Hold a patent? Here's how to claim massive tax savings
What's the story
In India, inventors who hold patents can take advantage of special tax deductions to lower their taxable income. These deductions are intended to foster innovation and research by offering financial incentives to inventors. Knowing these tax benefits is key for patent holders aiming to save as much as possible and fund their continued research and development.
Section 80RRB
Understanding Section 80RRB
Section 80RRB of the Income Tax Act enables Indian residents who hold patents to claim a deduction on income generated from those patents. A deduction of up to ₹300,000 can be claimed under this section. To qualify, the patent must be registered on or after April 1, 2003, under the Patents Act, 1970. This deduction is intended to incentivize individual inventors by lowering their tax burden on royalty income.
Documentation
Documentation and compliance
In order to claim the deduction under Section 80RRB, patent holders need to provide a certificate in Form No. 10CCD issued by the Controller General of Patents, Designs and Trademarks. This certificate is a crucial document that validates your income from the patent and is required when filing your income tax return. Proper documentation and compliance are crucial to avoid any legal complications while claiming this benefit.
Exclusions
Exclusions and limitations
It is important to note that not all patent-related income qualifies for the deduction under Section 80RRB. Only royalty income received in accordance with the Patents Act is eligible for this deduction, not other income such as salary or business income from patented inventions. Additionally, if your total royalty income exceeds ₹300,000 in a financial year, the deduction is capped at this amount.
Strategy
Planning and strategy
Proper planning can help you get the most out of tax deductions if you hold a patent. By strategically timing when you receive royalty payments within a fiscal year, you can maximize your deductions, particularly if your royalties are over ₹300,000 a year. Plus, you might be able to use other sections of the Income Tax Act to claim further deductions or exemptions, helping you fine-tune your overall tax strategy.