There are many tax exemption facilities provided by the government, which can be used by different individuals, whether salaried employees or business holders. These provide a good tax benefit in terms of getting some of your hard-earned money back in the form of rebates provided by the government. Many of the tax exemption schemes are well known by almost all the people who are well aware of the country's tax schemes, but some of the schemes are lesser known because there is not much information about them in the mainstream tax portals.
One of such Tax exemption facilities is Section 80RRB of the Indian Income Tax Act. This scheme is made by keeping people who have artistic talent in mind who can be benefited from government Tax Policies.
What is Section 80RRB, and why is it needed?
Section 80RRB of the Indian Income Tax Act states that an individual who has an artistic property, which could be anything of the following – an innovation, an invention, or any creative material of any form, will get tax benefits on the royalty that he/she earns from the usage of patent rights owned by that individual. The basic definition of this facility clarifies that any person who is in the artistic field with the patent right of their product can use this scheme to get a tax rebate from the government while filing for a tax benefit for the royalty money they receive for their product.
The reason the government introduced this facility was that there are very few provisions for catering to the financial needs of people working in the artistic field in our country. Many artists and inventors are looking for financial aid because there are not many financial institutions that provide loans to people who have such a profession. By using the facility of Section 80RRB, the person now has the option of getting financial aid in the form of a tax rebate.
What is a Patent?
Many people in the country have a lot of innovative ideas that are beneficial to a large population around the world. Any such innovations can be proven a thing of pride, not just for the individual but also for the country itself. Such innovations or artistic material takes a long time and dedication of the creator, and once it is completed, they must safeguard their solo right to the material so that no other person could claim in the future that the material belongs to them.
To be able to do this, a civil right is in place in our constitution, which is known as a "Patent." A patent gives exclusive rights to the owner over the invention, which is given for a limited period and must be renewed after the specified period. This helps the creator in exploring his options of whether to keep the right of the patent and earn a good amount of royalty from it or sell the patent to any other organization or individual for a one-time monetary deal.
How to get a patent?
If you have a unique invention or an artistic product that you think can be of further use or display, you can get that patented so that you can claim the right to the material.
Getting something patented is simple, and the creator needs to have certain information ready with him while applying for patent registration.
These are some things to be kept in mind while registering for a patent:
- The Invention/Artistic product must be recorded in detail, and the whole process of its creation must be present with the creator in writing. There is no specific set of structures provided by the patent authorities in which you will have to provide all the information. Still, the information you provide must be detailed and should explain the whole invention, from its inception to its completion
- The creator should always keep in mind that his creation should possess some artistic or innovative value. He must assess the actual monetary value of the product so that he can invest the right amount of money while making the registration. The financial discussion that the authorities and the inventor have for a product is crucial and becomes a deciding factor for future income for the patent holder
- The crucial step is to check whether the material comes in the SEC (3) of the Patents ACT, 1970. Many inventions are prohibited from being patented under this law, so it is better to check all the permissible items in the Patents law
- The next step is to draft a patent application in addition to the complete detailed procedural document of the material. The application must be in line with all the points mentioned in the Patent Act-1970
- Once you have drafted the whole document, then you can go for publishing the application in the concerned department and file a request for examination. The documents will then be assessed by the authorities and will be checked for any discrepancies or misses from the submitter’s end.
- There might be several objections which might be brought forward by reviewers after they are done with the comparison of the product with similar products in that segment. The creator must ensure that all the objections are taken care of on time
- Once all these steps are completed successfully, and the respective patent fee has been paid to the authorities, the patent is then granted to the creator, and this can be used by him till the time specified in the patent agreement document, and if the owner wants to exceed this time, he has to apply for it once this agreement validity is over
Eligibility Criteria to Claim Deduction under Section 80 RRB
Section 80 RRB has some of its basic clauses which are needed to be fulfilled before a person can think about claiming deductions in this section.
The main criteria for eligibility are:
The person should be a resident of India and should have proof of his citizenship. None of the registered firms or non-profit organizations is eligible to claim for the tax benefit in Section 80RRB.
Proof of Royalty
He must have proof of income through royalty, which he has earned through the patent of his invention. The patent should be registered under the Patent act, 1970. Royalty receipts can also be of the advance royalty to be received in the future, and it is non-refundable.
Ownership of Patent
The person who plans to use the option of Section 80RRB for claiming for a tax deduction must be the registered owner of the patent. He can also be a co-owner of the patent, and that depends on the agreement the co-owners had while registering for the patent of the invention.
If the inventor has earned money from foreign sources through its patented invention, he can still claim deduction according to the 80RRb policy. Such an income is only considered under tax exemption of 80RRB if the money is brought in India in the present foreign exchange by the inventor, and it should be within 6 months from the end of last year. Apart from this, there is also a mandatory certificate which is required for any such transactions. This specific certificate must be provided to the assessing team’s web portal which states that the foreign exchange has been done properly following the provisions of the 80RRB section.
