The government in India has created a concessional taxation regime for patent income to encourage local research and development (R&D) activities and to make India a global R&D hub.
The Central Board of Direct Taxes (CBDT) released a notification on 3 April 2017 on the patent box regime under section 115BBF of the Income-tax Act, 1961. The new rules provide additional incentive for companies to retain and develop innovative patented products, thus encouraging them to locate high-value R&D jobs in India.
Introduced in the Finance Act of 2016, Section 115BBF imposes a 10% tax on royalty income from patents developed and registered in India, with no allowance for expenditures for royalty income allowed.
In addition to encouraging patent activity in India, the new regime is consistent with the Organisation for Economic Cooperation and Development’s base erosion and profit shifting project. Action 5 addresses the concern that income arising from intellectual property should be attributed to and taxed in the jurisdiction where substantial R&D activities are undertaken, and not just the jurisdiction of legal ownership.
Read an April 2017 report [PDF 262 KB] prepared by the KPMG member firm in India
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