ICICI

Deduction u/s 80RRB: Royalty for Patents

VISHAL BANSAL 
on 27 November 2018


What is Patent-

The government authority or license conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention". A patent is an intellectual property which generally comes out of invention and ensures the protection of rights of the holder

What is Royalty-

Royalty means the payment made to an owner for the use of property, especially patents, copyrights works, franchise etc.

For example-

If any company registered his patent name "Puroplast "with the licensing authority, no one can use this patent name, or if any person wants to use the patent name, they have to take permission from the registered owner of the patent. For using the patent name he has to pay some consideration on monthly or yearly basis to the registered owner of that patent name. This consideration is called Royalty.

Who is eligible for deduction u/s 80RRB

  • The individual claiming a deduction should be an Indian resident.
  • Only patentees can claim this tax deduction. Individuals who do not hold the original patent are not eligible for tax benefits.
  • The patent under Section RRB in question should be registered under the Patent Act of 1970, either on or after April 1, 2003.

The royalty received by an individual on his/her patent is eligible for tax deductions under Section 80 RRB of the Income Tax Act.

Amount of Deduction u/s 80RRB-

Income received as Royalty on Patent or Rs. 3,00,000, whichever is lower

Conditions to avail deduction u/s 80RRB--

  • The Individual should be Resident in India
  • Taxpayer must be Owner of C-owner of the patent.
  • Individual must file his Income tax return to claim the above deduction.
  • In order to claim deduction u/s 80 RRB, Assessee must obtain certificates from the person paying royalty in prescribed form 10(CCE).
  • In case of foreign remittance, the assessee is required to furnish form 10H from competent Authority. The certificate shall be issued by the bank through which the amount has been received in India.

Royalty received from abroad:-

In case of receipts from outside India, deduction will be available only on income which is brought into India within 6 months from the end of previous year or within the additional time as provided by Reserve Bank of India (RBI). For example F.Y. 2018-19, years end on 31.03.2019, royalty income should be received up to 30.09.2019 i.e. within 6 months.

For Example-

Mr. X has received royalty income for using his patent rights to another person Mr. Y. As per agreement Mr. Y pay Rs. 50,000/- per month to Mr. X. The agreement is valid for one year. What will be the deduction amount under section 80RRB?

Answer- 

Mr. X received Rs. 50,000 per month i.e. he has received Rs. 6,00,000 in a year. 
Amount Received Rs. 6,00,000 or Rs. Maximum amount of limit Rs. 3,00,000, whichever is lower. 
So, Mr. X is eligible for deduction under section 80RRB of Rs. 3,00,000.


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