IP valuation, licensing and tax
This guide is written for a different reader from the other four. The first four are for whoever owns the brand or the product. This one is for the CFO, the finance head or the controller, and it deals with what intellectual property does to the accounts, when a formal valuation stops being optional, how royalty is taxed at home and across a border, and where transfer pricing and GST land on the same payment. It assumes no legal background and a good deal of finance background.
Read this first: two Income-tax Acts are running at the same time
The Income-tax Act 2025 came into force on 1 April 2026 and replaced the Income-tax Act 1961, renumbering every section. Both are live right now, and which one applies depends on the period, not on today's date:
- Income for 1 April 2025 to 31 March 2026, which is AY 2026-27 and the return most businesses are filing at the moment, is governed by the 1961 Act.
- Income from 1 April 2026 onwards, which the new Act calls tax year 2026-27, is governed by the 2025 Act. The concepts of "previous year" and "assessment year" are gone, replaced by a single "tax year".
- Proceedings pending on 1 April 2026 continue under the repealed Act.
The practical consequence for anyone advising on an IP transaction today: the return in front of you is a 1961 Act return, and the transaction you are structuring is a 2025 Act transaction. Every figure below therefore carries both labels, and old section numbers are not usable as current citations. Where a section number matters, both are given:
| What it deals with | Income-tax Act 1961 | Income-tax Act 2025 |
|---|---|---|
| Royalty and fees for technical services, deemed accrual | 9 | 9 |
| Withholding on royalty paid to a resident | 194J | 393(1), Table entry 6(iii), and 393(4), Table entry 9 |
| Withholding on other sums paid to a non-resident | 195 | 393(2), Table entry 17 |
| Special rate on non-resident royalty | 115A | 207 |
| Patent box | 115BBF | 194, Table entry 2 |
| Treaty relief | 90 and 90A | 159 |
| Transfer pricing, accountant's report | 92E | 172 |
| Startup deduction | 80-IAC | 140 |
| No PAN, higher withholding rate | 206AA | 397(2) |
What can go on the balance sheet, and what cannot
Under Ind AS 38, an intangible is recognised only if future economic benefits are probable and cost can be measured reliably. For a separately acquired intangible the probability test is always treated as met, because the price paid reflects the expectation.
The rule that surprises founders is paragraph 63: internally generated brands, mastheads, publishing titles and customer lists shall not be recognised as intangible assets, because the expenditure cannot be distinguished from the cost of developing the business as a whole. Internally generated goodwill is likewise excluded.
Yet under paragraphs 33 and 34, the acquirer in a business combination recognises an intangible of the acquiree separately from goodwill, whether or not the acquiree had ever recognised it. So the same brand is off balance sheet in the hands of the business that built it and on balance sheet, at fair value, in the hands of the business that bought it. Nothing about the asset changed. Only the transaction did. That single asymmetry explains most of the confusion CFOs encounter when comparing their own accounts to an acquirer's.
Three further points that come up constantly:
- Research versus development. No intangible arises from research; research expenditure is expensed as incurred. Development phase costs are capitalised only if the entity can demonstrate all of technical feasibility, intention to complete, ability to use or sell, probable future benefits, adequate resources, and reliable measurement of the expenditure. If the two phases cannot be distinguished, the whole project is treated as research.
- Expensed is expensed. Once expenditure has been recognised as an expense, paragraph 68 prevents capitalising it later.
- Revaluation is effectively closed for IP. The revaluation model requires fair value by reference to an active market, and paragraph 78 says an active market cannot exist for brands, patents or trademarks because each is unique.
Finite life intangibles are amortised from the date they are available for use; indefinite life intangibles are not amortised but must be impairment tested annually and whenever there is an indication of impairment.
