Union Budget 2016: In order to encourage indigenous research & development activities and to make India a global R & D hub, the Government has decided to put in place a concessional taxation regime for income from patents. The aim of the concessional taxation regime is to provide an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products. This will encourage companies to locate the high-value jobs associated with the development, manufacture and exploitation of patents in India. The Organization for Economic Cooperation and Development (OECD) has recommended, in Base Erosion and Profit Shifting (BEPS) project under Action Plan 5, the nexus approach which prescribes that income arising from exploitation of Intellectual property (IP) should be attributed and taxed in the jurisdiction where substantial research & development (R&D) activities are undertaken rather than the jurisdiction of legal ownership only.
Accordingly, it is proposed to insert new section 11 5BBF 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. No expenditure or allowance in respect of such royalty income shall be allowed under the Act.
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 and includes evey such person, being the true and the first inventor of the invention, where more than one person is registered uas pententee under Patents Act, 1970 in respect of that patent.
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.
Clause 52 of Finance Bill 2016
Clause 52 of the Bill seeks to insert a new section 1 15BBF in the Income-tax Act relating to tax on income from patents.
The proposed new section 11 5BBF seeks to provide that 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 such patent, at the rate of ten per cent., 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 the proposed sub-clause (a) of sub-section (1) of the propsed section.
It is further proposed to provide that the assessee shall not be eligible for deduction in respect of any expenditure or allowance under any provisions of the said Act in computing his income referred to in clause (a) of sub-section (1) of the proposed section.
It is also proposed to provide an Explanation in the said section to define certain expressions used therein.
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 53 of Finance Bill 2016
Clause 53 of the Bill seeks to amend section 115JB of the Income-tax Act relating to special provision for payment of tax by certain companies.
Item (a) of sub-clause (I) of the said clause seeks to insert a new clause (fd) in Explanation 1 to sub-section (1) of the aforesaid section so as to provide that the book profit shall be increased by an amount or amounts of expenditure relatable to income, by way of royalty in respect of patent chargeable to tax in accordance with the provisions of section 115BBF.
It is further proposed to insert a new clause (iig) in the long line to the said Explanation 1 so as to provide that the amount of income, by way of royalty in respect of patent chargeable to tax in accordance with the provisions of section 115BBF, shall be reduced from the book profit, if any such amount is credited to the profit or loss account.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Item (b) of sub-clause (i) of the said clause seeks to insert an Explanation so as to provide that the provisions of the said section, shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if––
(i) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in sub¬section (1) of section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or
(ii) the assessee is a resident of a country with which India does not have an agreement referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies.
This amendment will take effect retrospectively from 1st April, 2001 and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years.
Sub-clause (II) of the said clause seeks to insert a new sub-section (7) in the said section so as to provide that in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange, the rate of tax under section 11 5JB shall be nine per cent. and also to define certain expressions used therein.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
[Clause 52 & 53]
Is assessee eligible for deduction u/s- 80RRB of Rs 300000 from total income