Income tax on royalty
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
24 February 2016
Please let me know the taxability of royalty received by a resident indian from out of india.
24 February 2016
taxable as business income...simple..
Querist : Anonymous
Querist :
Anonymous
(Querist)
25 February 2016
can we claim any deduction ?
31 July 2024
The taxability of royalty income received by a resident Indian from outside India and the associated deductions are governed by Indian tax laws. Here’s a comprehensive overview:
### **1. Taxability of Royalty Income**
**Taxability:**
- **In India:** Royalty received by a resident Indian from outside India is taxable in India under Section 9(1)(vi) of the Income Tax Act, 1961. This section deems income from royalty to be deemed to accrue or arise in India if it pertains to a business or profession carried out in India.
- **Income Category:** For tax purposes, royalty income is treated as "Income from Other Sources" or "Business Income" depending on the nature of the income and the context.
**Income Tax Return:**
- You must report the royalty income in your Income Tax Return (ITR) for the relevant financial year. The income should be included in the total income and taxed according to the applicable income tax slabs.
### **2. Deductions on Royalty Income**
**Deductible Expenses:**
- **Business Expenses:** If the royalty income is earned from a business or profession, you can claim deductions for any expenses directly related to earning that income. This could include expenses such as administrative costs, legal fees, or other operational costs.
- **Section 37(1):** Expenses incurred wholly and exclusively for the purpose of earning the royalty income can be deducted under Section 37(1) of the Income Tax Act. This includes expenses related to the maintenance of the asset from which the royalty is earned.
**Double Taxation Relief:**
- **DTAA (Double Taxation Avoidance Agreement):** If the royalty is taxed in the country of origin, you may be eligible for relief under the Double Taxation Avoidance Agreement (DTAA) between India and that country. India has DTAA treaties with several countries which may provide for reduced rates of tax on royalties or exemptions.
- **Credit for Foreign Tax Paid:** Under Section 91 and Section 90 of the Income Tax Act, you can claim a credit for the tax paid in the foreign country against the Indian tax payable on the same income.
### **3. Practical Steps**
1. **Documentation:**
- Maintain proper documentation of the royalty agreements, receipts, and any taxes paid in the foreign country.
- Keep detailed records of any expenses claimed as deductions related to earning the royalty income.
2. **DTAA Benefits:**
- Check if there is a DTAA between India and the country from which the royalty is received.
- Ensure compliance with the provisions of the DTAA to claim the appropriate relief.
3. **Consult a Tax Professional:**
- Given the complexity of international taxation and DTAA provisions, it is advisable to consult a tax professional or a chartered accountant to ensure compliance with all applicable tax laws and to optimize tax benefits.
### **Summary**
- **Taxability:** Royalty income from outside India is taxable in India under the Income Tax Act.
- **Deductions:** You can claim deductions for expenses incurred in earning the royalty income and under Section 37(1) if the income is from a business.
- **DTAA Relief:** You may claim relief for foreign taxes paid under DTAA provisions.
Accurate reporting and claiming of deductions, along with utilizing any available DTAA benefits, will help in managing the tax liability efficiently.
### **1. Taxability of Royalty Income**
**Taxability:**
- **In India:** Royalty received by a resident Indian from outside India is taxable in India under Section 9(1)(vi) of the Income Tax Act, 1961. This section deems income from royalty to be deemed to accrue or arise in India if it pertains to a business or profession carried out in India.
- **Income Category:** For tax purposes, royalty income is treated as "Income from Other Sources" or "Business Income" depending on the nature of the income and the context.
**Income Tax Return:**
- You must report the royalty income in your Income Tax Return (ITR) for the relevant financial year. The income should be included in the total income and taxed according to the applicable income tax slabs.
### **2. Deductions on Royalty Income**
**Deductible Expenses:**
- **Business Expenses:** If the royalty income is earned from a business or profession, you can claim deductions for any expenses directly related to earning that income. This could include expenses such as administrative costs, legal fees, or other operational costs.
- **Section 37(1):** Expenses incurred wholly and exclusively for the purpose of earning the royalty income can be deducted under Section 37(1) of the Income Tax Act. This includes expenses related to the maintenance of the asset from which the royalty is earned.
**Double Taxation Relief:**
- **DTAA (Double Taxation Avoidance Agreement):** If the royalty is taxed in the country of origin, you may be eligible for relief under the Double Taxation Avoidance Agreement (DTAA) between India and that country. India has DTAA treaties with several countries which may provide for reduced rates of tax on royalties or exemptions.
- **Credit for Foreign Tax Paid:** Under Section 91 and Section 90 of the Income Tax Act, you can claim a credit for the tax paid in the foreign country against the Indian tax payable on the same income.
### **3. Practical Steps**
1. **Documentation:**
- Maintain proper documentation of the royalty agreements, receipts, and any taxes paid in the foreign country.
- Keep detailed records of any expenses claimed as deductions related to earning the royalty income.
2. **DTAA Benefits:**
- Check if there is a DTAA between India and the country from which the royalty is received.
- Ensure compliance with the provisions of the DTAA to claim the appropriate relief.
3. **Consult a Tax Professional:**
- Given the complexity of international taxation and DTAA provisions, it is advisable to consult a tax professional or a chartered accountant to ensure compliance with all applicable tax laws and to optimize tax benefits.
### **Summary**
- **Taxability:** Royalty income from outside India is taxable in India under the Income Tax Act.
- **Deductions:** You can claim deductions for expenses incurred in earning the royalty income and under Section 37(1) if the income is from a business.
- **DTAA Relief:** You may claim relief for foreign taxes paid under DTAA provisions.
Accurate reporting and claiming of deductions, along with utilizing any available DTAA benefits, will help in managing the tax liability efficiently.
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