Steps to encourage domestic patent regime proposed in Budget

In order to encourage R&D in India, Finance Minister Arun Jaitley today proposed a special patent regime under which 10 per cent tax on income will be charged on commercial exploitation of patents developed and registered in India.
"I propose a special patent regime with 10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India," he said in the Budget speech.
The Budget memorandum said "in order to encourage indigenous research and development (R&D) activities and to make India a global R&D hub, the government has decided to put in place a concessional taxation regime for income from patents".

The aim of the concessional taxation regime is to provide an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products, it said.
"This will encourage companies to locate the high-value jobs associated with the development, manufacture and exploitation of patents in India," it added.
The OECD has recommended that income arising from exploitation of intellectual property should be attributed and taxed in the jurisdiction where substantial R&D activities are undertaken rather than the jurisdiction of legal ownership only.

"Accordingly, it is proposed to insert new section 115BBF to provide that where the total income of the eligible assessee income includes any income by way of royalty in respect of a patent developed and registered in India, then such royalty shall be taxable at the rate of ten per cent (plus applicable surcharge and cess) on the gross amount of royalty," it said.

These amendments will take effect from April 1, 2017, and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years, it added.
Commenting on the move, an expert said this proposal if accompanied with exemption of all such income from other taxes including income tax and corporate tax will be a welcome move.
"Otherwise, it amounts to taxing innovation. This will disincentivise applying for Indian patents," National Intellectual Property Organisation (NIPO) President T C James said.
Indian Cellular Association National President Pankaj Mohindroo welcomed the move.
"This is an evolution of India's financial and taxation dispensation where true creation of IPR, innovation by way of technology support have been recognised. Now, income tax of 10 per cent will be levied on person owning patent registered in India and exploiting abroad instead of 30 per cent earlier, he said.