The person must fill form 10CCE, which is in line with the Patent ACT 1970. It should be attested and duly signed by the relevant authorities and must be submitted with the Income return file.
One thing to keep in mind while applying for any such claims is that the authorities always compare the new claim filed with any of the previous claims made in any year. If such a case has occurred where the comparison gives the same result for the details then the claim will directly be rejected by the committee.
If all these criteria are followed to the point while claiming a tax rebate according to Section 80 RRB, the claim will be approved.
If the person thinks that he meets all the guidelines and wants to file for tax exemption, then he can do this by visiting the official income tax website and filling form 10H.
Deductions under Section 80RRB
Now that the eligibility criteria have been discussed in detail, the last thing that comes in mind is that what is the maximum amount that can be claimed in this tax exemption policy by the government and what are the factors that determine whether the claim can be made for that specific amount or not.
These are some of the factors determining the amount of claim:
- The maximum amount a person can claim by filing for deduction claim under section 80 RRB is Rs 3 Lakh. This is the government's limit regarding claims under section 80RRB, and the claim for any individual will only be valid if the amount of money he has received via royalty for his patented invention is equal to or less than 3 Lakh. No claim that more than 3 Lakh can be made under this section will not be eligible for the same
- In some cases, the person might have more than one source of income. He must have earned it through that invention itself; it might be a sale of the actual product made using the patent or remuneration or reward received by the government or any facilitators, any of such amounts cannot be clubbed up with the actual claim for the royalty received for the invention's patent. The claim can only be made for the royalty income earned under this section
- The person who is filing for the claim under section 80 RRB must be the original patent holder. As discussed earlier, the patent might even be owned by more than one individual for a single invention, and in that case also, both the parties who are claiming for the tax benefit must be registered as patent holders under the Patent Act, 1970 if the person is not the registered initially patent holder than he cannot claim on behalf of the original patent holder in any case. If any such claims are to be made, the original patent holder must transfer the patent to the claiming individual first
- The income received from a foreign country must only be in the form of the royalty of the patent of the product. No other overhead income from any source will be considered for this claim, even if it has been made concerning the product itself. The claim can only be made for the income which has been earned within the 6 months in the completion of that year
- The most important factor is that there must be a documented proof of whatever claim that is being made regarding the royalty income of a patented product. If proper documents are not provided supporting the claim, then there is a high possibility that the claim can be rejected. This is done to avoid any fraud in such claims
- The claim is only provided to the people who are a resident of the country and non-residents are completely excluded from any such claims even if the amount of claim is under 3 Lakh
- The actual amount of royalty money is calculated according to the plans and discussions among both the parties involved, which directly affects the amount of claim an individual can make while filing for tax exemption under Section 80 RRB. Although, in some cases, the Government can also provide a compulsory license in regards to the patent if the patent is to be used in the public interest. In these types of cases, the Patent controlling authorities of the government finalizes the amount paid as a royalty to the inventor, and this will also directly affect the actual claim amount for the deduction under section 80RRB
These are the main factors that determine the amount of claim that an individual can get if he wants tax benefits under this section, but the claim amount can never be higher than 3 Lakh for a single invention.
Q: If the royalty income is received outside India, and then can it be claimed for tax benefits under section 80 RRB of the Indian Income Tax Act?Ans: If the royalty for a certain patented product has been earned in a foreign country other than India, then also there is a provision in Section 80 RRB to claim for tax exemption. The person should keep in mind that he must have proper detailed documents supporting the fact that the royalty has been earned in the foreign ground for this specific patent. The amount of royalty money amount that he is claiming for must not be more than 3 Lakh INR while converting the currency according to the present foreign exchange rates. Also, the income must have been earned within 6 months from the end of last year.
Q: How long is the Patent of a product valid for, and does this affect the claim under Section 80 RRB of the Indian Income Tax Act?Ans: The patent of a product is valid for a specific period, which is decided while applying for a patent of the product. These transactions can be done between two parties or Government authorities as well if the product is to be used for public welfare. While filing for a claim for the royalty earned from any such patent, the inventor must keep in mind that the amount is earned during the tenure of Patent itself and does not exceed that tenure, as any such exchange could be just a word of mouth barter which is not valid according to the Patent act, 1970.
Q: Is there any other way that an inventor or an artist can avail tax benefits if they do not fall under the eligibility criteria for Section 80 RRB of the Indian Income Tax Act?Ans: If a person is somehow ineligible for the tax exemption under the Section 80 RRB because of the reasons like- claim amount might be higher than Rupees 3 Lakh; the patent holder might not be a citizen of the country etc., he can still avail some benefits of tax exemptions by investing their royalty money in policies like term life insurance. Government Scheme like section 80C also comes into the picture, which will help the person claim up to 1.5 Lakh of tax benefits. These insurance schemes help the bearer earn more money and protect him financially in case of any mishappening or critical illness.