Tax Deductions — Authors & Patent Royalty Income

This document covers

1. Examples of Royalty payment
2. Types of Deduction in Royalty
3. Deduction in respect of royalty income of authors
   1. Who can claim the deduction?
   2. Eligible Income
   3. Amount of Deduction
   4. Manner of computation of Deduction
   5. Royalty earned outside India
   6. Filing Income Tax Returns
4. Deduction in respect of royalty on Patents
   1. Who can claim the deduction?
   2. Eligible Income
   3. Amount of Deduction
   4. Royalty earned outside India
   5. Filing Income Tax Returns

1. Examples of Royalty payment

• Books : Authors can earn the royalties when their book are sold
• Music : Musicians can earn royalty when their music is played
• Software : Software Developers can earn royalty when their software is licensed to companies etc
• Patents : Inventors can earn royalty when other companies use their trademarks
• Trademarks : People who own trademarks can earn royalties when other people use their names.

2. Types of Deduction in Royalty

Income Tax act 1961 provides for the certain deductions in respect of royalty payments in certain cases. They are as follows

• 80QQB : Deduction in respect of royalty income of authors of certain books other than text books
• 80RRB : Deduction in respect of royalty on patents

3. 80QQB : Deduction in respect of royalty income of authors of certain books other than textbooks.

A. Who can claim the deduction?

This deduction is available to an individual resident of India who is an author (includes joint author).

B. Eligible Income

• The Income can be received by way of lumpsum consideration for the assignment or grant of any of his interest in the copyright of any book.
• The book should be a work of literary, artistic or scientific nature or of royalty or copyright fees (whether receive din lumpsum or otherwise) in respect of such book.

NOTE: The deduction u/s 80QQB is not available in respect of royalty income from brochures, Commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, textbook for schools, tracts and other publications of similar nature.

C. Amount of Deduction

The maximum deduction available u/s 80QQB is lesser of the following.

1. Rs 3,00,000
2. Income derived by author

D. Manner of computation of Deduction

If the royalty is received otherwise than by way of lumpsum consideration, then the amount of eligible income before allowing expenses shall not exceed 15% of the value of books sold during relevant financial year.

NOTE: This condition is not applicable if the amount is received in lumpsum.

E. Royalty earned outside India

Within 6 months of the end of the financial year in which the royalty is earned, the taxpayer is obligated to transfer the converted foreign exchange to India if the royalty is earned from a source outside India.

F. Filing Income Tax Returns

• The taxpayers are required to file income tax returns mandatorily to claim deduction u/s 80QQB.
• The deduction u/s 80QQB is allowed only under Old Tax Regime. If the taxpayers are opting for new tax regime, they cannot claim deduction u/s 80QQB.
• The taxpayers are required to file Form 10CCD before the due date of filing income tax return to claim deduction.
• The taxpayers cannot claim any other deduction for the same income if he is claiming deduction u/s 80QQB

4. 80RRB: Deduction in respect of royalty on Patents

A. Who can claim the deduction?

This deduction is available to an individual resident of India who is registered as the true and first inventor in respect of an invention under the patents act 1970 (includes Co-owner of the patent)

B. Eligible Income

The deduction is allowed only to the royalty income including consideration for transfer of rights in the patent or for providing information for working or use of patent, use of a patent or the rendering of any services in connection with these activities.

NOTE: The deduction is not allowed on any consideration for sale of product manufactured with the use of the patented process or patented article for commercial use.

C. Amount of Deduction

The maximum deduction available u/s 80RRB is lesser of the following.

1. Rs 3,00,000
2. Income derived from the patent use

D. Royalty earned outside India

In the event that the royalty is earned from a source outside of India, the taxpayer is obligated to transfer that income to India in the form of convertible foreign exchange within a 6 month timeframe from the end of the financial year in which said income was acquired.

E. Filing Income Tax Returns

• The taxpayers are required to file income tax returns mandatorily to claim deduction u/s 80RRB.
• The deduction u/s 80RRB is allowed only under Old Tax Regime. If the taxpayers are opting for new tax regime, they cannot claim deduction u/s 80RRB.
• The taxpayers are required to file Form 10CCE in Income Tax portal before the due date of filing income tax return to claim deduction.
• The taxpayers cannot claim any other deduction for the same income if he is claiming deduction u/s 80RRB