How Do You Tax A Patent? | IP Conversations

Tax is levied on all Indian residents and organizations who can be taxed, but did you know that there are special provisions for patent related income? Read this IP Conversation to find out!

Hey IP Geek.

I heard that in India Patentees have to pay tax @ 10% for income accrued from granted and working patents.

Patents are so expensive, so why have any tax on them?

This is actually an advantage to patent holders! Let me explain.

India introduced this tax regime in 2016. It is applicable to Indian residents with registered patents.

In other words, only people who pay income tax in India can benefit from this tax regime.

Foreign companies which want to make use of this system must have subsidiaries which are qualified to pay taxes in India.

This system is also called a “Patent Box” system because it separately “boxes off” patent-generated income.

The ultimate aim is to encourage innovation by providing concessional tax rates.

Taxes for corporate entities and large organizations can often be a lot higher than a nominal 10% rate. Being able to pay taxes at this reduced rate can be a huge advantage.

This regime incites companies to retain and commercialize existing patents, develop new innovative patented products, and ultimately produce high-value jobs associated with the development.

Oh wow- that’s a lot of advantages. I can see why this system would be good for the economy.

Thanks for the explanation, IP Geek.