Royalty

What is the Meaning of Royalty?

If you are wondering, what are royalties? Then, royalty means a payment that is legally bound and is given to a person or company to let them use their assets. These assets include franchises, copyrighted works, or natural sources.

Understand it with royalty income examples: Musicians are paid when their songs are played at cafes, bars, concerts, movies, radio, restaurants, etc. Royalties help people generate income by rewarding them for letting others use their own assets.

Tax on Royalty

In India, the royalty is taxable and it is taxed on the income earned from the use of intellectual property, such as artistic creations, scientific research, books, etc. The royalty tax under: 

• Gains and Profits from a business or profession
• Income from the other sources

The tax on the income of non-resident authors on royalties was increased from 10% to 20%. They can reduce it under the Double Taxation Avoidance Agreements (DTAAs). 

Tax Deductions and Eligibility to Claim

Under the Income Tax Act, Section 80QQB offers tax deductions on the royalty income of resident authors. This step is taken to promote India's artistic, literary, and scientific legacy. You can claim the lower amount between Rs 3 lakhs and the actual royalty income. 

To claim this tax deduction, you need to be a resident author or a joint author of books in literary, scientific, or artistic genres.
The entities that are not covered in this deduction are: Journals, Textbooks, diaries, guides, newspapers, and similar commercial or educational publications. 

Example: If your royalty income is Rs 5 lakhs in total, then you can claim Rs 3 lakhs. If your royalty income is 2 lakhs, then you can claim the whole amount.