Section 80RRB: Deductions on Income from Patent Royalty

Are you someone who loves creating things like writing books, making music, or coming up with cool inventions? If yes, the money you make often comes from people enjoying or using what you create, and that's what is known as royalty.

Now, the Government of India has this special rule called Section 80RRB in the Income Tax Act, 1961, just for creative people like you who earn through royalties. And, what this rule does is that it helps you reduce the amount of income tax you need to pay. In short, think of Section 80RRB as a little reward for your creative work. 

So, if you're curious to know more about this awesome tax deduction, you're in luck. In this guide, we'll cover everything about Section 80RRB, like how much you can deduct, who can benefit, and more.

What is Section 80 RRB?

Section 80RRB of the Income Tax Act is related to the deduction of income tax for individuals who receive income as a royalty for a patent. This means that if you have earned money from a patent that you own, this section will allow you to claim a deduction on the royalty income for tax purposes.

One thing to note here is that the deduction is available for a specified percentage of the gross total income, and certain conditions and limits may apply.

Meaning of Patent and Royalty

A “patent” is like a special certificate granted by the government to the person who invents something new or unique. It could be a new product, a new way of doing something, or a new and useful improvement on an existing product or process.

Having a patent means that the inventor has exclusive rights to use, make, and sell your  invention for a certain period, usually 20 years. It basically protects your idea from being copied by others.

On the other hand, “Royalty” is like a payment or a fee that one person or company pays to another for using or enjoying something that belongs to the other person or company. In the context of Section 80RRB, it specifically refers to the money earned by the person who owns the patent when others use or benefit from that patented invention.

Eligibility Criteria for Claiming Deductions under Sec 80 RRB

The eligibility criteria for claiming deductions under Section 80RRB are as follows:

• Residency Requirement: Only Indian residents qualify for Section 80RRB; Hindu Undivided Families (HUF) and non-residents are ineligible.

• Patent Ownership Criteria: To claim the deduction, the taxpayer must be the owner or co-owner of an original, registered patent.

• Registration under Patent Act: The original patent held by the taxpayer must be officially registered under the Patent Act of 1970.

• Documentation for Royalty Payments: Valid documents proving royalty payments must be provided by the taxpayer to support the deduction claim.

• Royalties for Patents Post March 31, 2003: The taxpayer should receive royalties for a patent registered after March 31, 2003, including non-returnable advance royalties. 

• Mandatory Income Tax Return Filing: Filing an income tax return is important for the taxpayer to claim the Section 80RRB deduction.

• Submission of FORM No. 10CCE: Along with the ITR, the taxpayer is required to submit an online certificate i.e. FORM No. 10CCE, signed by the relevant authority.

Deductions Under Sec 80RRB for Royalties Received Against a Patent

As outlined in Section 80RRB of the Income Tax Act, 1961, income received as a royalty on a patent is eligible for tax deductions. It's important to note that, if you have additional income sources, only the royalty amount will be eligible for tax deductions under Section 80RRB. 

The maximum deductible amount under this section of the Income Tax Act is Rs. 3,00,000 for original patent holders. Moreover, any income exceeding this limit becomes taxable. 

Things to Remember While Claiming Deduction Under Section 80RRB

Below-mentioned are the important considerations that one must keep in mind:

• Residency Requirement: Only people living in India can benefit from this deduction. It's not for families (HUFs) or those living outside India.

• Royalty Income Eligibility: This deduction applies to money earned as royalty. This includes rights transfer in a patent, providing information for patent use, and related services. It doesn't cover sales of products made using patented processes.

• Exclusion for Product Sales: The deduction doesn't apply to money earned by selling products manufactured with patented processes.

• Royalty from Other Sources: If you have other income sources, only the money received as royalties can be deducted.

• Exclusive to Original Patent Holders: Only those who originally own the patent can claim this deduction under Section 80RRB.

• Foreign Royalty Payments: If you get royalties from other countries, you can deduct the amount brought to India in foreign exchange. This should happen within six months from the end of the financial year. 

• Importance of Documentation: It's highly advisable to have proof, like documents, showing you received royalty payments. Without these, your claim might be rejected.

Conclusion

Thus, Section 80RRB is useful for all those who want to save taxes when their source of income is through royalties. The maximum tax savings that can be availed under this section is Rs. 3 lakhs.

Frequently Asked Questions (FAQs)

1. Who is eligible to save taxes under section 80RRB?

If your source of income is through royalties, then you can save taxes under section RRB.

2. What is the maximum amount that can be claimed as tax deductions under section 80RRB?

You can claim a maximum of Rs. 3 lakhs as tax deductions under section 80RRB.

3. What is the tenure of royalties?

The royalties will last depending on the tenure mentioned in the lease agreement.

4. Can I get tax benefits under section 80RRB if the royalty received is from a foreign source?

Yes, you can enjoy tax benefits even if the royalty is received from a foreign source.