of Rs. 2,00,00,000 for the tax year (an assumed figure for illustration). It incurs head office expenditure of Rs. 14,00,000 attributable to its Indian business. The cap is 5% of Rs. 2,00,00,000 = Rs. 10,00,000. The deduction allowed under section 60 is therefore Rs. 10,00,000, and the balance of Rs. 4,00,000 is not allowed under this section.
Now suppose the adjusted total income for the tax year is a loss, and the assessee was assessable in each of the three preceding tax years with adjusted total income of Rs. 30,00,000, Rs. 60,00,000 and Rs. 90,00,000 (assumed figures). The average is (30,00,000 + 60,00,000 + 90,00,000) / 3 = Rs. 60,00,000. The cap is 5% of Rs. 60,00,000 = Rs. 3,00,000.
Need help with non-resident business income?
A non-resident or foreign company that earns royalty or technical fees from India has to read sections 59 to 62 together with the residence and tax-audit rules. Our team can walk through your agreements and income streams through our NRI tax filing service, so that the right head, deduction and audit position is taken for each tax year.
Key takeaways
- Section 59 applies only to a "specified assessee": a non-resident (not a company) or a foreign company.
- All four conditions in section 59(1) must be met, including that the right, property or contract is effectively connected with the Indian permanent establishment or fixed place of profession.
- Payments to the head office or other offices are not deductible under section 59, except as reimbursement of actual expenses.
- Section 60 caps head office expenditure at 5% of adjusted total income, or 5% of average adjusted total income where there is a loss.
- Books of account (section 62) and audit (section 63) apply under section 59(4); the form is left to the rules.
Read next
- Section 58: presumptive taxation
- Section 61: presumptive income of non-residents
- Section 62: books of account
- Income-tax Act 2025 Chapter IV: computation of total income
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.