Deferred Taxes and their Accounting
April 20, 2018
Tax Audit under Section 44AB of Income Tax Act
April 21, 2018

Tax Deduction under Section 80RRB

Last Update Date : October 15, 2018

Section 80RRB Deduction

Personal Income tax being a prime source of revenue for the government ensures that its citizen doesn’t find it a burden to pay a portion of their income as Income Tax. There is a paramount contribution of new ideas, creation for the development of nation from its citizen. India is home to a few greatest minds, to fortify the rights of this innovators patent is brought into the picture. The Income Tax Act, 1961 provides a provision of tax deductions under section 80RRB for individuals who receive an income as royalty on their patents just to foster innovation in the country. Let us understand in depth about Section 80RRB.

What is Patent?

A patent as known is a government license that gives the holder exclusive rights to a process, design or new invention for a designated period of time. This right is conferred in exchange of details of a particular invention or creation. A patent is an intellectual property and the patent holder can ensure that his/her rights are protected after an idea or product is developed.

e.g, Miss Neha, Chartered Accountant by profession. She comes up with an idea and creates a unique application exclusively for writers. An application that makes life easier for all those who passionately love to write. She applies for a patent and receives it, and gets a certain amount as royalty on her product for next 3 years.

What is Royalty?

Royalty basically means the payment made to an owner for the use of property, especially patents, copyrights works, franchise etc. Considering the example of Miss Neha, she grants a MNC the right to use her idea, with the company offering her a certain sum as royalty for it.

Why you should Patent an Invention?

India is a home for some of the greatest minds in this world. Every day it witnesses people with new ideas, new creation and new technologies. In order to protect this creation, the creator has been given a right for a specified period of time known as Patent. Patent rights are conferred in exchange of details of a particular invention or creation through a process called Patent Registration.

Note: Only those inventions which are patented can earn royalty income.

How to Claim Deduction under Section 80RRB of Income Tax Act?

In order to claim deduction u/s 80 RRB Author must obtain certificates from the person paying royalty in prescribed form 10(CCD).

Section 80RRB Deduction Limit

  • Individuals can claim for royalty income earned or Rs 3,00,000 whichever is less.
  • The total income of such an individual can be from royalty plus additional sources, with only that income received as royalty eligible for deductions.
  • Individuals who earn royalty from foreign shores can claim deductions only within 6 months from the end of the last year in which the income was received. Patent holders who are unable to furnish due cannot claim deduction for the same.
  • Let’s say, for FY 2017-18, previous year ends on 31st March, 2018. Royalty Income Should be received in India within 6 months, i.e. by 30 September, 2018.

Who is Eligible to Claim Deduction under Section 80RRB?

There is certain eligibility criterion described below in order to claim deduction u/s 80RRB:

  • Indian Resident -The individual must be an Indian resident.
  • Patent Holder – Only patentees can claim this tax deduction. Individuals who do not hold the original patent are not eligible for tax benefits.
  • Patent Registration -The patent must be registered under the Patent Act of 1970, either on or after April 1, 2003.

Most Frequently Asked Questions

Q. Neeta, is an author receives royalty on her books. Can she claim deduction u/s 80RRB?

No. she cannot claim for tax exemption u/s 80RRB but she is eligible for tax exemption u/s 80QQB.

Q. Can a Non-Resident claim deduction u/s 80RRB for royalty Income?

No. A non-resident cannot claim for tax deduction under this section. It is only for those who are resident in India. Neither any assessee other than Individuals are eligible for the same such as HUFs, Company, and partnership.

Q. What is the maximum amount of exemption allowed under this section?

You can claim up to a maximum of Rs 3,00,000 u/s 80RRB.

Income Tax e-filing

India being a democratic country works collectively for the social and economic development of its nation equally. Though its citizens contribute equally a portion of income which constitutes for tax plays a vital role. These taxes go to the government and facilitates the smooth functioning activities and operations thus, reducing financial curb.

In order to save tax, the Income tax Act offers a host of tax exemptions and deductions to persons who regularly pay their taxes. These deductions are specified under chapter VI-A head and can be claimed by contributing towards donation, charity, education, medical treatment, investment, retirement schemes, and Mutual funds and so on.

Looking forward to a deeper understanding of these deductions? Visit the Tax Forum by H&R Block India where you can our tax experts will answer all your tax-related questions.

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