Section 80RRB Deduction for Patent Royalty

Section 80RRB is a facility which is provided in the Income Tax Act for taxpayers obtaining an income through royalty on a patent. The royalty received by an individual on the patent is eligible for tax deductions under Section 80RRB of the Income Tax Act. Thus, Section 80RRB deduction is aimed at encouraging innovation and patenting in India. In this article, we provide a detailed look at Section 80RRB of the Act.

Why Patent an Invention?

There are many people across India who regularly invent new creations and in particular those creations which can be of tremendous use across the globe. A patent, in simple words, is the right given by Law under which the creator has exclusivity over the invention for a specified time period. Patent rights are conferred in exchange of details of a particular invention or creation through a process called patent registration. Only those inventions that are patented can earn royalty income.

Royalty Income on Patent

Inventors hold the right of their innovations and creations if the invention is patented. In exchange for royalty, inventors can give third parties the right to use their ideas. Hence, royalty in simple words is nothing but the payment provided by the third party to the Inventor who created the product for use of the idea. The royalty income earned by the Inventor would be dependent on the invention and the terms of the agreement between the Inventor and the contracting party.

Eligibility Criteria for Section 80RRB Deduction

Deductions under Section 80 RRB can be claimed only upon satisfaction of a few basic criteria by the inventor:

The taxpayer should be an individual. Corporates and non-profit organisations are not eligible to claim any deduction under this section.
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 co-owner of a patent is eligible to claim a deduction under this section. However, deduction in respect of a particular patent can be claimed only once.
The name of the taxpayer who is claiming the deduction should be entered in the patent register as the patentee.
The assessee may make a sale of a product which was manufactured using patented processes. Alternatively, the assessee may sell the product which was patented. Such instances cannot be used to claim a deduction under this section.
A transaction which attracts capital gains tax cannot be used to claim a deduction under this section.
A deduction will be granted under this section only if the assessee furnishes in the electronic mode Form No. 10CCE.
To claim a deduction under this section, the assessee should mention the amount of deduction in the return of income.

Deduction Amount under Section 80RRB

The following points should be noted by a taxpayer who wishes to claim a deduction under Section 80RRB:

The royalty received by an individual on the patent is eligible for tax deductions under Section 80RRB of the Income Tax Act. In some cases, the total income earned by an individual on a Patent can be divided into royalty and additional income classified not under royalty. In all cases, the income received as royalty alone is eligible for a tax deduction.
The patent holder of a particular invention can claim tax deductions up to three lakh rupees on the income derived from patents. In case of the income being lower than Rs.3 lakhs, it is possible to claim deductions exclusively on the actual income the assessee received as royalty.
An assessee who earns royalty from foreign sources can also claim deductions but has a time duration of six months from the end of the year in which the income was received. Patent holders who are unable to furnish due proofs could find themselves in a position where their deductions are denied.

Form 10CCE Certificate

For claiming deduction under this section, the assessee is required to furnish a certificate in Form 10CCE. This Form is in two Parts. Part A is to be filled in by the assessee and Part B is to be filled in by the Controller General of Patents, Designs and Trade Marks. In order to file Form 10CCE logon to e-filing website. Under Tab 'e-file', Go to 'Prepare and Submit Online Form (other than ITR)'. Select Form 10CCE from the dropdown list and proceed to upload scanned copy of the Form in PDF or ZIP format. All the attachments should not exceed 50MB.

Form 10H Certificate

For claiming deduction in respect of any income earned from any source outside India, the assessee is required to furnish a certificate in Form 10H from 'competent authority'. The Certificate shall be usually issued by the bank through which the amount has been received in India. In order to file Form 10H logon to e-filing website. Under Tab 'e-file', Go to 'Prepare and Submit Online Form (other than ITR)'. Select Form 10H from the dropdown list and proceed to upload scanned copy of the form in PDF or ZIP format. All the attachment should not exceed 50MB. The assessee is also required to fill in a declaration online certifying that the particulars contained in the certificate are true and correct and nothing has been concealed. Know more about the benefits of registering a patent or file your income tax return through IndiaFilings.

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