Section 115BBF of ITA, 1961 : Section 115Bbf: Tax On Income From Patent

Explanation using Example

Let's consider Dr. Rao, a resident of India, who has developed a new pharmaceutical compound and has registered the patent in India. In the financial year, he earns INR 5,00,000 as royalty from a company for the use of his patent. Dr. Rao decides to take advantage of Section 115BBF of the Income-tax Act, 1961.

Under this section, Dr. Rao's royalty income will be taxed at a concessional rate of 10%. So, the tax on his royalty income would be INR 50,000 (10% of INR 5,00,000). Additionally, his other income (let's say INR 10,00,000 from his profession) will be taxed as per the normal slabs after reducing the royalty income. This means the other income to be considered for tax calculation will be INR 5,00,000 (INR 10,00,000 - INR 5,00,000).

However, Dr. Rao cannot claim any deductions for expenses or allowances against the royalty income. If Dr. Rao chooses this option for one year and then decides not to offer his royalty income as per the provisions of this section in any of the next five years, he won't be able to claim the benefit of this concessional taxation for the next five years.

Dr. Rao must make this decision and file his tax return by the due date to opt for this special taxation regime.