Section 80QQ: What are the tax benefits on royalty income?

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By viptamilonline

Section 80QQB, of the Income Tax Act 1961 contains specific provisions regarding royalty or copyright income. section also provides deductions that are available for royal income earned by writers. Revenue from royalty is taxed as profit and gain of professions or businesses or sources. However, a deduction that is provided by authors to help save taxes is provided under section 80QQB.

  1. Contents
  2. What exactly is the definition of royalty?
  3. Exclusivity for deductions under section 80QQB
  4. Benefits of deductions
  5. Who can claim the tax deduction provided by section 80QQB?
  6. What is FORM 10CCD?
  7. Background
  8. The impact of new rules
  9. Comments
  10. Conclusions

What exactly is royalty?

If authors create books and hand them over to an editor to make their work, publishers make a profit by selling their books. Publishers give a set percentage of their profit or sales made to authors in exchange in exchange for their writing in books. amount of compensation is known as Royalty.

The tax rate applicable to revenue earned as a result of Royalty and Fees for Technical Services increases from 10 to 20% in Indian Domestic Tax law beginning with to Indian Financial Year 2023 24.

The royalties that make up royalty income are:

As with every year like every year, the Indian Finance Minister has placed Finance Bill, 2023 before Indian Parliament on February 1st, 2023. bill contains a variety of specifics about direct tax changes. the budget was in debate in the lower chamber of Parliament [ Lok Sabha ] and the government included an additional amendment stating an increase in the rate of tax of earnings derived from the business of Royalty and Fees for Technical Services from India will become taxed to 20 percent [ plus surcharge as well as cess ] instead of 10 percent [ plus taxes and surcharges ].

Tax rates under Indian legislation on taxation in the country apply to Royalty and Fees for Technical Services changes, are now in line with income from interest [ except some categories of interest that are tax deductible at the concessional rate ] and Dividends in India, as well as modification, will take effect beginning in Financial year 2023 24 i.e. 1 April 2023.

Non-residents who are entitled to benefits in the form of a Double Taxation Avoidance Agreement [ DTAA or Tax Treaty ] would be exempt from tax at the lower rate [ generally 10, 10 percent, or 15 percent ] that is provided by DTAAs with India. To be eligible for tax benefits according to applicable DTAA non-residents will need to get a Tax Residency Certificate [ TRC ]. If TRC is not complete with all of the required details [ like taxpayer identification number, date addresses as well as. ] According to Indian legislation on taxation in India Non-residents will be required to submit an electronic Form 10F. For filing online form 10F, taxpayers must obtain an Indian tax registration number for India in the form of. Permanent Account Number [ PAN ]. If withholding tax is calculated by tax treaty rates [ and not rate set by Indian local tax laws ] Relaxation provided for non-residents from making corporate tax returns within India will not be provided.

The Indian Finance Act, of 2023 has an increase in the rate of withholding tax on royalties and charges in technical assistance [ FTS ] for non-residents. This rate has increased from 10 percent to 20% [ 10.92 percent ] and 21.84 percent in each case with the inclusion of a surcharge of 5% as well as 4 percent tuition cess ]. This bill, Finance Bill, 2023 was initially introduced as FY 2023 24 budget was unveiled on February 1 and was subject to more than 60 modifications by parliament. Incredibly, modification to the rate of withholding tax wasn’t a component of a bill in its initial form.

  1. So, below conformity may be taken into consideration:
  2. Apply for Tax Registration in India/Permanent Account Number [ PAN ]
  3. To obtain TRC TRC through the tax authority
  4. Download Form 10F on the Income Tax Portal [ if required ].
  5. Filing of Tax Return in India
  6. Get a Digital Signature Certificate [ DSC ] for Form 10F online and file your tax return in India.

Additionally, modification will affect taxpayer-friendly entities that do not have to pay tax on their homes and therefore are unable to get tax Residency Certificate. DTAA requirements for tax-transparent entities can be challenged.it is an issue of litigation. In such a scenario, the tax authority may apply 20 % [ plus surcharge and tax ].

