Rule 134 — Exercise of option for taxation of royalty income from patent under section 194(1) [Table: Sl. No. 2]. Made under s.194, s.263 of the Income-tax Act, 2025.
Rule 134 gives effect to Section 194 and Section 263 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule prescribes how an eligible assessee exercises the option for taxation of income as royalty in respect of a patent developed and registered in India under section 194(1) [Table: Sl. No. 2].
Sub-rule (1) requires the eligible assessee to furnish Form No. 65 for the purpose of exercising that option. Sub-rule (2) fixes the time: the form shall be furnished on or before the due date specified in section 263(1)(c) for filing the return of income for the relevant tax year, if the option is exercised for that tax year.
Section 194(1) [Table: Sl. No. 2] gives the eligible assessee a choice about how patent royalty income is taxed, and a choice has to be made visibly and on time or it cannot be administered. The rule fixes the vehicle — Form No. 65 — and pegs the deadline to a date the assessee already has to meet, the section 263(1)(c) return due date for the relevant tax year.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Time to furnish Form No. 65 | On or before the due date specified in section 263(1)(c) for filing the return of income for the relevant tax year | Where the option is exercised for that tax year | Sub-rule (2) |
The option is exercised by furnishing the form, so nothing said in the return itself, and no claim made later in the assessment, takes its place. The deadline is year-specific: sub-rule (2) ties the form to the return due date under section 263(1)(c) for the relevant tax year for which the option is exercised, so it is a step to be taken for that year rather than a standing election made once. Who is an eligible assessee and what income qualifies are settled by section 194(1) [Table: Sl. No. 2]; the rule adds the form and the time and nothing else.
A resident inventor earns Rs 40 lakh of royalty during the tax year on a patent she developed and got registered in India, and wants the section 194(1) [Table: Sl. No. 2] treatment. She must furnish Form No. 65 on or before the section 263(1)(c) due date for filing her return for that tax year. Claiming the treatment in the return alone, without the form, does not exercise the option.
You meet it once a year, in Form No. 65 furnished by the return due date, and afterwards in the return for the same tax year in which the royalty is offered on that footing.
the eligible assessee shall furnish Form No. 65
The form referred to in sub-rule (1) shall be furnished on or before the due date specified in section 263(1)(c) for filing the return of income for the relevant tax year, if the option is exercised for that tax year.