The Budget has introduced a special `royalty tax' which lowers the effective rate of tax on income earned from patents. The objective is to encourage indigenous research and development, and to make India an innovation hub. The benefit will be available across knowledge-based sectors of the economy , including pharmaceuticals.
The FM proposed a special patent regime with a 10% rate of tax on income from worldwide commercialization of patents which are developed and registered in India. Usually, the domestic company which has commercialized the patent would be paying tax from income at the standard rate of 30% after deducting expense. With this proposal, the tax liability on income from commercialization of patents goes down, and thus would be beneficial for knowledge-based firms, experts say , adding that it would reduce the outflow of intellectual property from India.
The aim of the `concessional taxation regime' extended across sectors, for income derived from patents, is to provide an additional incentive for companies to retain and commercialize existing patents and to develop new innovative patented products. The government hopes it will also encourage domestic companies across sectors, including automotive, electronics and pharmaceuticals, to locate high-value jobs associated with the development, manufacture and exploitation of patents in the country .
“The government is engaging in a balancing act to encourage R&D in India. The proposal to introduce a provision specific to taxation on income from patents (which taxes the income from royalties at 10% on a gross basis) should facilitate commercialization of patents in the country ,“ says Adheesh Nargolkar, a Partner with Khaitan & Co.
It will help knowledge-based sectors to continue with the research on the patent, licenced in the country , to develop it indigenously , and not out-licence it to a foreign firm.
The Times of India, New Delhi, 02 March 2016
The FM proposed a special patent regime with a 10% rate of tax on income from worldwide commercialization of patents which are developed and registered in India. Usually, the domestic company which has commercialized the patent would be paying tax from income at the standard rate of 30% after deducting expense. With this proposal, the tax liability on income from commercialization of patents goes down, and thus would be beneficial for knowledge-based firms, experts say , adding that it would reduce the outflow of intellectual property from India.
The aim of the `concessional taxation regime' extended across sectors, for income derived from patents, is to provide an additional incentive for companies to retain and commercialize existing patents and to develop new innovative patented products. The government hopes it will also encourage domestic companies across sectors, including automotive, electronics and pharmaceuticals, to locate high-value jobs associated with the development, manufacture and exploitation of patents in the country .
“The government is engaging in a balancing act to encourage R&D in India. The proposal to introduce a provision specific to taxation on income from patents (which taxes the income from royalties at 10% on a gross basis) should facilitate commercialization of patents in the country ,“ says Adheesh Nargolkar, a Partner with Khaitan & Co.
It will help knowledge-based sectors to continue with the research on the patent, licenced in the country , to develop it indigenously , and not out-licence it to a foreign firm.
The Times of India, New Delhi, 02 March 2016
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