What happens in case of royalty payment in India?

Answer By law4u team

In India, royalty payment refers to the payment made by a licensee to a licensor for the use of intellectual property (IP) such as patents, trademarks, copyrights, and designs. Royalty payment in India is subject to tax under the Income Tax Act, 1961, and the relevant provisions are specified under Section 9(1)(vi) and Section 195 of the Act. Under Section 9(1)(vi), any income that arises in India through the transfer of any right, property or asset situated in India, or by the use or right to use any property or asset situated in India, is deemed to accrue or arise in India and is therefore taxable in India. Section 195 of the Income Tax Act requires that any person making a payment to a non-resident for the use of any intellectual property in India is required to withhold tax at the rate of 10% (or at the rate specified under the applicable Double Taxation Avoidance Agreement, if any). This withholding tax is required to be deducted at the time of making the payment or at the time of credit of such income to the account of the payee, whichever is earlier. However, if the non-resident has a Permanent Establishment (PE) in India, the royalty income would be taxable as business income and not as royalty income. In such cases, the tax would be calculated as per the applicable tax rates for business income in India. It is important to note that there are various exemptions and deductions available for royalty income under the Income Tax Act, and it is recommended to consult a tax expert for specific advice related to royalty payments in India.

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