Which standard actually applies to you, and why it matters here
Most businesses of the size this guide is written for are not on Ind AS at all. The roadmap is by net worth, tested on standalone accounts, and once a company is on Ind AS it stays there. Listed and unlisted companies at ₹500 crore net worth or more came in from April 2016, together with their holding, subsidiary, joint venture and associate companies. All remaining listed companies, and unlisted companies at ₹250 crore or more, came in from April 2017, again with their group. Companies listed or listing on an SME exchange are outside the mandatory limb. Everyone else applies the older AS under the Companies (Accounting Standards) Rules 2021.
AS 26 reaches the same answers on the points that matter for intellectual property, which is convenient. Research, and the research phase of an internal project, is expensed as incurred and can never produce an intangible asset. Development costs are capitalised only where all six conditions are demonstrated, the same six as under Ind AS. Internally generated brands, mastheads, publishing titles and customer lists are not recognised, and neither is internally generated goodwill.
The one place AS 26 differs materially, and it catches people out on acquisitions, is amortisation. AS 26 carries a rebuttable presumption that the useful life of an intangible will not exceed ten years from the date it becomes available for use. There is no indefinite-life category to fall back on as there is under Ind AS. A brand acquired for a price that assumes it will still be earning in twenty five years therefore amortises far faster in the accounts of an AS 26 company than in those of an Ind AS one, on identical facts.
Who may value intellectual property, and when a valuation is compulsory
Who
Valuation under the Companies Act 2013 is reserved to a registered valuer under section 247, read with the Companies (Registered Valuers and Valuation) Rules 2017. The authority that registers valuers is the Insolvency and Bankruptcy Board of India. There are three asset classes: Land and Building, Plant and Machinery, and Securities or Financial Assets. There is no separate intangibles class: intellectual property sits inside Securities or Financial Assets, whose examination syllabus expressly covers identification of intangibles by life, function and origin, and names the methods used, including the excess earnings method and the relief from royalty method. The regime is current: the Board announced Phase 6 of the valuation examinations from 21 August 2026 under the same rules.
When it is legally required, not merely useful
- Shares issued for consideration other than cash. Rule 13 of the Companies (Share Capital and Debentures) Rules 2014 requires the price on a preferential issue, for cash or otherwise, to be determined on the basis of a registered valuer's report, and requires the non-cash consideration itself to be valued by a registered valuer. This is the operative rule in the classic Indian fact pattern where a founder or a group company contributes IP in exchange for shares: two valuations are engaged, the shares and the IP.
- Transfers to or from a non-resident. The Reserve Bank's Master Direction on Foreign Investment, updated to 15 June 2026, requires equity instruments of an unlisted Indian company to be priced on any internationally accepted pricing methodology on an arm's length basis, certified by a Chartered Accountant, a SEBI registered Merchant Banker or a practising Cost Accountant. Note the trap: that is a different professional set from the Companies Act registered valuer. A single IP-for-shares deal with a foreign shareholder can need two certificates under two regimes.
- Business combinations, where identifiable intangibles have to be recognised separately from goodwill at fair value.
- Receipt of property without or for inadequate consideration. Under the 1961 Act, section 56(2)(x) charges this, with a ₹50,000 threshold. A point worth knowing: the definition of "property" there is an exhaustive list, and bare intellectual property is not on it. The exposure in an IP transaction therefore arises on the shares issued or transferred, not on the IP itself. The successor under the 2025 Act is section 92(2)(m), and it carries all of this across unchanged: the same ₹50,000 threshold and the same closed list, now at section 92(5)(f). Bare intellectual property is still not on that list, so a gratuitous or undervalue transfer of a patent, a trade mark or know-how remains outside the charge.
Royalty paid within India
AY 2026-27, under the 1961 Act: withholding on royalty paid to a resident is under section 194J, at 2% for fees for technical services that are not professional services, for royalty in the nature of consideration for sale, distribution or exhibition of cinematograph films, and for payments to call centre operators; and at 10% in all other cases, which includes ordinary royalty. The section does not apply where the amount paid or payable in the financial year does not exceed ₹50,000.