In light of this above, taxpayers must study the tax situation in India about getting registered for tax and complying with tax requirements to prevent tax-related issues for tax compliance in India. careful analysis is required when the recipient of income is a tax-free entity [e.g., GmbH & Co KG or KG of Germany ].

The author’s income is earned through the performance of their profession. The income received in lump sums to any writing project with copyright an article. work could be creative, literary, or scientific.

The copyright fee for the book by the writer.: A non-refundable sum that is paid in advance of royalties or copyright fees.

Exclusivity for deductions under section 80QQ:

The royalties earned by journals diaries, guides, textbooks, and pamphlets. newspapers or any other publication with similar content aren’t tax deductible by section 80QQB of the Income Tax Act.

The royalty earned abroad is to be brought into the nation within a certain time to take advantage of tax deductions. Benefits of deductions under section 80QQB

This section’s benefits are available to creators. lesser of the following can be claimed as a tax-deductible income: Rs 3 Lakh or the exact amount paid as royalty.

Who qualifies for tax-free deductions under section 80QQB?

Authors in India who earn royalty or copyright earnings are eligible to take advantage of the deduction provided by section 80QQB. Certain conditions need to be met to be in a position to claim this tax deduction. conditions include:

Earnings from India:

The person who writes the article must be a citizen of India or a resident but is not normally a resident of India.

Content written by an author or the joint author is artistic scientific and literary in or scientific. Taxpayers must submit an income tax return to get the deduction allowed in this section.

If the author hasn’t earned a lump sum or lump sum, then 15 percent of the cost of books sold during the calendar year [before costs ] can be claimed instead of tax benefit.

The writer must collect FORM 10CCD from the individual who is making payment to the author. It is not required to be filed on income tax return but must be secured in case it is requested by an assessor.

These books do not contain journals, diaries, newspapers, or textbooks for students in schools.

For Example:

Mr. X is an Indian resident living in India and is an acknowledged author of books that are of artistic quality. author earns Rs 5,00,000 in royalty earnings. the company he runs is which he earns a profit at the rate of 3,00,000. following is the formula for the net earnings of his business as per the Income Tax Act of 1961.

  1. Profits and gains from business from business 8,00,000[ 5,00,000 and 3,00,000 ]
    Gross Income 8,00,000
  2. Fewer Deductions in section 80QQB [ Royalty earnings or 3 lakh, whichever comes first ] 3,00,000.
    Net Income 5,00,000[  8,00,000 3,00,000 ]
  3. The income earned from outside India

Taxpayers should transfer their earnings from overseas to India as convertible foreign currency.

The money should be returned to India by the end of six months after the date of year-end or within the deadline set by the Reserve Bank of India [ RBI ] or any other competent authority.
Individuals must apply for a Form 10H certificate.

For Example:

Mr. Y is an author and has written scientific books since he was a science expert. He wrote the book for a publisher in the UK and received the sum of Rs. 5,00,000.00 as royalty on 20th April 2022. He got his money back after six months i.e. by the 31st day of October 2022.

His net income is as follows:

Earnings from gains and profits of the business are 5,00,000.

Gross Income 5,00,000

Fewer Deductions for section 80QQB NIL

Net Income 5,00,000

Because Mr. Y has received a remittance from a foreign publisher within 6 months of receiving it, the publisher won’t receive deductions under Section 80QQB.

What is FORM 10CCD?

Form 10CCD FORM 10CCD is one kind of document that must be taken by the taxpayer i.e. written from an individual or publisher who is making payment to him/her. This form is required to allow deductions by section 80QQB. This form should be signed and completed by the person or company who will be making the royalty payment to the payer.

Background:

Nonresidents pay tax only on income that is derived from India i.e. an income source that is earned or arising or is believed to be accrued or arise within India. Revenue from royalties and FTS is considered to be accrued or arising in India which is why ITs are tax deductible for non residents. Based on Indian Income Tax Act [ ITA ] non resident may choose to tax their income either in accordance with ITA or according to rules of an applicable DTA or DTA, which ever is most beneficial.

