Section 115BBF: Tax on Income from Patent Royalty in India
Section 115BBF of the Income-tax Act, 1961 provided a special 10% income-tax rate on qualifying royalty from patents developed and registered in India. The corresponding provision for tax years governed by the Income-tax Act, 2025 is Section 194(1), Table Sl. No. 2.
What is Section 115BBF?
Introduced by Section 54 of the Finance Act, 2016 with effect from 1 April 2017, Section 115BBF established an optional patent box tax regime. It taxes qualifying patent royalty separately at 10% while other taxable income remains subject to the rates otherwise applicable to the taxpayer.
The regime encourages research and development in India by offering a special rate on qualifying income derived from Indian-developed, Indian-registered patents. The 10% rate is not a general rate for every form of intellectual property income.
Who is eligible for the concessional rate?
- Resident patentee: The taxpayer must be resident in India and be a patentee within the statutory definition.
- Developed in India: At least 75% of the total expenditure incurred by the eligible assessee for the relevant invention must have been incurred in India.
- Registered in India: The patent must have been granted under the Patents Act, 1970 and registered in India.
- Qualifying royalty: Income must fall within the statutory definition of patent royalty, rather than merely being revenue from selling patented products.
- Timely election: The prescribed option must be exercised by the applicable return-filing due date.
Ownership of a patent by itself does not establish eligibility: the conditions concerning residence, true and first inventor status, development expenditure and the character of income must be checked.
Tax rate and computation under Section 115BBF
Under Section 115BBF(1), qualifying royalty is taxed at 10%. Tax on the remaining total income is calculated as if that royalty had been excluded. Section 115BBF(2) prohibits deduction of expenditure or allowances against qualifying royalty taxed under this regime.
| Illustrative computation | Amount |
|---|---|
| Qualifying patent royalty | Rs. 20,00,000 |
| Special tax at 10% | Rs. 2,00,000 |
| Expenditure deducted from qualifying royalty | Nil |
| Surcharge and cess | Additional, where applicable |
Example is illustrative and does not compute tax on other income, surcharge, cess, credits or reliefs.
Important statutory definitions
Developed - Explanation (a)
The requirement is that at least 75% of the expenditure incurred by the eligible assessee for the invention is incurred in India. This is an expenditure-based test, not simply a test of where the inventor resides.
Eligible assessee - Explanation (b)
A person resident in India who is a patentee.
Invention, patent and patentee - Explanation (c), (e) and (f)
Invention has the meaning in Section 2(1)(j) of the Patents Act, 1970. Patent has the meaning in Section 2(1)(m). A patentee is a true and first inventor whose name appears in the patent register as patentee; this includes qualifying joint patentees.
Lump sum - Explanation (d)
Includes a non-returnable advance payment on account of royalties.
Patented article and patented process - Explanation (g)
These expressions have the meanings given in Section 2(1)(o) of the Patents Act, 1970.
Royalty - Explanation (h)
Royalty includes consideration, including qualifying lump sums, for granting or transferring rights (including licences) in a patent, imparting information about its working or use, permitting its use, or rendering related services. It excludes consideration taxable as capital gains and consideration for commercial sale of products manufactured using a patented process or patented article.
True and first inventor - Explanation (i)
This term takes its meaning from Section 2(1)(y) of the Patents Act, 1970.
How to opt for the patent royalty tax regime
Section 115BBF(3) required an election in the prescribed manner by the due date under Section 139(1). Under the Income-tax Rules, 1962, the prescribed form was Form 3CFA under Rule 5G. For the 2025 Act regime, the Income Tax Department identifies Form 65 under Rule 134 of the Income-tax Rules, 2026, corresponding to Section 194(1), Table Sl. No. 2.
Under Section 115BBF(4), if a taxpayer who opted into the regime did not offer qualifying royalty under that regime in any of the next five assessment years, the benefit was unavailable for the five assessment years following the year of default. The corresponding 2025 Act provision contains a similar five-tax-year restriction.
Keep the patent registration particulars, proof of inventor status, Indian and overseas development expenditure, royalty agreements, and records supporting the election.
Patent royalty under the Income-tax Act, 2025
Section 194(1), Table Sl. No. 2 is the corresponding special-rate provision under the Income-tax Act, 2025. It continues the 10% tax treatment for qualifying royalty from patents developed and registered in India, subject to the prescribed conditions and option.
Do not confuse this patent box regime with Section 152 of the Income-tax Act, 2025, which deals with a separate deduction for eligible individuals receiving patent royalties (corresponding to the earlier Section 80RRB). Eligibility, treatment and interaction of the provisions must be considered independently.
For older assessment years, Section 115BBF and the relevant Income-tax Rules, 1962 remain important for assessment, reassessment and other proceedings concerning those periods.
Official legislation and filing references
- Income Tax Department: Section 115BBF, Income-tax Act, 1961
- Income Tax Department: Income-tax Act, 2025 (official PDF)
- Income Tax Department: Form 65 guidance note and statutory mapping
- Income Tax Department: Form 3CFA
- Income Tax Department: Section 152, patent royalty deduction
- India Code: Central legislation, including the Patents Act, 1970
This article provides general statutory information. Check the applicable tax year, notifications, rules and individual facts before filing a return or exercising an option.