Tax year 2026-27 onwards, under the 2025 Act: the successor is section 393, a single consolidated withholding section built around tables. Royalty sits at section 393(1), Table entry 6(iii), alongside professional and technical fees. The rates and the ₹50,000 threshold carry over unchanged. What changes is the citation, not the arithmetic.
Which head is it taxed under, and can you depreciate IP you bought
Where the intellectual property is exploited as part of a business or profession, the royalty is business income; where it is not, it falls to the residuary head by force of section 92(1). Sums received for agreeing not to carry on an activity, or not to share know-how, a patent, a copyright, a trade mark, a licence or a franchise, are business income under section 26(2)(h), the successor to the old section 28(va).
Depreciation on acquired intellectual property survives. Section 33 carries over the old formula for know-how, patents, copyrights, trade marks, licences and franchises, and continues to exclude goodwill. One drafting change worth knowing: the section no longer states a rate. The percentage now sits in the Income-tax Rules 2026, and we do not quote a figure here until it has been read out of those rules rather than carried across from the old ones.
Royalty paid outside India
This is where the largest amounts and the largest mistakes sit.
The domestic rate
Under the 1961 Act, the rate on royalty and on fees for technical services paid to a non-resident is 20% under section 115A, plus applicable surcharge and cess. One caution if you are checking this yourself: the department's own archived per-section pages still display superseded versions of section 115A showing 10 per cent, which was the pre-2023 rate. Use the current comparison chart, not the archived section page.
Under the 2025 Act the rate is unchanged. Section 207 is headed tax on dividends, royalty and fees for technical service in the case of foreign companies, and its table sets royalty at 20 per cent and fees for technical services at 20 per cent, with the balance of total income at the rates in force. Section 207(5) denies any deduction for expenditure or allowance, so it stays a gross-basis charge exactly as section 115A was. Surcharge and cess apply on top, and a more favourable treaty rate still displaces it.
The treaty, which usually decides the answer
Where a double taxation avoidance agreement applies, its provisions prevail to the extent they are more beneficial, and the treaty definition of royalty controls where there is one. The mechanism is section 90(2) of the 1961 Act, which maps to section 159 of the 2025 Act. Most Indian treaties set royalty withholding well below the domestic rate, so the domestic rate is the fallback, not the expected answer, provided the recipient can establish treaty entitlement.
PAN, the higher rate, and the relief
Section 206AA of the 1961 Act, mapping to section 397(2) of the 2025 Act, imposes a higher rate where the recipient has no PAN. The relief for non-residents is in Rule 37BC: the higher rate does not apply to interest, royalty, fees for technical services, dividend or payments on transfer of a capital asset, provided the recipient furnishes name, email, contact number, address in the country of residence, a Tax Residency Certificate where that country issues one, and a Tax Identification Number or equivalent government issued identification. The equivalent under the new regime is Rule 217 of the Income-tax Rules 2026, which works the same way and adds dividend to the list of covered payments.
The remittance forms have been renumbered
Under the Income-tax Act 2025 and the Income-tax Rules 2026, Form 15CA is now Form 145 and Form 15CB is now Form 146, under Rule 220. The information must be furnished before remitting. Part A applies where remittances do not exceed ₹5 lakh in the tax year; Part C applies where the remittance is chargeable to tax and exceeds ₹5 lakh and an accountant's certificate in Form 146 has been obtained. There are exemptions for individual remittances not requiring RBI approval, for IFSC units and for specified RBI purpose codes.
Equalisation levy: gone
Worth stating plainly because it still appears in current advice. The equalisation levy does not apply to anything from 1 April 2025. The 2 per cent e-commerce levy applied only to consideration received before 1 August 2024, and the department's own site now labels the chapter abolished. There is no equalisation levy on any IP or software payment in 2026. Legacy exposure is confined to the historic periods.
