In this article we will discuss all concepts of TDS on royalty.
What is Royalty for TDS section 194J?
As per section 194J royalty have the same meaning as described in Explanation 2 to section 9(1)(vi).
As per explanation 2 to section 9(1)(vi) royalty means consideration (excluding any consideration chargeable under the head “Capital gains” for recipient) for—
(i) the transfer of any rights (including the granting of a licence) or imparting of any information relating to its working or use in respect of a invention, model, design, Patent, secret process or formula or trade mark or similar property ;
(ii) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
(iva) the use or right to use any scientific commercial or industrial equipment but not including the amounts referred to in section 44BB;
(v) the transfer of all or any rights (including the granting of a licence) in respect of any scientific, literary, artistic or copyright work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting [ but not including consideration for the sale, distribution or exhibition of cinematographic films] ;
(vi) the rendering of any services in connection with the activities referred to in sub-clauses.
It is treated as a source of Income for the person who receives such royalty, TDS is deducted u/s 194J.
Example 1 – Mr. A invented a machine and gives it to Mr. B for sale for a royalty of Rs.50,000 per machine per sale. Mr. B sold 10 machines and royalty payable comes upto Rs. 5,00,000. If TDS rate is 7.5% then tax will be deducted @7.5% on Rs 5,00,000 and balance amount will be paid to Mr. B.
TDS rate for TDS on Royalty
|
Type of Royalty |
TDS Rates |
|
royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films |
2% (reduced to 1.5% due to covd-19 from 14/05/2020 till 31/03/2021) |
|
Any other type of royalty |
10% (reduced to 7.5% due to covd-19 from 14/05/2020 till 31/03/2021) |
Liability to Deduct TDS
Liability to Deduct TDS falls on the person or the entity making such payment of royalty.
Individual and HUF are not liable to deduct TDS on Royalty.
Limit of deducting TDS on Royalty
TDS on Royalty should not be deducted if the royalty payment is upto Rs. 30,000.
Example 2– If Mr. A invented a machine and gives it to Mr. B for the sale in the market for royalty of Rs. 50,000 on sale of single machine. Mr. B sold 10 machines and Royalty payable comes upto Rs. 5,00,000. Mr. B has a turnover of Rs. 80 lacs during the relevant financial year, the TDS will not be deducted by Mr. B as he is having a turnover of less than Rs. 1 crore during the relevant financial year.
Example 3– If Mr. A invented a machine and gives it to Mr. B for the sale in the market for a royalty of Rs. 50,000 on sale of single machine. Mr. B sold 10 machines and Royalty payable comes upto Rs. 5,00,000. Mr. B has a Gross receipts from Profession of Rs. 30 lacs during the relevant financial year, TDS will not be deducted by Mr. B as he is having a Gross Receipts of less than Rs. 50 lacs .
Example 4– If Mr. A has invented a machine and gives it to Mr. B for the sale in the market for a royalty of Rs. 5,000 on sale of single machine. Mr. B sold 5 machines and Royalty payable comes upto Rs. 25,000. Mr. B has a Gross receipts from Profession of Rs. 60 lacs during the relevant Financial year. TDS will not be deducted by Mr. B as Royalty amount is less than Rs. 30,000 during the relevant financial year. Hence Mr. A will receive the full amount of Rs. 25,000 as Royalty from Mr. B without any TDS deduction.
Latest Notification
Due to Covid -19 The Finance Minister has reduced to rate of TDS by 25% to ensure more funds in the hands of Recipient of Royalty Income, so from 14/05/2020 to 31/03/2021.
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