Under the Income Tax Act, Section 80RRB was introduced to encourage innovation in India as it helps in safeguarding the interest of an individual on the patent that he owns. Let us understand Section 80RRB in brief.
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There are citizens of India who depends upon the royalty as a primary source of income either on their books, innovation, invention, music and so forth. Section 80RRB under Income Tax Act has been written keeping this in mind so that they can create and innovate.
Section 80RRB under Income Tax Act is related to those individuals whose source of income is royalty on their artwork, patent on their invention or innovation etc. The taxpayer receiving royalty is also eligible to claim deduction under this Act.
The patent is an intellectual property right authorize by Intellectual Property Act that provides an exclusive right to the owner. The rights that are included under this act includes using and selling the invention or innovation for a specific period of time. Howsoever, in order to earn royalty income, an individual has to get their invention or innovation patented.
The individual who invents and creates has all the rights over their invention and creation provided that they have patented the same. These rights include giving these inventions or creation to the third party and in return, they charge them royalty. So we can say that royalty is an income earned by the patent owner by giving the rights to the third party to use their idea. Howsoever, the amount of royalty the owner earns wholly depends upon the terms and condition of the contract between him/her and the third party.
To claim deductions against Section 80RRB the individual must satisfy the following eligibility criteria:
- The person claiming deduction shall be a resident of India.
- The person shall have an original patent in order to claim deduction under Section 80RRB, any person not having an original patent cannot claim the deduction.
- Such patent on which the person is earing royalty on shall be registered on or after 1st April 2003 under the Patent Act, 1970.
As mentioned before the royalties earned on the patents is eligible for deduction under Section 80RRB. Here is the list of some important points that shall be noted regarding the deduction under Section 80RRB: –
- A person can claim a deduction for the amount of up to 3 Lakhs INR against the total royalty payments.
3 Lakh INR is the maximum amount of deduction that a person can claim under Section 80RRB. In case if the royalties earned are less than 3 Lakhs INR then that amount would be eligible for deduction.
- The actual royalty income will be eligible for deduction if in case a person has some other source of income.
- Only the original person holding the patent is eligible to claim the deduction under Section 80RRB.
- In case if a person receives a royalty from a foreign territory or country, then that person can only claim the deduction to those royalties that are received within six months of that particular financial year.
- The person receiving the royalty payment shall have proper documents and evidence of the royalty payments or else the claim for the deduction could be rejected.
- Hindu Undivided Family and Non-Resident of India cannot claim the deduction under Section 80RRB
- As we have already discussed the royalty amount is generally a matter between the owner and the third party. Howsoever, there can be some scenarios that if the Government finds it fit for the public use then it might give a compulsory license to use the patent in public interest. Moreover, the royalty payable will be decided by the Controller of Patents of the Government. The person cannot claim the deduction in excess to the settlement amount.
If you are an innovator or creator then to claim the deduction hassle-free, it is important to keep the above points in mind.