In order to encourage indigenous research & development activities and to make India a global R & D hub, the Government has decided to put in place a concessional taxation regime for income from patents. The Budget has introduced a special ‘royalty tax’ which lowers the effective rate of tax on income earned from patents. Lower tax on Patent says Budget 2016.

The aim of the concessional taxation regime is to provide an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products. The benefit will be available across knowledge-based sectors of the economy, including pharmaceuticals.

 

Finance Minister Arun Jaitley proposed in the Budget 2016, a special patent regime under which 10 per cent tax on income will be charged on commercial exploitation of patents developed and registered in India.

 

Currently, the domestic company which has commercialized the patent pays tax from income at the standard rate of 30% after deducting expense. With this proposal in the Budget, the tax liability on income from commercialization of patents shall go down and thus, would be beneficial for knowledge-based firms as it would reduce the outflow of intellectual property from India.

 

Accordingly, it is proposed to insert new section 115BBF to provide that where the total income of the eligible assessee income includes any income by way of royalty in respect of a patent developed and registered in India, then such royalty shall be taxable at the rate of ten per cent (plus applicable surcharge and cess) on the gross amount of royalty.

 

For the purpose of this concessional tax regime, an eligible assessee means a person resident in India, who is the true and first inventor of the invention and whose name is entered on the patent register as the patentee in accordance with Patents Act, 1970.

These amendments will take effect from April 1, 2017, and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

 

Now, income tax of 10 per cent will be levied on person owning patent registered in India and exploiting abroad instead of 30 per cent earlier. This is an evolution of India’s financial and taxation dispensation where true creations of IPR, innovation by way of technology support have been recognised.

 

For patent and trademark assistance, visit taxmantra.com

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