Section 80RRB - Meaning, Deduction Limit & More

What is Section 80RRB?

Section 80RRB of the Income Tax Act provides tax benefits against payments received as royalty. The section was introduced to make sure that the innovators or someone who has done exceptional work gets rewarded. To encourage such individuals and their work, this section allows deductions in income tax. Royalty is an amount paid to a person by another party against the usage of work done by him/her.

The said work for which a royalty is received could comprise a lot of things like books, art, music, inventions, etc. The royalty payments are usually recurring and can be received by the recipient until his/her death. If you are receiving such royalty payments for your work, you are eligible to claim Section 80RRB deductions. The maximum amount of deduction that one can claim under this section is capped at ₹3 lakh. Here are the prerequisites that are required for Section 80RRB deduction.

Royalty on Patents

Inventors have the option of giving anyone the right to use their ideas provided these third parties pay royalty on the earned income. Royalty is paid by the third party user to the individual who created the product or an idea.that is being us. For example, let’s say you composed a song, and a famous TV show wants to use it for an episode, the creators of this TV show are liable to pay you a royalty amount.

Section 80RRB Deductions on Income Received as Royalty on a Patent

According to Section 80RRB, the royalty received by an assessee on the patent is eligible for income tax deductions. If you earn income from other sources as well, note that only the royalty money is eligible for deductions under Section 80RRB of Income Tax Act. You can claim deduction up to ₹3 lakh on such income if you are the original patent holder of such inventions. Income exceeding the Section 80RRB deduction limit is taxable.

What are Patents?

Without new inventions and creations, this world would have been a boring place to live. From advanced technology to new songs and novels, every idea plays a role in moulding our lives for better. And India is filled with such great and creative minds! A patent gives legal right to the creator on his/her creation. It is a type of intellectual property that helps the creator ensure his/her rights are protected.

Eligibility Criteria for Claiming Deductions Under Section 80 RRB

The following list of eligibility criteria needs to be fulfilled to claim deductions available under Section 80RRB.

• Only the citizens of India are eligible to claim the 80RRB deduction

• Only the individuals holding an original patent can apply for income tax deductions available under this section. If you do not have the original patent for your work, you will not be eligible for the tax benefits

• The said patent against which the royalty amount has been received must be registered under the Patent Act, 1970. This patent must have been registered on or after April 1, 2003.

Section 80RRB Deduction Limit

Section 80RRB deductions also come with limits. Here’s a look at the same.

• The maximum amount of deduction that you can claim under Section 80RRB of the Income Tax Act is ₹3 Lakhs.

• As mentioned above, only those individuals who own the original patent can claim the Section 80RRB deduction.

• If an individual has sources of income other than the royalty amount, only the amount received as royalty can be claimed for tax benefits.

• If the amount received as royalty is from a foreign country, the deductions can be claimed only within 6 months from the end of the financial year where the income was received.

• To claim deduction under Section 80RRB, you need to have documentary evidence of the royalty payment received. If you fail to do so, the claim could be rejected.

• HUF or Non-Resident Indians cannot claim this deduction as only resident Indian citizens are eligible to apply.

• Usually, the amount of royalty is settled between two parties on a mutual agreement. However, in certain cases, the government might also grant a compulsory license to use the patent in the public interest. In such cases, the Controller General of Patents settles the amount of royalty payable. Here, the deduction claimed cannot be more than the settlement amount.

• If you are an innovator and hold a patent from the government, you can also claim the deduction under Section 80RRB.