Software payments: what the Supreme Court settled, and what the 2025 Act changed
In Engineering Analysis Centre of Excellence, decided on 2 March 2021, the Supreme Court held that payments for the purchase and resale of shrink-wrapped and distributed computer software are not royalty: what passes is a copyrighted article, not a right in the copyright. It also held that a withholding obligation arises only where the non-resident is actually chargeable to tax, and that treaty provisions prevail where more beneficial, with the treaty definition of royalty controlling.
That judgment remains good law, and its treaty reasoning is untouched by the 2025 Act. But there is a change that matters and it is easy to miss. The 1961 Act put the software inclusion in an Explanation inserted retrospectively in 2012, and part of the Court's reasoning was that the Explanation could not apply to years before it was enacted. The 2025 Act carries the same inclusion in the operative body of the section: section 9(6)(c)(i) expressly provides that a transfer or grant of rights includes the right to use computer software, including by licence, irrespective of the medium.
The practical consequence to take away. The retrospectivity argument has no purchase from tax year 2026-27 onwards. So the protection in Engineering Analysis is a treaty protection, not a domestic law protection. For a payee in a jurisdiction with no treaty, or with a treaty whose royalty article is drafted widely, the domestic definition bites and the payment is royalty. Establishing treaty entitlement, with a Tax Residency Certificate, is therefore doing more work under the new Act than it appeared to do under the old one.
The point is settled rather than merely persuasive. The Revenue's review petitions against the 2021 judgment have been dismissed, first in April 2024 on both delay and merits, and again in May 2026 when a three judge Bench declined to reopen the question.
Transfer pricing where intangibles are involved
If IP is developed, held or licensed between related entities, transfer pricing applies and the intangibles rules are the most contested area in it.
The accountant's report
Under the 1961 Act this was section 92E and Form 3CEB. Under the 2025 Act it is section 172 and Form 48, to be filed by every person who has entered into an international transaction or a specified domestic transaction during a tax year, due one month before the return due date. Specified domestic transactions are defined at section 164, and the threshold is unchanged: their aggregate in a tax year must exceed ₹20 crore before the regime applies to them at all. There is no threshold for international transactions.
Master File and Country-by-Country Report, and a threshold worth knowing
Five new forms apply from 1 April 2026 under Rule 123 of the Income-tax Rules 2026:
| Form | What it is | Threshold |
|---|---|---|
| 56 | Master File | Consolidated group revenue above ₹500 crore and either international transactions above ₹50 crore or intangible property transactions above ₹10 crore |
| 57 | Designation of the filing entity | 30 days before the Form 56 deadline |
| 58 | Country-by-Country intimation | Two months before Form 59 |
| 59 | Country-by-Country Report | Consolidated group revenue above ₹6,400 crore; within 12 months of the year end |
| 60 | Designation for the Country-by-Country Report | 30 days before Form 59 |
Note the ₹10 crore intangible property trigger specifically. An Indian subsidiary in a group above ₹500 crore that licenses or develops IP for the group can be pulled into Master File filing at a fifth of the general transaction threshold. It is the single most commonly missed compliance trigger for an IP-heavy Indian entity in a multinational group.
Safe harbour, substantially rewritten for 2026
The Budget for 2026-27 consolidated software development, IT enabled services, knowledge process outsourcing and contract research and development into a single Information Technology Services category with a common safe harbour margin of 15.5 per cent, raised the eligibility threshold from ₹300 crore to ₹2,000 crore, moved approval to an automated rule-driven process without officer examination, and made an election valid for five years at a stretch. A new safe harbour for data centre services at 15 per cent on cost was also introduced. The application is on Form 49 under Rules 84 and 85 of the Income-tax Rules 2026.
The old margin bands of 17 to 24 per cent for software development, IT enabled services and knowledge process outsourcing are superseded. Any advice still quoting them is out of date. The enabling provision is section 167, with the operative rules at 86 to 102 of the Income-tax Rules 2026. One figure to watch: an intermediate notification of March 2025 raised the old threshold to ₹300 crore, and that number is still widely quoted. It has been superseded by the ₹2,000 crore figure above.
