Section 80RRB: Tax Saving on Royalty Income on Patent

Section 80RRB of Income Tax Act

Section 80RRB is introduced by the income tax department for individuals to claim deduction on the royalty of their patents. It is basically done to encourage individuals to come forward and choose the work of their choice to claim maximum deduction through their patents. The main purpose of creating section 80RRB is to promote artistic innovations and inventions in the field of art such as writing, music, painting etc.

Royalty income on patent

When an individual (innovator) gives right to some other person or entity to use his or her patent and in return receives royalty, it is known as Royalty income on patent. Firstly, Innovator invents an idea, later the same idea will be used by other entities in order to create a product and make them available for commercial purposes. The business entity generates income by selling these products and the royalty income is given in return to the innovator. A fixed amount or a percentage of sales as royalty is provided to the innovator annually till the patent rights are being used by the entities as mentioned in the royalty clause of a lease agreement.

Maximum amount of allowable deduction under Section 80RRB

The Maximum amount of deduction an individual can claim under section 80RRB is lower of the following –

1. Total amount of royalty received from the patent.

Or

2. 3 Lakhs

Eligibility criteria for claiming deduction under section 80RRB

In order to get eligible for claiming deduction under section 80RRB, you need to meet the following eligibility criteria –

1. Only individuals are eligible to claim deduction under section 80RRB (HUF’s or Non-residents are not eligible to claim deduction).
2. The individual must be a resident of India.
3. The individual must hold an original patent in order to claim deduction. He/she must be an owner or co-owner of the holding patent.
4. The original patent of the individual must be registered under Patent act, 1970.
5. The individual must produce the relevant documents of royalty payment in order to claim deduction under section 80RRB of the income tax act.
6. The taxpayer must file income tax return in order to claim deduction along with online certificate in form no. 10CCB, duly signed by the relevant authority.
7. The taxpayer earning royalty from the patent must be registered under patent act after 31st March 2003. It also includes royalty paid in advance. However, capital gains will not be treated as royalty.
8. The taxpayer is not eligible to claim deduction on the same amount that has already been claimed in the previous year under section 80RRB. Double deduction is not allowed.

Exceptions under section 80RRB

1. If you are earning royalty outside India, you are only eligible to claim deduction on the amount that you brought back to India under section 80RRB of the income tax act.
2. The income you earned as royalty must be brought back to India within 6 months from the date on which you earned the royalty.
3. The amount must be brought back to India in the form of convertible foreign exchange.
4. In such cases, taxpayer mandatorily provides the certificate of foreign inward remittance in form 10H in order to claim deduction.

In case you want to ask any question related to section 80RRB and want to claim this as deduction in your income tax return, kindly call us on 8800221252 or you can also e-mail us at info@finacbooks.com