Section 80QQB: Deduction for Royalty Income

In the writing world, authors don’t just get praise for their stories they also earn money called royalty income. The idea is to compensate the creator for the use of their intellectual property. This money comes from a percentage of each book’s sale. But like all other earnings, it’s subject to taxes. However, the Income Tax provides some relief by allowing deductions under section 80QQB.

What is Royalty Income?

Royalty income is a payment given to an individual or entity as compensation for the use of their intellectual property or assets. For authors, musicians, inventors, and other creative individuals, this type of income usually comes from granting permission to others to use their creations.

Components of Royalty:

• Incomes received by the author for practicing their profession.
• Lump sum amounts received for their projects that have copyrights for books of any nature.
• Fees received for copyrights of their books.
• Non-refundable advance payment received for royalty or copyright fees.

These royalty incomes received are taxable to the author, and they have to reflect such under the head Income from Business and Profession as their professional income or under the head Income from Other Sources while filing ITR.

Deduction under section 80QQB

Authors of India who are earning royalty or copyright income can claim the deduction under this section subject to certain conditions. Hence, if the author fulfills the conditions provided then they can claim the deduction u/s 80QQB lower of :

• INR 3 lakhs or,
• The actual amount received as royalty

Eligibility criteria for Section 80QQB

The authors who satisfy the below-mentioned conditions are eligible to claim the deduction u/s 80QQB for the incomes earned in India:

• The individual should be a Resident or Resident but not ordinarily resident Indian(RNOR).
• The individual must have authored or co-authored the books of the specified category i.e. Artistic, literary, or scientific work.
• The author must file their ITR to claim the deduction.
• The author should obtain FORM 10CCD from the individual or entity making the payment. Although it doesn’t need to be submitted with the ITR, it is important to keep it secure in case the assessing officer requests it for verification.
• If the author hasn’t received a fixed sum, a deduction of 15% from the total book sales value for the year (before deducting expenses) should be applied as a benefit.

However, if the income is earned outside India, they need to satisfy these conditions in addition to the ones mentioned above:

• The income earned in foreign currency should be transferred to India in INR.
• 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.
• The author has to obtain FORM 10H.

The following are the exceptions from the eligibility criteria:

• If the royalties are being earned from newspapers, journals, diaries, guides, pamphlets, textbooks for school students, or any other similar publications then it will not be allowed to claim the deductions.
• When a royalty is earned outside India, but it is not repatriated and brought into India within a time specified, then such amounts will not be eligible for deduction.

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 is a resident Indian and also a recognized author. She is receiving a royalty income of INR 2,45,000. In this case, she can claim the deduction of the entire amount of royalty she received as it is lower than the maximum limit of INR 3,00,000.

Case scenario 2
Mr. Amish is a resident of India and a well-known author of many best-seller fictional books. He earns a royalty income of INR 4,75,000 per annum. He also runs a small business from which his earnings are INR 2,00,000 per annum. Further, there is some interest income from FD of INR 3,40,000. 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 writes the textbooks for school students and he is an Indian resident. From such a writing profession, he is earning a royalty income of INR 5,00,000 per year. Moreover, he is engaged in other businesses from which he is earning an income of INR 7,00,000 per year. 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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