Important Keyword: Deduction, Royalty Income.

Section 80QQB: Deduction for Royalty Income

In the realm of writing, authors not only receive accolades for their narratives but also earn a form of income known as royalty income. This serves as a form of compensation for the utilization of their intellectual creations. Royalty income is derived from a percentage of each book’s sale. However, akin to other forms of earnings, it is subject to taxation. Nevertheless, the Income Tax Act extends a degree of respite by permitting deductions under section 80QQB.

What is Royalty Income?

Royalty income serves as compensation bestowed upon individuals or entities for the utilization of their intellectual property or assets. This form of income is commonly associated with authors, musicians, inventors, and other creative individuals who grant permission for the usage of their creations.

The Components of Royalty:

1. Professional fees earned by authors for their services.
2. Lump sum payments received for projects possessing copyrights for books of any genre.
3. Fees obtained for the copyrights of their literary works.
4. Non-refundable advance payments received for royalties or copyright fees.

These royalties are subject to taxation and must be reported by the author under the “Income from Business and Profession” or “Income from Other Sources” category while filing their Income Tax Return (ITR).

Deduction under Section 80QQB:

Authors in India who earn royalty or copyright income can avail themselves of deductions under this section, subject to specific conditions. They can claim a deduction under section 80QQB, which is the lower of:

1. INR 3 lakhs, or
2. The actual amount received as royalty.

Eligibility Criteria for Section 80QQB:

1. The individual must be a Resident or Resident but not Ordinarily Resident Indian (RNOR).
2. The author must have authored or co-authored books falling under specified categories, including artistic, literary, or scientific works.
3. Filing of ITR is mandatory to claim the deduction.
4. The author should obtain Form 10CCD from the payer, although it doesn’t need to be submitted with the ITR, it should be securely kept for potential verification by assessing officers.
5. If a fixed sum hasn’t been received, a deduction of 15% from the total book sales value for the year (before deducting expenses) should be applied as a benefit.

Additional Conditions for Income Earned Outside India:

1. The income earned in foreign currency should be converted to INR.
2. The earnings must be brought into India within 6 months from the end of the year or within the timeframe specified by the RBI or another authorized regulatory body.
3. The author must obtain Form 10H.

Exceptions from Eligibility Criteria:

1. Royalties earned from newspapers, journals, diaries, guides, pamphlets, textbooks for school students, or similar publications are not eligible for deductions.
2. Royalties earned outside India but not repatriated within the specified timeframe are also ineligible for deductions.

Form 10CCD

The form 10CCD has to be filed for claiming deduction u/s 80QQB. This form should be duly filed and signed by the entity or individual who is responsible for making payment of royalties.

Examples

Case Scenario 1: Mrs. Arundhati, a resident Indian and a recognized author, receives a royalty income of INR 2,45,000. Since this amount falls below the maximum limit of INR 3,00,000, she can claim the deduction for the entire royalty income she received.

Case Scenario 2: Mr. Amish, also a resident Indian and a renowned author, earns a royalty income of INR 4,75,000 annually from his fictional books. Additionally, he operates a small business generating INR 2,00,000 per annum and earns interest income of INR 3,40,000 from fixed deposits.

For his royalty income, Mr. Amish is eligible to claim a deduction under section 80QQB. However, as the royalty income exceeds the maximum limit of INR 3,00,000, he can only claim the deduction up to the maximum limit. Therefore, he can claim a deduction of INR 3,00,000 from his royalty income of INR 4,75,000. Therefore, his net income will be calculated as below:

Note:
Calculation of deduction u/s 80DDB:
Lower of – a) Actual royalty income i.e. 4,75,000
b) INR 3,00,000
Hence, here the maximum deduction u/s 80DDB of INR 3,00,000 is available.

Case Scenario 3:
Mr. Tapan, an Indian resident, writes textbooks for school students, earning a royalty income of INR 5,00,000 annually from this profession. Additionally, he is involved in other business activities, generating an income of INR 7,00,000 per year.

As Mr. Tapan earns royalty income from writing textbooks, he may be eligible to claim a deduction under section 80QQB, subject to meeting the eligibility criteria. However, the income from textbooks falls under the category of exceptions mentioned earlier, meaning it may not be eligible for deductions under this section.

In this case, the calculation of net taxable income will be as below:

Note: Tapan, being a writer of school textbooks, is ineligible to claim a deduction under section 80QQB, as this is explicitly stated as an exception in the section.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/