05/05/2026
The Finance Bill 2026 has expanded the definition of “royalty” under Section 2 of the Income Tax Act. The new definition now covers a much wider range of digital and software-related payments.
New Definition of Royalty
“Royalty” means any payment made as consideration for the use or right to use:
-Any copyright of a literary, artistic or scientific work
-Any software – including licence, development, training, maintenance or support fees
-Cinematograph films, patents, trademarks, designs, formulas or processes
-Industrial, commercial or scientific equipment
-Information concerning industrial, commercial or scientific equipment or experience
-Proprietary digital platforms, payment networks, payment-card schemes, payment processing systems, switching, clearing or settlement systems – including access, participation or usage rights
-Any service fee, transaction fee, network fee, assessment fee, processing fee or similar charge
-Distribution of software where regular payments are made through a distributor
Key Impact:
This change brings almost all digital services, fintech payments, software subscriptions, app fees, merchant service fees, interchange fees and platform usage fees under withholding tax. It is expected to take effect from 1 July 2026.
Businesses in the digital economy, software, fintech, payment processing and e-commerce should review their contracts immediately — many payments that were previously treated as service fees may now be reclassified as royalties and attract withholding tax.
