BY ARUNIMA
A patent is a statutory right to an invention, given for a limited period of time (min. of 20 years usually). Once the patent is given, the patent holder has an exclusive control in producing, utilising and selling the product/process.
Patents may be of two types, product patents and process patents. Patent issued for a product such as a drug is a product patent. While a patent issued for a process such as manufacturing a chemical compound is a process patent. In this case the patent holder enjoys monopoly only on the manufacturing process i.e. competitors may manufacture the same product through a different process.
Patent System in India
Our patent system is based on the Patents Act, 1970. The basic criteria used for issuing patents is that it should be new, it must involve an innovative step and should be capable of industrial application. Although there are still some exceptions to what can get patented for example agriculture and horticulture methods, inventions relating to atomic energy, discovery of scientific principles, traditional knowledge etc. cannot be patented.
Normally patents act as a territorial right and are thus restricted to the particular country thus there might be a need to apply separately for patents in other countries. Although, an international patent can be filed under the Patent Cooperation Treaty where all member countries protect the patent in their respective countries.
Patent Box Regime
Section 115BBF of the Finance Bill, 2016 introduced the Patent Box Regime in India. Patent Box Regime is an effort which enables an inventor to benefit through tax concessions on the royalty income received through licensing.
Before the Patent Box Regime was introduced , most of the MNCs used to register their patents in low-tax countries such as Ireland, Singapore, Netherlands etc. instead of high-tax countries such as India, USA, Germany etc. regardless of where the product/process might have developed. To facilitate the shell , companies are set up in low tax jurisdictions and patents are made under their name and thus all the income from the patent is taxed at a lower rate. This leads to a great loss of tax revenue and also places India behind amongst many global IPR indices.
The need for such a tax regime arose from the fact that the country's Gross Expenditure on Research & Development (GERD) contributed a mere 0.7% of India’s GDP while the numbers in other countries like China, South Korea, USA etc. are from 2-4%.
But with the adoption of the patent box regime a substantially lower tax rate will be applicable on the income accrued from licensing or transfer of intellectual property rights like patents. It offers a concessional tax rate of 10% on the gross royalty earned from patents but only if the patent is both developed & registered in India. Though India has been a late adopter of such a scheme, it is a much needed one.
This will help not only gain tax revenue that should have been there in the first place, better India’s ranking on the IPR indices but also increase the share of private investment into R&D in India. Unlike most countries, India has a higher share of spending on R&D coming from the public sector than the private sector which is quite alarming considering that in developed economies a large chunk of the spending on R&D is done by the private sector. The new regime should encourage MNCs to invest in R&D in the country and get them patented here as well.
Section 115BBF is only applicable when the patentee is a resident of India. Royalty income shall be only in respect of a patent that is developed as well as registered in India. Thus, atleast 75% of the expenditure on the invention shall be incurred in India by the eligible taxpayer to avail this benefit.
What The Future Holds…
This new regime was brought to encourage the “Make In India'' initiative of the government and promote an Aatma Nirbhar Bharat but, considering that at least 25 countries have beat us to the punch in implementing such a scheme, it only makes sense to take further steps to promote research and development in the country. Such as extending the tax concessions on patents to trademarks and copyrights as well or concessions on the income gained from the sale of patented parts or objects embedded with patented components and finally reducing the amount of time it takes to register a patent in India.
Nevertheless, the patent box regime is a step towards the right direction which may not look very promising for now but more steps in the positive direction in the future might lead an increase in R&D investment in India and who knows it might even help reduce the brain drain in the country. But well, that's a topic for another day.
ABOUT THE AUTHOR
Arunima is a second-year student pursuing economics honors and is an executive member at the finance and investment cell. She loves baking and cooking and has a keen interest in fashion. She loves to travel and hopes to experience different cultures and cuisines around the world. She is a firm believer in living in the moment and is excited to see where life takes her!
Disclaimer: The views expressed in this article are the author’s own and do not necessarily reflect the views of the organization.
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