Section 80RRB

What is Section 80RRB?

Section 80RRB of the Income Tax Act allows resident individuals in India to claim a deduction on royalty income received from patents. This deduction is aimed at encouraging innovation and research by providing tax benefits to individuals who generate income from their patented inventions. The deduction is limited to the lesser of the royalty income received, Rs. 3,00,000, or the gross total income derived from patents. To be eligible, the patent must be registered under the Patents Act, 1970. This deduction can significantly reduce the tax liability of individuals who receive royalty income from their patents.

Eligibility Criteria for Claiming Deductions Under Section 80RRB

To be eligible for claiming deductions under Section 80RRB, an individual must meet the following criteria:

• Resident Individual: The individual claiming the deduction must be a resident of India. HUFs or non-residents are not eligible.

• Original Patent Holder: The individual must be the original owner or co-owner of the patent. This means they must hold the patent rights directly, not through a third-party agreement.

• Patent Registration: The patent must be registered under the Patents Act, 1970, on or after April 1, 2003.

• Royalty Income: The income must be derived from royalties received from the patented invention.

• Foreign Royalty: If the royalty income is received from a foreign source, it must be brought into India within six months of the end of the financial year and declared in the income tax return.

Amount of Deduction under Section 80RRB

The amount of deduction under Section 80RRB is limited to the lesser of the following:

• Rs. 3,00,000: This is the maximum amount that can be claimed as a deduction.

• Actual Royalty Income: If the royalty income received is less than Rs. 3,00,000, only the actual amount can be claimed as a deduction.

What is a Patent?

A patent is a legal right granted by a government to an inventor for a limited period. This right protects the inventor's invention, which can be a new product, process, or a significant improvement to an existing one. In exchange for this exclusive right, the inventor must publicly disclose detailed information about their invention, contributing to the advancement of technology and knowledge. Patents encourage innovation by providing inventors with a strong incentive to develop new ideas, knowing that they will have exclusive rights to commercialize their inventions.

What are the Deductions Under Section 80RRB for the Royalties Received Against a Patent?

• Maximum Deduction Limit: The maximum deduction allowable under Section 80RRB is Rs. 3,00,000. If the actual royalty income received is less than Rs. 3,00,000, the deduction can be claimed for the actual amount received.

• Eligibility: Only resident individuals (not HUFs or non-residents) can claim this deduction. The individual must be the original patent holder.

• Foreign Royalty Income: If royalty income is received from a foreign source, it must be brought into India within six months of the end of the financial year and declared in the income tax return.

• Documentary Evidence: Adequate documentation, such as royalty agreements and payment receipts, is necessary to substantiate the claim.

• Compulsory Licensing: If the government grants a compulsory license, the deduction cannot exceed the royalty amount determined by the Controller of Patents.

• Tax Regime: It's important to note that this deduction is available only under the old tax regime.

Things to Consider While Claiming Deduction Under Section 80RRB

While Section 80RRB offers a significant tax benefit for individuals receiving royalty income from patents, it's essential to consider the following points to ensure eligibility and maximize the deduction:

1. Eligibility:

   • Resident Individual: Only resident individuals in India can claim this deduction. HUFs and non-residents are not eligible.

   • Original Patent Holder: The deduction is applicable only to the original patent holder.

   • Royalty Income: The income must be derived solely from royalties, not from the sale of products manufactured using the patented process or article.

2. Foreign Royalty:

   • If the royalty income is received from a foreign source, it must be brought into India within six months of the end of the financial year.

   • A prescribed certificate from the relevant authority is required to claim the deduction.

3. Documentation:

   • Adequate documentation, such as proof of royalty payments, is necessary to substantiate the claim.