Under Which Head Royalty Taxable?

I am a 34 year old person who has invented certain formulas related to nutritional supplements which will be manufactured in the USA but I am residing in Noida and shall be receiving 50% of the sales proceeds (in USA) as royalty fees regularly every month or quarterly as decided by me. Until now my income was too low to be taxable working as an Medical transcriptional making roughly 5 to 8 thousand a month only, so question of filing taxation issues didn’t arise but as you can see my income from royalty will rise exponentially now. So my question is how will I show my income as for IT purposes. Rahul Kulshrestha, Noida

In my opinion, monthly or annual royalty for using your formula will be chargeable to income tax under the head “Income from other sources ” .

However, if you also get separate payment for not sharing the formula with any other manufacturer , such payment is exclusively chargeable to tax under the head business as defined in section 28(va) of the I T Act. The said provision is as under :

28. The following income shall be chargeable to income-tax under the head Profits and gains of business or profession,

……

(va) any sum, whether received or receivable, in cash or kind, under an agreement for

(a) not carrying out any activity in relation to any business; or

(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services:

Whatever head , it hardly matters anyway. The fact that the income will be received in India , shall be taxable in India and you will not get any kind of deduction as provided in earlier years u/s 80 O  under which deduction n receipt of royalty in foreign exchange was allowed upto Asst year 2005-06