Indian Govt announces lower tax on patent income

The finance minister proposed special patent regime with a 10% rate of tax on income from worldwide commercialization of patents which are developed and registered in India. For the purpose of this concessional tax regime, an eligible assessee means a person resident in India, who is the true and first inventor of the invention and whose name is entered on the patent register as the patentee in accordance with Patents Act, 1970. These amendments will take effect from April 1, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years, the proposal says. Accordingly, it is proposed to insert a new section 115BBF to provide that where the total income of the eligible assessee income includes any income by way of royalty in respect of a patent developed and registered in India, then such royalty shall be taxable at the rate of ten per cent (plus applicable surcharge and cess) on the gross amount of royalty.”

Who will benefit ?

Those who develop, patent, as well as out-license Indian patents. Those who perform research and development in India, apply for Indian patents, get the patents granted, and successfully license the patents to earn royalty on them will benefit. To get a registered patent, the technology has to meet the criteria of being novel, inventive, and capable of industrial application. For it to be licensed, it must have commercial potential to be applied in the industry.

Some tips to make the most of this legislation:

1) Plan ahead:  A patent grant in India may take over 5 years from the filing date. Expedite the grant by filing request for early publication and request for examination at the time of filing or soon after.

2) Optimize R & D: by focusing on developing patentable technologies which meet the needs of the industry and solve problems for the industry.

3) Don’t just file:  thinking you will get tax benefit by merely filing. The patent applications have to be drafted so as to not only get patent grants, but to be licensable.  Only granted patents can generate revenue liable for tax benefit. The focus should be on obtaining quality patents which provide adequate protection for the technology so that they will get licensed instead of reverse engineered.

4) Patent lifecycle management- it’s important to manage and maintain the patents over their complete term to incur maximum benefits. Put in place a system that track the various activities and their due dates such as responding to examination reports, paying maintenance fees, submitting information etc.

5) Build a patent portfolio- whereas one patent might have limited commercial potential on its own, multiple patents in the same domain may be easier to license as a portfolio.


Read more at:

Image credit

Leave a Reply