The patent holder who is getting royalty income of patent is eligible to get a deduction under Section 80 RRB under income tax Act. This deduction is provided in order to encourage innovation.
The patent is granted to any person who is the owner of an innovative creation that can be put to use across the globe. A patent gives the exclusive right to holder over the invention for a time period of maximum 20 years. Generally, the patent is granted to the invention on which royalty income can be earned. Royalty is an amount that is provided by the third party to the holder of the patent in exchange for the right to use a patent. There no fixed amount of royalty that is required to be paid instead the amount will depend upon the invention and the terms of the agreement between the Inventor and the contracting party.
A patentee earning an income by a way of royalty is eligible to claim a deduction under section 80 RRB of Income Tax Act. However, in order to claim the deductions the taxpayer is required to fulfill following three conditions-
• The individual claiming a deduction should be an Indian resident.
• Only patentees can claim this tax deduction. Individuals who do not hold the original patent are not eligible for tax benefits.
• The patent under Section RRB in question should be registered under the Patent Act of 1970, either on or after April 1, 2003.
Further, an inventor who has earned royalty from any sources can also claim deductions but has to file proof within the time duration of about six months from the end of the last year in which the income was received.
