Section 80RRB

Eligibility

• Only resident individuals who are original patent holders can claim this deduction.

• HUFs and non-residents are not eligible for this benefit.

Patent Requirements:

• The patent must be registered under the Patents Act, 1970 after 1 April 2003.

• Royalty income must be from the use of the patent.

Tax Regime:

• This deduction is available only under the old tax regime.

Royalty Income:

• The deduction applies to royalty income earned from patents.

• If the royalty is received from abroad, it must be brought into India within six months from the end of the financial year.

Documentation:

• Claimants must provide documentary evidence, including royalty agreements and payment receipts.

• A certificate in Form 10CCE signed by the relevant authority must also be submitted with the tax return.

Example

If an individual receives ₹4,00,000 as royalty income from a patent, they can claim a maximum deduction of ₹3,00,000 under Section 80RRB. The calculation is as follows:

• Royalty Income: ₹4,00,000

• Deduction Claimed: ₹3,00,000 (maximum allowed)

• Taxable Royalty Income: ₹1,00,000 (₹4,00,000 - ₹3,00,000)

If the royalty income is ₹2,50,000, the entire amount (₹2,50,000) can be claimed as the deduction, as it is below the cap of ₹3,00,000.

Key Components

• Maximum Deduction: ₹3,00,000 per annum or the actual royalty income, whichever is lower.

• Eligible Income: Royalty income from patents registered under the Patents Act, 1970.

• Eligible Persons: Only resident individuals who are the original patent holders.

• Required Documentation: Royalty agreements, payment receipts, and Form 10CCE.

• Tax Regime: Only available under the old tax regime.

Benefits

• Encourages Innovation: Provides tax relief for inventors, promoting the creation of patents.

• Direct Tax Relief: Deduction of up to ₹3,00,000 reduces taxable income significantly.

• Supports Intellectual Property: Recognizes and rewards individuals for their innovations and patent holdings.

Challenges

• Limited to the Old Tax Regime: Not available for those opting for the new tax regime, limiting flexibility.

• Strict Eligibility: Only original patent holders who are resident individuals can claim the benefit; HUFs and non-residents are excluded.

• Documentation Burden: Requires detailed paperwork and certification, including Form 10CCE.

• No Double Deduction: Income claimed under this section cannot be claimed again under any other section in the same assessment year.

Conclusion

Section 80RRB provides a valuable tax incentive for resident individual inventors earning royalty income from patents. The deduction, capped at ₹3,00,000 annually, encourages patent creation while providing substantial tax relief. However, it is subject to strict eligibility and documentation requirements, and it is only available under the old tax regime.