Income tax Benefit on Royalty Income of Indian Resident

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Income tax Benefit on Royalty Income of Indian Resident

There are lot of deductions which are not claimed by the taxpayer due to ignorance or lack of knowledge. One such deduction is income by way of Royalty.

‘Royalty’ is considered as an income received by the innovator against the usage of the patented innovation.  Any individual receiving income by way of Royalty can claim deduction under section 80RRB of the Income Tax Act – 1961 subject to few terms and conditions.

Key feature of scheme of deduction under section 80RRB towards Royalty Payment is as under:

  1. The deduction under section 80RRBis available only to a resident individual. It means any HUF, Company, firm etc will not be eligible to claim deduction u/s 80RRB. Further, individual should be resident in India.
  2. The individual has to be a patentee himself. Patentee means the person (one or more than one person), being the true and the first investor, whose name / names is entered on the patent register as the patentee.
  3. The individual is receiving a royalty in respect of a patent registered on or after 1stApril 2003 under the Patent Act, 1970. Royalty in respect of a patent means consideration for the following –

– The transfer of all / any rights in respect of patent; or

– Imparting of any information regarding the working or use of a patent; or

– The use of any patent; or

– Rendering of any services in connection with the activities referred above. However, it includes any lump sum consideration, but excludes the following –

  • Any consideration which would be income chargeable under the head ‘Capital Gains’; or
  • Any consideration for the sale of product manufactured with the use of patented process or article for commercial use.
  1. The assessee claiming the deduction under section 80RRB is mandatorily required to furnish a certificate in Form No. 10CCE. Such a certificate in Form No. 10CCE should be duly signed by the prescribed authority. The certificate is to be filed at the time of filing of an income tax return.

5. In case the royalty income is earned outside India, the deduction under section 80RRBshall be available only on so much of income earned which is brought back in India.

6. Such income should have been brought back in a convertible foreign exchange, within a period of six months (or within such extended time) from the end of the previous year in which the income is earned.

7. In such case, the assessee is mandatorily required to furnish a certificate in Form No. 10H.

8. In case deduction in respect of royalty income has been claimed under section 80RRB, no further deduction in respect of such income shall be allowed under any other provisions of the Income Tax Act in any assessment year.

 QUANTUM OF DEDUCTION

There is a maximum cap on deduction admissible u/s 80RRB. The maximum amount of deduction available under section 80RRB is lower of the following –

  • The total amount of income received from the royalty of patent; or
  • INR 3 Lakhs.

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