Tax on certain incomes
[Section-194 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 194(1) of Income Tax Act 2025
194(1) Irrespective of anything contained in any other provision of this Act, where the total income of an assessee as mentioned in column B of the Table below, includes income of the nature specified in column C of the said Table, the income-tax payable by such assessee, for a tax year, shall be the aggregate of––
- (a) income-tax calculated on income mentioned in column C, at the rate mentioned in column D, subject to the conditions specified in the Notes relating to the respective serial number; and
- (b) income-tax with which the assessee would have been chargeable had his total income been reduced by income mentioned in column C thereof.
Table
| Assessee | Income | Rate of tax | Conditions |
|---|---|---|---|
| 1. Any person | Winnings (other than from any online game) from–– lottery; or crossword puzzle; or race including horse race (not being income from the activity of owning and maintaining race horses); or card game and other game of any sort; or gambling or betting of any form or nature. | 30% | Nil. |
| 2. A person, resident in India and who is a patentee (herein referred to as an eligible assessee). | Royalty in respect of a patent developed and registered in India. | 10% | No deduction in respect of any expenditure or allowance shall be allowed to the eligible assessee under any provision of this Act in computing his income referred to in column C; an option for taxation of income by way of royalty in respect of a patent developed and registered in India is exercised in the prescribed manner, on or before the due date specified under section 263(1) for furnishing the return of income for the relevant tax year; where an option is exercised under clause (b) and the eligible assessee does not offer its income for taxation as per the provisions of columns C and D for any of the five tax years, succeeding such tax year, then such assessee shall not be eligible to claim the benefit of the provisions of columns C and D for five tax years subsequent to the tax year in which such income has not been offered to tax as per such provisions. |
| 3. Any person | Income by way of transfer of carbon credits. | 10% | No deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to column C. |
| 4. Any person. | Any income from the transfer of any virtual digital asset. | 30% | No deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in column C; and(b) no set off of loss from transfer of the virtual digital asset computed herein shall be allowed against income computed under any provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding tax years. |
| 5. Any person | Any income by way of net winnings from any online game, computed in the manner, as prescribed. | 30% | Nil |
| 6. Any person | Any profits and gains from life insurance business. | 12.5% | Nil |
Section 194(2) of Income Tax Act 2025
194(2) In this section,––
- (a) “carbon credit”, in respect of one unit, means reduction of one tonne of carbon dioxide emissions or emission of its equivalent gases which is validated by the United Nations Framework on Climate Change and which can be traded in market at its prevailing market price;
- (b) “computer resource” shall have the same meaning as assigned to it in section 2(1)(k) of the Information Technology Act, 2000;
- (c) “developed” means at least 75% of the expenditure incurred in India by the eligible assessee for any invention in respect of which patent is granted under the Patents Act, 1970 (herein referred to as the Patents Act);
- (d) “horse race” shall have the meaning assigned to it in section 115;
- (e) “internet” means the combination of computer facilities and electromagnetic transmission media including related equipment and software, comprising the interconnected worldwide network of computer networks that transmits information based on a protocol for controlling such transmission;
- (f) “invention” shall have the same meaning as assigned to it in section 2(1)(j) of the Patents Act;
- (g) “lump sum” includes an advance payment on account of such royalties which is not returnable;
- (h) “online game” means a game that is offered on the internet and is accessible by a user through a computer resource including any telecommunication device;
- (i) “patent” shall have the meaning assigned to it in section 2(1)(m) of the Patents Act;
- (j) “patented article” and “patented process” shall have the meanings as respectively assigned to them in section 2(1)(o) of the Patents Act;
- (k) “patentee” means the person, being the true and first inventor of the invention, whose name is entered on the patent register as the patentee, as per the Patents Act, and includes every such person, being the true and first inventor of the invention, where more than one person is registered as patentee under that Act in respect of that patent;
- (l) “royalty”, in respect of a patent, means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains” or consideration for sale of product manufactured with the use of patented process or the patented article for commercial use) for the—
- (i) transfer of all or any rights (including the granting of a licence) in respect of a patent; or
- (ii) imparting of any information concerning the working of, or the use of, a patent; or
- (iii) use of any patent; or
- (iv) rendering of any services in connection with the activities referred to in sub-clauses (i) to (iii);
- (m) “true and first inventor” shall have the same meaning as assigned to it in section 2(1)(y) of the Patents Act; and
- (n) for the purposes of sub-section (1)(Table: Sl. No. 4), the term “transfer” as defined in section 2(109), shall apply to any virtual digital asset, whether capital asset or not.
FAQs on Section 194 of Income Tax Act 2025
What types of income are taxed under Section 194(1) of the Income Tax Act, 2025?
The section applies to specified incomes like winnings from games, royalty from patents, carbon credit transfers, virtual digital assets, online gaming, and life insurance business profits.
At what rate is tax levied on winnings from lotteries, puzzles, races, or gambling?
A flat 30% tax is levied with no deductions allowed.
Who can claim a concessional 10% tax rate on royalty income from patents?
A resident Indian patentee can claim this rate, provided the patent is developed and registered in India and specific conditions are met.
What are the conditions for availing the 10% tax rate on patent royalty?
No deduction for any expenditure is allowed, the option must be exercised in the prescribed manner before the return due date under section 263(1), and non-compliance for any tax year disqualifies the benefit for five succeeding years.
Is any deduction allowed from income on transfer of carbon credits?
No, deductions or allowances are permitted for such income, which is taxed at 10%.
What is the tax treatment of income from virtual digital asset transfers?
It is taxed at 30% with no deduction allowed except for cost of acquisition, and losses cannot be set off or carried forward.
How are net winnings from online games taxed?
They are taxed at 30%, with no deductions or allowances allowed.
What is the tax rate for profits from life insurance business under this section?
Profits and gains from life insurance business are taxed at a flat 12.5%.
What is meant by “carbon credit” under Section 194?
It refers to the reduction of one tonne of CO₂ emissions (or equivalent gases), validated by the UNFCCC and tradable at market value.
Who is considered an “eligible assessee” for royalty income under this section?
A resident Indian patentee who developed the patent in India (with at least 75% of expenses incurred in India).
What qualifies as a “virtual digital asset” for the purposes of taxation?
The term follows the definition under section 2(109), and includes assets whether capital assets or not.
What does “developed” mean for patent eligibility?
It means at least 75% of the invention-related expenses were incurred in India.
Can losses from transfer of virtual digital assets be adjusted against other income?
No, such losses cannot be set off against any income or carried forward.
What happens if an eligible assessee fails to follow the patent royalty tax option after opting in?
They lose eligibility for the 10% tax rate benefit for five subsequent tax years.
Is consideration for sale of products using a patent treated as royalty?
No, only specific uses of the patent or related rights and services qualify as royalty; sale proceeds are excluded.
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