Did you know about IP Taxes?

The administration mainly comes under the Controller General of Patents, Designs and Trademarks and respective ministries.

How is Income from IP Taxed Under the Income Tax Act?

The Income Tax Act, 1961 recognizes IP income under several heads:

1. Royalty Income

• Section 9(1)(vi): Royalty income (for use or transfer of IP) is deemed to accrue/arise in India and is taxable, whether paid to a resident or non-resident.

• Section 115A: Royalties received by non-residents from Indian sources attract tax at a special rate (usually 10%–20%), subject to Double Tax Avoidance Agreements (DTAA).

2. Capital Gains

• Lump sum from sale/transfer of IP recognized as capital gains.

• Taxable as short-term or long-term, depending on holding period and asset type.

3. Depreciation & Deductions

• Section 32(1)(ii): Specified IP assets (patents, copyrights, trademarks) may be depreciated by businesses, reducing taxable business income.

• Expenses on acquisition or development (Sections 35A, 35AB) may be deductible.

4. Patent Box Regime

• Section 115BBF: Concessional 10% tax on royalty from patents developed and registered in India (promoting innovation).

5. Copyrights & Others

• Section 80QQB/80RRB: Certain incomes from copyrights, patents are eligible for deductions, especially for authors and inventors.

Latest Updates (2025) and Practical Implications

• Tax rates and regime updated after Budget 2025: Progressive slab rates apply to individuals and firms earning from IP, with royalty and lump sum capital receipts taxed as per latest provisions.

• Patent Box: Remains effective, encouraging patent registration in India through lower royalty tax (10%).

• DTAA can reduce withholding tax on cross-border IP transactions.

• GST also applies on licensing/assignment of most IP rights.

Income Tax Slabs (FY 2025-26)

Special rates apply for royalty/capital gains; consult a CA for your exact assessment.

Real Cases and Illustrations

Case 1: Bombay High Court (2024)
A global company transferred trademark rights to an Indian entity. The court held that if the IP asset (trademark) is situated in India (used, registered here), income from sale is taxable in India. TDS obligation rests with the buyer to deduct tax on the consideration paid.

Case 2: CUB Pty Ltd (Delhi HC)
If an IP (e.g., a brand/trademark) derives substantial value from assets located in India, transfer by a foreign company can trigger Indian tax. However, where no specific deeming fiction applies, the situs of IP is generally determined by rules of international law; not always taxable in India unless used/exploited or the transfer affects India’s revenue base.

Important Practical Points for IP Owners

• Always clarify licensing vs. sale—licensing (royalties) taxed differently than outright sale (capital gains).

• Claim depreciation where eligible (businesses only).

• Foreign IP transactions may attract higher TDS; review terms with expert help.

• Timely registration, records of ownership, and agreements are crucial for taxation benefits/disputes.

• Take advantage of DTAA provisions to lower your global tax burden.

Sample Computation Chart: Tax on IP Transactions