Last Updated on March 17, 2026
Intellectual property continues to be a major source of income for businesses through patents, trademarks, copyrights, and software. Commercialising intellectual property has increased the need to understand the tax consequences of these transactions.
Since the implementation of the Goods and Services Tax (GST) in India in 2017, the way transactions involving intellectual property are taxed has changed dramatically. The introduction of GST has created a more streamlined system of indirect taxes by replacing numerous existing taxes, including service tax and VAT, with a single tax system.
This piece will examine the tax consequences associated with IPR transactions under GST, including tax rates, legal obligations, and compliance requirements for businesses and creators involved in IPR in India.
Legal Framework for GST on Intellectual Property
Under the Goods and Services Tax (GST), the tax imposed on intellectual property rights mainly comes from the Central Goods and Services Tax Act, 2017 (CGST Act). There are two key sections in the CGST Act that are relevant to the taxation of intellectual property rights under GST:
- Section 7 of the CGST Act, 2017, defines the concept of “supply.”
- Schedule II of the CGST Act specifies activities that are treated as supply of goods or services.
Schedule II also provides that a temporary transfer of/or allowing for the use or enjoyment of an intellectual property right will be considered a service supply. However, if there is a permanent transfer or assignment of intellectual property, it may qualify as either a good or a service depending on the nature of that particular transaction.
This distinction between the types of supplies made in connection with intellectual property rights is important because it will determine how the supply will be treated for GST purposes, what rate applies, and what compliance obligations must be met.
Supply of Goods vs Supply of Services in IPR Transactions
Under GST, intellectual property transactions are broadly classified into two categories based on the nature of transfer.
1. Temporary Transfer or Licensing of IPR
When an IPR owner allows another party to use their rights for a period of time, this is regarded as a temporary transfer or a license.
Some examples of such temporary transfer/licensing would be:
- Licensing of a trademark to a franchisor;
- Granting of the rights to publish a book;
- Licensing of patented technology to manufacturers; and
- Providing software licenses to customers.
All such transactions are classified as supplies of services (per Schedule II) under the CGST Act. Royalty payment for the use of IPR falls within this category of temporary transfers.
2. Permanent Transfer or Assignment of IPR
When an IPR owner permanently transfers ownership of IPR to a different individual or entity, it is referred to as a permanent transfer.
Some examples of a permanent transfer would be:
- Sale of a patent;
- Permanent assignment of a trademark;
- Sale of an IPR asset as part of a merger; and
- Sale of IPR during an acquisition.
In these transactions, by definition, the transaction will generally be treated as a supply of goods, although the rate of tax may be the same, depending on the type of IPR being sold.
As a result, both types of transfers will be subject to GST when there is consideration is involved.
GST Rates on Intellectual Property Rights
The GST rate applicable to intellectual property transactions depends on the nature of the intellectual property and the type of transaction.
1. Goods Related to Intellectual Property:
For goods other than IT software, the GST will be charged at a rate of 12% whether the IP is temporarily or permanently transferred. Examples include:
- Licensing manufacturing technology
- Assignment of patents for physical products
- Licensing trademarks for products.
2. IT Software Related to Intellectual Property:
Goods classified as IT software are charged GST at 18% for all transactions. Examples include:
- Software licensing
- SaaS or Digital software user rights
- Transfer of software IP
The reason for the higher tax rate is that software licensing has been classified as a digital service for GST purposes.
GST on Royalty Payments
A royalty is a payment that occurs at regular intervals when a licensee pays the owner of intellectual property for the right to use the owner’s intellectual property. Royalty payments are considered payments for the provision of a service under GST.
Examples of this include:
- Payment for the right to use patented technology
- Licence payment for the use of a brand
- Royalties from music and/or film licenses.
Depending on the nature of intellectual property, these royalty transactions will also incur GST at 12% or 18%.
GST on Imported Intellectual Property Service
In a global digital world, many businesses in India are licensing technology, software and trademarks from overseas. These transactions will be treated as import of an intellectual property service for GST purposes.
When you import an intellectual property service:
- The GST must be remitted to the government using the Reverse Charge Mechanism (RCM).
- The service will be responsible for the payment of GST.
- The GST is paid as Integrated GST (IGST).
This will ensure that transactions involving the importation of intellectual property services are taxed in the same manner as those conducted domestically.
Input Tax Credit for Intellectual Property Transactions
In addition to being used as an input tax credit (ITC) to offset output taxes, the GST legislation permits the use of ITC to buy goods or services without paying output taxes. Businesses that have paid GST on intellectual property services may claim ITC to offset their output tax liability. ITC can be claimed only if:
- The intellectual property was acquired in the course of carrying on business
- A valid tax invoice exists
- GST returns were properly filed
As an example, a manufacturer who pays GST on the license fees for the patented technology will be able to claim ITC for the GST that they have paid.
Compliance Obligations for Intellectual Property Transactions
The compliance obligations that apply to businesses that deal with intellectual property transactions as part of the GST system will include:
- GST Registration for any business with a turnover that exceeds the prescribed threshold
- Issuing GST invoices when leasing or assigning intellectual property rights
- Keeping evidence of agreements and documentation supporting the validity of their agreements and transactions of lease and/or assignment of intellectual property rights
- Ensuring that the correct classification of the transaction occurs (i.e. whether it is classified as goods or services)
- As the importation of intellectual property rights may require the payment of GST under the reverse charge mechanism.
- Filing GST returns in a timely manner, identifying transactions for the licensing and/or assignment of intellectual property rights, will be a requirement for all businesses.
- Any business that fails to comply with any of these requirements could face penalties or disputes related to the application of GST.
Conclusion
The GST regime has brought greater clarity and uniformity in the taxation of intellectual property rights in India. Transactions involving the licensing, assignment, or transfer of intellectual property are treated as taxable supplies under the GST framework.
Temporary transfer or licensing of intellectual property is generally treated as a supply of services, while permanent transfer may be treated as a supply of goods depending on the nature of the transaction. GST rates typically range between 12% and 18%, depending on whether the intellectual property relates to goods or IT software.
Intellectual Property will continue to have an important impact upon Innovation, Digital Commerce and Creative Industries, therefore it is important that parties involved with Intellectual Property understand the GST implications that arise from their transactions, both as a means for avoiding disputes and properly managing their tax obligations. Such parties must ensure that their transactions associated with Intellectual Property are correctly classified, documented and that all compliance with GST regulations is met.
Frequently Asked Questions (FAQs)
1. What’s the GST % on IPR?
The normal GST on IPRs ranges from 12% to 18%, depending on what type of IPR it is and how you use it (e.g., royalties, transfers, etc.).
2. Does IPR fall under GST?
Yes, IPR transactions (royalties, transfers, and use of IPR) are taxable under the CGST Act 2017 as taxable supplies.
3. Does the LLP have to register for GST?
Yes, if the LLP has a turnover of more than ₹20 lakh per year, registers under GST, and/or sells inter-state products and services, then it must register for GST.
4. What are IPRs in GST?
IPRs under GST are intangible assets (patents, trademarks, copyrights), and the licensing or transferring of these assets is subject to GST.
5. Do I have to pay GST on royalties for the use of IPR?
Yes, royalties paid for the use of IPR are considered consideration for a supply of services and are, therefore, subject to GST.
