How 'royalty income' is Taxed in India: Key rules explained
What's the story
Earning money from intellectual property? Wondering how royalties are taxed in India?
Whether you're a creative genius, a patent-holder, or earning passive income from your inventions, understanding how royalty income is taxed can save you from future financial pitfalls.
India's tax laws around royalties are layered with provisions that impact residents and non-residents alike.
This guide demystifies royalty income taxation under the Income Tax Act, offering practical insights to help you stay compliant and maximise your earnings with ease.
Meaning
Identifying royalty income
Royalty income is the payment received for the use of or the right to use intellectual property, such as patents, trademarks, copyrights, literary works, and technology, among others.
In India, the taxation of this type of income is governed by Section nine(1)(vi) of the Income Tax Act.
It is important for individuals and businesses generating income from these sources to be aware of their tax obligations.
Rates
Tax rates for royalty income
The taxation on royalty income in India differs for residents and non-residents.
Residents are taxed at slab rates, while non-residents are subject to a 10% flat rate under Section 115A of the Income Tax Act.
However, for non-residents including foreign companies, this rate can be reduced under the Double Taxation Avoidance Agreements (DTAA).
Deductions
Deductions and allowances
Taxpayers generating royalty income can claim deductions under Section 80QQB for individuals (authors) and Section 80RRB for patents.
Both these sections provide deductions up to ₹300,000 subject to certain conditions pertaining to the nature of intellectual property and its utilization.
To avoid disputes, taxpayers should maintain comprehensive documentation to support their claims for these deductions.
Compliance
Reporting requirements
Financial tip of the day: Report your royalty income accurately to avoid issues with Indian tax authorities!
Indian residents need to disclose this income under "Income from Other Sources" in their tax returns.
Non-residents should ensure proper documentation and filing through Form 27Q to prevent penalties or legal complications.
Being aware of filing deadlines and necessary disclosures will help you avoid risks associated with non-compliance.