Tax Deductions in Section 80RRB

In order to encourage innovation and research, the Income Tax Act, 1961 provides a provision of tax deductions under section 80 RRB for individuals who receive an income as royalty on their patents.

What are patents?

Dictionary says, a patent is "a government authority or license conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention". A patent is an intellectual property which generally comes out of invention and ensures the protection of rights of the holder.

Royalty on patents:

On exchange of a consideration/ income as a royalty, the inventors can allow third parties to use their ideas. It is basically the counter payment for using an idea or product invented by someone. In daily life we can see many corporate have put an idea into effect and paying a proportion of sales to the inventor as royalty.

Eligibility criteria for section 80 RRB: for this, one should:

  • Be an Indian resident
  • be a patent holder
  • have registered patent under Patent Act, 1970
Deductions on income received as royalty on patent:

Under section 80 RRB of IT Act, 1961, the income received by an individual on a patent is eligible for deduction. A person can have income from other sources too in addition to income on patents but only the income received as royalty on patents is eligible for tax deductions. One can claim deductions up to a maximum of Rs three lakh on such income. If one has an income lower than this, deductions on actual basis will be permissible.