Section 80RRB - Deductions, Limit, and Eligibility

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.

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.

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.

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