Section 80RRB - Deductions, Limit, and Eligibility

Section 80RRB outlines the conditions and other requirements for claiming a deduction on income received as royalties on patents.

As per Section 80RRB of the Income Tax Act, 1961, the royalty received by an assessee on the patent is eligible for income tax deductions. However, your patent should be registered under Patents Act, 1970.

Section 80RRB sets rules and limits for eligibility to claim deductions. If you have other sources of income as well, only the royalty amount can be made eligible for tax deductions u/s 80RRB of the Income Tax Act.

Meaning of Royalty on Patents

Innovators receive exclusive rights for their inventions from the relevant authorities who grant them the authority to allow others to utilise their innovations for a specific period. The right which has been granted to these innovators is called a patent.

As a patent holder, you can generate stable sources of income by allowing others to utilise the patented inventions. This income is called royalty. The royalty from patents can be fixed or varied, depending on the terms agreed upon by all the parties.

Deduction on Income from Royalty on Patent

As per Section 80RRB of the Income Tax Act, you can claim a deduction on your income received as royalties on a patent. This helps lower your tax liability and it also encourages citizens to invent.

Deduction Limit: Claim up to ₹3 Lakhs against the royalty payment; even the actual royalties received under ₹3 Lakhs are eligible
Income Source: Only the royalty amount received can be claimed for deduction if an individual has another income source
Eligibility: Only the original patent holders can claim deduction
Foreign Royalties: Deduction for royalties from a foreign country is valid if received within six months after the financial year ends
Documentation: Provide evidence of royalty payments to avoid rejection of claim
Eligibility Criteria: Deduction available for Indian citizens only; Non-resident Indians and HUFs ineligible
Royalty Agreement: Amount settled based on mutual agreement between parties

In some cases, the government may grant a compulsory license in the public interest. Here, you cannot claim a deduction for more than the settlement amount offered by the Controller of Patents of the Government.

Eligibility Criteria to Claim Deductions Under Section 80RRB

To claim the tax benefits under Section 80RRB of the Income Tax Act, 1961, you must fulfil the following:

You must be a citizen of India
Only the individuals who hold an original patent are eligible
Patent should be registered with the Patent Act, 1970 on or after April 1, 2003

What is the 25% rule in public finance and intellectual property?

In public finance, the 25% rule means that local governments' long-term debt should not exceed 25% of their annual budget. In intellectual property, it refers to a licensee paying a 25% royalty of the expected profits to the IP holder.

What do Sections 80H to 80RRB of the Income Tax Act cover?

Sections 80H to 80RRB of the Income Tax Act provide deductions for export profits, royalties, and patents, offering tax benefits to encourage economic activities.

How is royalty income calculated?

Calculate royalty income by determining the agreed royalty rate and multiplying it by the sales or usage amount.

Are HUFs eligible for tax deductions under Section 80RRB of the Income Tax Act, 1961?

No, only resident individuals can claim deductions under this section.

What is the maximum amount of tax deduction allowed under Section 80RRB of the Income Tax Act?

You can claim up to ₹3,00,000 as a deduction under Section 80RRB.

Can the royalty amount received from a foreign source be claimed for tax deductions under Section 80RRB?

If your royalties are earned overseas, you can claim a deduction only if they are brought back to the country within 6 months from the end of the financial year. You also need to bring them back in the form of convertible foreign exchange and furnish a signed certificate from the relevant authorities.