This question is with respect to tax law in India(you may also answer with respect to USA).If someone makes a software then popularizes it .The person has invested RS 100000 in making tghe software and RS 10000 on popularizing it.Now a person buys the software for Rs 10000000.The software developer files an income tax return for Rs 0 stating that because of popularization the price of it has increased to Rs 10000000.Will it be legal?How is the value determined?

  • Though not a part of the qestin I would also like if someone wrote also about how the value of property like stackexchange reputation is determined.For example someone loses ten reputation because f another persons fault hw to compensate. – ask Dec 27 '20 at 12:19

When you write:

a person buys the software for Rs 10000000

It is not quite clear if you mean "a person buys all rights to the software" or "a person buys a copy of the software." I will assume the first of these.

The value of IP that a person currently owns is generally determined by an estimate of the future income likely to be produced by exploiting that IP, or an estimate of the current market value of that IP.

However, when the IP has been sold in toto, the sale price will be the value at the time of sale. The taxable amount will be the sale price less the allowable expenses to date, including the expenses of the sales process, if any. Using the figures from the question, this would be 9890000, but in a real case there would probably be additional costs that could be used to reduce the taxable amount.

The question says:

The software developer files an income tax return for Rs 0

Does this mean that the developer claims that there was no taxable income due to the development and sale? It is hard to see how the developer would arrive at such a figure.

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