Advance Pricing Agreements
Sections 92CC and 92CD of the 1961 Act map to sections 168 and 169 of the 2025 Act. The programme is active: 219 agreements were signed in FY 2025-26, of which 84 were bilateral, and the cumulative total has passed 1,000. An agreement gives certainty for up to five years. The 2026-27 Budget added a fast-track unilateral route for IT services targeted at conclusion within two years, and the Finance Act 2026 extended the modified-return facility to associated enterprises of the applicant. The new forms are Form 50 for the pre-filing consultation and Form 51 for the application.
DEMPE, and where India stands on it. The OECD Guidelines define an intangible widely: something that is neither a physical nor a financial asset, that can be owned or controlled for use in commercial activities, and whose use or transfer would be compensated between independent parties. What follows is the framework every transfer pricing argument about IP now runs through. Legal ownership alone earns nothing. The return belongs to whoever performs the functions and bears the risks of development, enhancement, maintenance, protection and exploitation, and funding without control over the funded activity earns a financing return rather than the residual. India is not an OECD member, the Guidelines have no statutory force here, and neither the Act nor the Rules use the word DEMPE. But India has endorsed the approach in the United Nations transfer pricing manual, so an Indian entity that develops or maintains group IP should expect the question in exactly those terms.
GST, and the customs point that catches importing groups
GST on intellectual property
Under heading 9973, temporary or permanent transfer, or permitting the use or enjoyment, of intellectual property rights is taxed at 18 per cent. It is a single entry covering both temporary and permanent transfers. The older split, which taxed IP rights in information technology software at a different rate from other IP, no longer appears in the current schedule.
The September 2025 GST restructuring did not change this. That reform moved the system to principal rates of 5 and 18 per cent with a 40 per cent special rate from 22 September 2025. The services rate notification, Notification 15/2025-Central Tax (Rate) dated 17 September 2025, amends Notification 11/2017 rather than superseding it, and it does not touch serial number 17, heading 9973: neither "9973" nor "intellectual property" appears in it. So the services entry stands as it was, at 9 per cent central tax plus 9 per cent state tax, or 18 per cent integrated tax. Both notifications were read directly, and the position is stated as at 1 September 2026. This is the line on these pages most likely to move first, so check the date before you rely on the rate.
Goods or services, and why it still matters. Only the temporary transfer, or permitting the use or enjoyment, of an IP right is deemed a supply of services, by paragraph 5(c) of Schedule II to the CGST Act, which is unamended. A permanent transfer is taxed on the goods side, and still is: the entry survived the September 2025 supersession and now sits at serial number 637 of Notification 9/2025-Central Tax (Rate), also at 18 per cent. Anything citing the old serial number 452P of Notification 1/2017 is citing a superseded instrument.
The two sides were aligned rather than reclassified, with effect from 1 October 2021, by Notification 6/2021-Central Tax (Rate) on the services side and Notification 8/2021-Central Tax (Rate) on the goods side, both dated 30 September 2021. That is why older material describes two different rates for what feels like one transaction. The rate no longer turns on the characterisation, but the characterisation survives, and it still decides place of supply, time of supply, invoicing and export documentation.
For classification, IP sits in service group 99733, and the code most often needed is 997336 for trademarks and franchises. Software and databases are 997331, broadcast and exhibition rights 997332, research and development products 997335, and the rest of the family falls to 997339. All of them sit under heading 9973 and all attract the same rate, so the code choice is a reporting question rather than a rate question.
Reverse charge on imported services
An Indian company paying a foreign licensor for software or trademark rights is importing a service. The recipient is liable to pay integrated GST on reverse charge, the place of supply defaults to the location of the recipient, and all imports of services have been liable to integrated tax since 1 July 2017.