The tax rate that has been increased on royalties as well as FTS as a result of Indian law of taxation in India has now surpassed rates set in the majority of Indian DTAs. In the end, many foreigners are more likely to enjoy the advantages of DTA rates instead of the standard domestic rate. Additionally, the rise of the rate for withholding tax can result in an increase in taxes in cases where India has no DTA with the nation where the resident is located or where the tax rate in the DTA is greater than the Indian local rate.

To claim benefits from DTA non-residents have to submit an authentic TRC that is issued by the country of residence and also Form 10F for certain specific details that aren’t included within TRC. They must submit these documents through an Indian tax portal. This needs Indian taxpayer registration [ known as Permanent Account Number [ PAN ] ] and is something that is not the case for all nonresidents [ currently it is being an interim relaxation of the requirement for PAN until 30 September 2023 ]. Furthermore, there is an Indian tax return is required to be completed when DTA benefits are sought.

The impact of new rules:

The rate of domestic taxation on royalty and FTS raised, ITs beneficial to examine different scenarios that may be triggered and their tax implications:

  1. a non-resident is not eligible to benefit under DTA [ even being qualified ] instead.is taxed according to rates that are lower than the Indian domestic rate nor earnings are not tax deductible under DTA or the DTA rate is 10 percent.
  2. Situation 2: Non-residents come from a nation where the current DTA tax rate of 15%. They choose to pay tax using the Indian domestic rate because it is more favorable over tax at DTA rate.
  3. Situation 3: nonresident are taxed at the national rate since they are not eligible for benefits from DTA [ e.g. tax rate is higher if there’s any DTA between India and the nation in which nonresidents live and so on.].

The effects of change in rate on three scenarios are in the following manner:

  1. Situation 1: Taxpayers who are not residents who do not receive benefits in DTA [ even when their benefits are eligible ] and instead pay taxes at the rate of domestic tax must pay a 21.84 tax rate of 21.84 percent. If they want to avail of DTA benefits, their tax rate is lower to 10 percent. If they do they must submit TRC as well as Form 10F. get PAN.then to file an income tax return in India when they are claiming DTA benefits.
  2. Situation 2: Nonresidents who are from countries in which the DTA tax rate exceeds 15 percent [ e.g., Australia, Belarus, Mauritius, Oman, UK, U.S. ] However, those who have chosen to pay taxes according to an Indian national rate of 10.92 10% because ITs better in comparison to DTA rate, they will probably want to apply 15% tax rate provided by DTA instead of greater 21.84 domestic rate of 21.84. But, this comes with further compliance obligations, such as submitting a TRC along with Form 10F obtaining a PAN, and submitting a tax return to India.
  3. Situation 3: Nonresidents who had to pay taxes at the rate of 10.92 percent will be required to pay tax at the higher rate of 21.84 percent under the law of their country. the law will not change to tax compliance rules.

If tax is paid by the taxpayer and the tax rate is increased impact of the tax rate could be significant.

Also, it is important to note that if a non-resident holds a tax withholding certificate that offers a lower percentage certificate will not be valid for the next lower tax withholding certificate, even when there are no changes in the facts of the taxpayer.

Comments:

The new tax withholding rate is likely to cause an increase in the obligation to comply for nonresident taxpayers. rate changes taking effect on 1 April 2023, a lot of non-resident taxpayers may be a bit surprised. Taxpayers who were not claiming DTA benefits but who now wish to claim them will need to obtain PAN [ if they do not have one ] as soon as possible. existing transactions/contracts may also need revisions.

Conclusions:

Authors who earn revenue from royalty or copyright earnings are eligible by deduction provided in Section 80QQB. If the person is living or residing in India but does not normally reside in India individual is qualified for a deduction of 3 lakh or Rs. 3 lakh or royalty amount, whichever is less.

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