Royalties on patents are similar to rewards for producing excellent work. Section 80RRB was included to the Income Tax Act to encourage people. Taxpayers may deduct revenue from royalties on patents under this clause. According to section 80RRB, the taxpayer is qualified to make a deduction claim. The main objective is to promote excellent work and patenting in India. Section 80RRB - Meaning of Patent
Innovating is a common occurrence in our nation. Every new idea benefits society and the nation as a whole. The appropriate authorities provide inventors an exclusive right to each new innovation. This gives them the right to allow others to make restricted use of their idea. A patent is the title given to the innovators. The patent application contains a full disclosure of all the invention’s technical details. Patents safeguard the inventor’s intellectual property rights. By allowing others to utilise their patented invention, the inventor might so make consistent money.
Royalty is defined under tax law as follows:
“royalty,” in respect of a patent, means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains” or consideration for the sale of product manufactured with the use of patented process or the patented article for commercial use) for— (i) the transfer of all or any rights (including the granting of a license) in respect of a patent; or (ii) the imparting of any information concerning the working of, or the use of, a patent; or (iii) the use of any patent; or (iv) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iii);
What is Royalty income on a patent?
The inventor gets compensated when they provide another person or organisation the right to exploit their patented idea. This is allegedly royalties from a patent. Typically, the inventor creates a concept. The same concept is used by other organisations to create a successful product for use in commerce. The corporate entity makes money from the sale of these goods. The inventors are taken into account for this in the form of royalties received in exchange for their usage rights. Up until the rights are exploited, innovators receive an annual set payment or a portion of sales.
Concept of Section 80 RRB
Royalty income for patents is the amount received by the innovator against the usage of their new patented innovation. This can include books, inventions, music, art, etc. These payments are recurring in nature for a specified time period. Individuals who receive this kind of income against their innovations can claim deductions under section 80RRB of the Income Tax Act, 1961.
Amount of Deduction under Section 80RRB
The amount of deduction under section 80RRB is Rs. 3 Lakh or Income earned from “royalty of patent” whichever is less.
Who is eligible for claiming a deduction under section 80RRB?
Numerous criteria must be satisfied to claim deduction under section 80RRB.
They are: The individual who wants to claim the deduction should be a resident of India (HUF or Non-residents are not allowed to claim this deduction) . Only resident individuals in India are eligible for the deduction.
The taxpayer must be an owner or co-owner of the patent and hold an original patent to apply for the deduction. With an original patent, one can apply for this deduction.
The original patent that the taxpayer has must be registered with the Patent Act of 1970.
The documents that are the evidence of royalty payments are to be produced to claim the deduction.
The taxpayer must receive a royalty for a patent registered under the Patent Act after 31st march 2003. This also includes advance royalty, which is not returnable. Anything that is chargeable in capital gains is not considered a royalty.
The assessee must file the return of income to claim the deduction.
The taxpayer must furnish an online certificate in FORM No. 10CCE, signed by the relevant authority with the return of income. No Double deduction: Where a deduction for any previous year has been claimed and allowed in respect of any income referred to in this section 80RRB, no deduction in respect of such income shall be allowed under any
other provision of the Act in any assessment year.
Treatment of Royalty from foreign sources
When royalties are received from some international sources, additional requirements must be met in order to claim the deduction. As follows: The assessee must bring the earned income to India in convertible foreign currency.
The earned income must be brought into India within six months after the end of the preceding year in which it was earned, unless otherwise stipulated by the Reserve Bank of India (RBI) or another authorised body.
Conclusions
Tax obligations for royalties received from patents are avoided by this provision. If you are an inventor and create new goods, patent them to receive royalties and to qualify for Section 80RRB deductions. Obtain exclusive rights and compensation for your inventions. You can apply for the deduction and lessen your tax obligation against this income. The reduction that can be made is the lesser of the royalty received or Rs. 3 lakh.
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