INDIA'S OWN 'PATENT BOX' REGIME
In order to encourage more research and development activities in India, the Government has made the tax regime for royalty income of inventors at a concessional rate of 10% from 30% on the gross income of royalty.
The Union Finance Bill of 2016, vide clause 52, introduced a new section 115BBF giving a chance of concessional tax regime for the companies to encourage them to locate development, manufacturing and exploitation of patents in India.
Accordingly, after section 115BBE of the Income-tax Act, 1961 (hereinafter referred to as 'Act'), the following new section shall be inserted with effect from 01.04.2017, namely:—
- Where the total income of an eligible assessee includes any income by way of royalty in respect of a patent developed and registered in India, the income-tax payable shall be the aggregate of:
- the amount of income-tax calculated on the income by way of royalty in respect of the patent at the rate of 10% and
- the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the income referred to in clause (a).
- Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the eligible assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1). Explanation.—For the purposes of this section:
- "developed" means the expenditure incurred by the assessee for any invention in respect of which patent is granted under the Patents Act, 1970 (herein referred to as the Patents Act);
- "eligible assessee" means a person resident in India and who is a patentee;
- "invention" shall have the meaning assigned to it in clause (j) of sub-section (1) of section 2 of the Patents Act;
- "lump sum" includes an advance payment on account of such royalties which is not returnable;
- "patent" shall have the meaning assigned to it in clause (m) of sub-section (1) of section 2 of the Patents Act;
- "patentee" means the person, being the true and first inventor of the invention, whose name is entered on the patent register as the patentee, in accordance with the Patents Act, and includes every such person, being the true and first inventor of the invention, where more than one person is registered as patentee under that Act in respect of that patent;
- "patented article" and "patented process" shall have the meanings respectively assigned to them in clause of sub-section (1) of section 2 of the Patents Act;
- "royalty", in respect of a patent, means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains" or consideration for sale of product manufactured with the use of patented process or the patented article for commercial use) for the—
- transfer of all or any rights (including the granting of a license) in respect of a patent; or
- imparting of any information concerning the working of, or the use of, a patent; or
- use of any patent; or
- rendering of any services in connection with the activities referred to in subclauses (i) to (iii);
- "true and first inventor" shall have the meaning assigned to it in clause (y) of sub-section (1) of section 2 of the Patents Act.'
AMENDMENT PROPOSED BY THE LOK SABHA
The Finance Bill 2016 was passed by the Lok Sabha on 5th May, 2016 with a number of proposals of official amendments by the government. Subsequently, the finance ministry released an explanatory note explaining the amendments. With regards to clause 52, wherein section 115BBF has been introduced, the following amendment has been passed:
- Sub-clauses (3) and (4) have been added to proposed section 115BBF, which provides an option to the eligible assessee to tax on gross basis i.e. 10% presumptive tax regime for royalty income for income from patents developed and registered in India. The eligible taxpayer can exercise this option within time allowed for filing return under section 139(1). If the presumptive tax option is not opted for 5 years, then the option cannot be exercised for the next 5 years either.
- Also it was explained that 'developed in India' means that at least 75% of expenditure incurred for any invention with a granted patent is incurred in India by the Indian resident himself.
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