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What is Section 80RRB of the Income Tax Act?

According to the Income Tax Act, 1961, Section 80RRB offers tax benefits against the payments which have been received as royalty. The introduction of this particular section was facilitated to ensure the rewards of the ones who have done exceptional work or are innovators. 

 

In order to encourage such individuals and their deeds or work, income tax deductions are allowed under this section. The deduction amount under this section is either Rs. 3,00,000 or the income which has been earned from the ‘royalty of patent’, whichever is lesser.

 

Royalty is the amount which is paid to a person by another party against the usage of work done by him/her. The above-mentioned work for which a royalty has been received could comprise art, inventions, books, or music. This royalty on patents is generally recurring and can also be received by the recipient until his/her death. If you receive such royalties for your work, you are eligible to claim Section 80RRB deductions.

 

However, it must be noted that you can claim a deduction of a maximum of Rs. 3,00,000 under this section. Read on to know more about the prerequisites and other provisions of this section to understand its benefits better to help you make better financial decisions.

  • Patents - Meaning 

Our country, India, perpetually undergoes several innovations and it is a regular activity here. 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 of time. The right which has been granted to these innovators is called a patent. The technicalities related to their inventions are mentioned in the application of the patent which keep the innovator’s intellectual property rights secure. They can generate stable sources of income by allowing others to utilise their patented inventions.

  • Royalty on Patents

The innovators have the option of providing others with the right to utilise their inventions or ideas, if and only if, they pay royalty on their earned income. This royalty is paid by a third party user to the innovator who invented the idea or the product. Suppose you composed a song, and a TV show wants to use it for their episode, the creators of that show must pay you a royalty amount. The amount received by the innovators is a percentage of the total sales made every year till the rights get utilised.

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

As per Section 80RRB of the Income Tax Act, 1961, the royalty which has been received by an assessee on the patent is eligible for the income tax deductions. If you have other sources of income as well, you must note that only the royalty amount can be made eligible for tax deductions u/s 80RRB of the Income Tax Act, 1961. A maximum amount of Rs. 3,00,000 can be claimed for tax deduction on such an income if you are the original patent holder of the invention. The income that exceeds this amount will be taxable under this section.

Eligibility Criteria for Claiming Deductions Under Section 80RRB

In order 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 to be able to claim the tax deductions under this section.

  • Only the individuals who hold an original patent are eligible. If you don’t have the original patent of your invention, you can not claim the tax benefits under this section. 

  • The above-mentioned patent against which the royalty amount has been received must have been registered with the Patent Act, 1970 on or after April 1, 2003.

Section 80RRB Deduction Limit

There are certain limitations that come along with the benefits of Section 80RRB. Here’s a list of a few of them:

 

  • You can claim a tax deduction of a maximum amount of Rs. 3,00,000.

  • The individuals who are the holders of the original patent can claim the tax deductions.

  • If you have other sources of income in addition to the royalty amount, only the royalty amount can be claimed for deductions under this section.

  • The royalty amount received from a foreign country can be claimed for deductions within six months from the end of the financial year in which that amount was received, as specified by the Reserve Bank of India (RBI).

  • You must produce documentary evidence of your royalty payment in order to claim the tax deductions u/s 80RRB.

  • Non-residents of India and Hindu Undivided Families (HUFs) cannot claim these tax deductions.

  • The royalty amount is usually settled between the two parties based on a mutual agreement. However, in some of the cases, the government has the right to grant a compulsory licence to utilise the patent in the public interest. In such a case, the Controller General of Patents shall settle the royalty amount which is payable. The deduction claim here cannot be greater than the amount of settlement. 

  • If you are an innovator who holds a patent from the government, you can claim the tax deductions under this section.

Conclusion

Section 80RRB helps you save on taxes by claiming deductions on your royalty income earned from patents. If you are an individual who is an innovator, you must move towards inventing new ideas or products to get it patented so that you can avail tax deductions on your royalties u/s 80RRB. Reap the benefits of exclusive rights to inventions and royalties for your innovations and creations. This section encourages you to use your creativity and monetise your inventions while reaping the tax benefits. 

 

Frequently Asked Questions About Section 80RRB of the Income Tax Act, 1961.

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

    No, the HUFs are not eligible for tax deductions under section 80RRB of the Income Tax Act, 1961.

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

    A maximum of Rs. 3,00,000 is allowed for tax deductions under section 80RRB of the Income Tax Act, 1961.

  • ✔️Can the royalty amount received from a foreign source be claimed for tax deductions under this section?

    Yes, the royalty amount received from a foreign source can be claimed for tax deductions under section 80RRB of this section.

  • ✔️What are the benefits received under section 80RRB?

    The innovators can claim tax deductions on the royalty amount received as income for their inventions which have been patented.