The Patent Box Regime in India

Section 115BBF of the Finance Bill, 2016[1] introduced the Patent Box Regime in India. Patent Box Regime is an effort which enables an inventor to benefit through tax concessions on the royalty income. The first country to enforce it was Ireland and hence, the name is derived from its tax form.

Need for the Patent Box Regime in India

  1. The existing regime which  provided front end incentive was not sufficient to encourage patenting and innovations in India.
  2. Investment linked deductions were to be phased out by the government
  3. To encourage the ‘Make in India’ project.
  4. To comply with the Base Erosion & Profit Shifting Project (BEPS)- Action 5 (Countering Harmful Tax Practices)by the Organisation for Economic Co-Operation & Development.

Thus, to boost activities involving indigenous research & development as well as to mark India as a global Research & Development hub, the patent box regime is brought into force by the Indian government. It is aimed to provide additional benefits through a concessional taxation regime for income derived through existing patents and encourages the development of new patents. This would further lead to the creation of jobs of high value involving the patent.

Section 115BBF of the Income Tax Act

  • Section 115BBF of the Income Tax Act provides that where royalty income is a part of assessee’s income, the income tax on the royalty income shall be calculated at a concessional rate of 10%, provided that the patent is developed as well as registered in India.
  • Further, the royalty income is deducted from the total income, on which the income tax is applicable.
  • The assesse would not be eligible to any other benefit in respect of any other expenditure or allowance if he chooses to benefit under Section 115BBF.

Section 115BBF is

  • Only applicable to a patentee who is a resident of India
  • Only Patents who are granted under the Patents Act, 1970 come within its purview.
  • Royalty income shall be only in respect of a patent that is developed as well as registered in India. Thus, atleast 75% of the expenditure on the invention shall be incurred in India by the eligible taxpayer to avail this benefit.
  • By Royalty income is meant the consideration received for:
    • Transfer of any or all rights, also including the grant, of licence in respect of the patent.
    • Imparting of information which is necessary or concerned with the use of or the working of a patent.
    • the use of the patent.
    • Rendering services for any of the aforementioned activities.
    • Lump sum considerations, including advances on royalty are also a part of the royalty income but it does not include income which is in the nature of capital gains or payments received for sale of products which are manufactured through the patented process or article for commercial use.

How is it availed[2]?

Form No. 3CFA is to be furnished by the eligible taxpayer who wishes to avail the benefit of Section 115BBF. It is to be duly verified electronically by either a digital signature or electronic verification by any person who is authorised to sign income returns. The form should be complete and is to be filed before the due date for filing income tax returns under Section 139(1) of the Income Tax Act.

The form seeks general details of the taxpayer, the details of the patent, the details of the royalty income eligible from patent and also the expenditure incurred on the eligible patent in and outside India. Particulars of each eligible patent are to be reported separately.

The Director General Income Tax (Systems) is responsible for implementing security, retrieval as well as archival policies concerning Form No. 3CFA. He also specifies the formats, procedures andstandards to ensure capture and transmission of such data.

Is Section 115BBF Mandatory?

No, it is not obligatory for the eligible taxpayer to seek the benefit of Section 115BBF. But, once the taxpayer has availed the benefit, the taxpayer is under an obligation to avail the same benefit for the next 5 years. For e.g. if a taxpayer avails the benefit under Sec115BBF in 2019, he would have to avail the benefit every year for the next 5 years till 2024. If he does not, he would not be eligible to avail the benefit under Section 115BBF for the 5 years following such year in which the option is not exercised.

Author: Maahi Mayuri, LLB student from New Law College, Bharati Vidyapeeth Deemed University, Intern at Khurana and Khurana Advocates and IP Attorneys and can be reached at swapnils@khuranaandkhurana.com

References:

[1]https://www.indiabudget.gov.in/ub2016-17/fb/bill.pdf

[2]https://incometaxindia.gov.in/Rules/Income-Tax%20Rules/itrule5g.htm

Leave a Reply

Archives

  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • September 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010