The point to take to the board. A single royalty payment to a foreign licensor attracts income-tax withholding and integrated GST at 18 per cent on reverse charge. Unlike the income-tax charge, there is no treaty that reduces the GST. The GST is generally creditable, so the real cost is cash flow and compliance rather than absolute tax, but it needs to be in the model before the deal is priced.
And if you also import goods from the same counterparty
Rule 10(1)(c) of the Customs Valuation Rules 2007 requires royalties and licence fees related to imported goods, which the buyer is required to pay as a condition of the sale of those goods, to be added to the customs value. Rule 10(1)(e) sweeps up other payments made as a condition of sale, and the Explanation brings in process royalties even where the process is applied after importation.
So a group that imports components from its foreign parent and pays that parent a separate technology or trademark royalty faces a third charge on the same payment stream: customs duty on the royalty, on top of income-tax withholding and reverse-charge GST. The two operative tests are whether the royalty is related to the imported goods and whether it is a condition of the sale. Both have to be satisfied, and how the agreements are drafted usually decides the answer.
The patent box: it survived the new Act, at a new section number
A resident patentee earning royalty from a patent developed and registered in India can elect to be taxed on that royalty at 10 per cent. This was section 115BBF of the 1961 Act, and it has been carried into the Income-tax Act 2025 at section 194, Table entry 2. The rate is unchanged.
The conditions are strict and are where elections go wrong:
- The taxpayer must be resident in India and must be a patentee, meaning the true and first inventor whose name is entered on the patent register.
- "Developed in India" means at least 75 per cent of the total expenditure on the invention was incurred in India by the eligible assessee. This is the condition that disqualifies most groups that did the research abroad and registered the patent here.
- No deduction for any expenditure or allowance is available against income taxed at the concessional rate. The 10 per cent is on gross royalty, which is why the election is not automatically favourable and has to be modelled.
- The option is exercised on Form 65 under Rule 134 of the Income-tax Rules 2026, on or before the return due date. It replaces Form 3CFA.
- There is a five year lock-out, and it is commonly described the wrong way round. Having exercised the option, if the taxpayer then does not offer income under the section in a year, the benefit is barred for five assessment years following that year. An existing election under the old section carries over rather than resetting.
Can it be combined with the startup deduction
Asked constantly, and the answer is cleaner than it looks. The deduction under section 140, formerly section 80-IAC, is 100 per cent of the profits of the eligible business, taken from gross total income. The patent box is a rate provision. For the same rupee in the same year the two cannot both operate: if the royalty forms part of the profits of the eligible business and the full deduction is taken, there is no income left for the patent box to attach to, and nobody prefers 10 per cent to nil. It is a choice, not a conflict.
The more decisive point is eligibility, and it is the condition most often missed when this regime is pitched to founders. The patent box is available to a resident who is the true and first inventor and is named as patentee on the register. An operating company or LLP claiming the startup deduction will usually not be the true and first inventor, so the combination rarely arises at all. Where it does, the patent box matters for royalty falling outside the three deduction years, or outside the eligible business. The startup deduction itself remains available to companies incorporated before 1 April 2030, the sunset having been extended by the Finance Act 2025.
A numbering trap in the new Act, and it will catch anyone searching for the patent box. Section 152 of the Income-tax Act 2025 is not the patent box. It carries the separate deduction for royalty on patents available to a qualifying individual patentee, formerly section 80RRB. The patent box is section 194(1), Table entry 2. The two sit close together under the new numbering and do different work: section 194 is a rate provision for a resident true and first inventor named as patentee, and section 152 is a capped deduction for an individual patentee.
Anyone searching the 2025 Act for the patent box lands on section 152 first and reaches the wrong answer. Given the eligibility point above, section 152 is in practice the more relevant provision for the individual inventor, which is who most readers of this paragraph turn out to be.
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This page is general information, not professional advice. The Income-tax Act 2025 replaced the 1961 Act for tax years from 2026-27 and renumbered every section, and several successor provisions are still settling, and how any of it applies depends on your own facts. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.