Section 115BBF Income Tax Act - Tax on Income from Patent
Section 115BBF of the Income-tax Act, 1961 provided a concessional 10% tax rate on qualifying royalty income from a patent developed and registered in India. From 1 April 2026, the corresponding patent royalty regime is contained in Section 194(1), Table Sl. No. 2 of the Income-tax Act, 2025.
What was Section 115BBF?
Section 115BBF created a special tax regime for an eligible resident patentee earning royalty from a patent that was both developed and registered in India. Its purpose was to tax qualifying patent royalty at a specified rate rather than at the otherwise applicable rate, subject to statutory conditions.
For this purpose, a patent was treated as developed where at least 75% of the expenditure incurred by the eligible assessee for the relevant invention was incurred in India. The patent also had to be granted under the Patents Act, 1970.
Tax rate on qualifying patent royalty
No deduction for expenditure or allowance is available in computing the royalty income to which this special rate applies. In practical terms, the special rate applies to the qualifying royalty amount without reducing it by otherwise deductible expenditure or allowances.
Who can claim the patent royalty regime?
The regime is restricted to an eligible assessee. The statutory conditions focus on residence, status as patentee, development in India and registration of the patent in India.
| Requirement | Meaning |
|---|---|
| Resident taxpayer | The eligible assessee must be resident in India. |
| Patentee | The claimant must satisfy the special statutory meaning of patentee for this regime, including the true and first inventor requirement and entry in the patent register. |
| Developed in India | At least 75% of the expenditure incurred by the eligible assessee for the invention must have been incurred in India. |
| Registered in India | The royalty must relate to a patent registered in India under the Patents Act, 1970. |
| Option exercised | The prescribed option must be exercised within the applicable statutory time and in the prescribed form. |
Option, deductions and five-year consequence
Exercise of option
Under the 1961 Act regime, the option was required to be exercised in the prescribed manner on or before the due date for furnishing the return of income under Section 139(1). Under the current 2025 Act regime, the corresponding option is governed by Section 194(1), Table Sl. No. 2, read with Rule 134 of the Income-tax Rules, 2026.
No deduction against qualifying royalty
Where the special patent royalty regime applies, no deduction for expenditure or allowance is permitted in computing the qualifying royalty income.
Five-year restriction after departure from the regime
After opting for the special regime, failure to offer the relevant patent royalty under the prescribed special regime in a succeeding year can trigger ineligibility for the benefit for the five tax years following the year of such default, subject to the wording of the applicable Act.
Important definitions
Royalty
For the patent royalty regime, royalty broadly covers consideration, including qualifying lump-sum consideration, for transfer or licensing of patent rights, information concerning the working or use of a patent, use of a patent, or connected services. It excludes consideration chargeable as capital gains and consideration for sale of a product manufactured using a patented process or for commercial use of the patented article.
Invention
Section 2(1)(j) of the Patents Act, 1970 defines an invention as a new product or process involving an inventive step and capable of industrial application.
Patent
Section 2(1)(m) of the Patents Act, 1970 defines a patent as a patent for an invention granted under that Act.
Patented article and patented process
Under Section 2(1)(o) of the Patents Act, 1970, these expressions mean an article or process in respect of which a patent is in force.
True and first inventor
Section 2(1)(y) of the Patents Act, 1970 states that the expression does not include the first importer of an invention into India or a person to whom an invention is first communicated from outside India.
Current law from 1 April 2026: Section 194 of the Income-tax Act, 2025
The Income-tax Act, 2025 reorganised several special-rate provisions. The subject previously dealt with by Section 115BBF is now contained in Section 194(1), Table Sl. No. 2. The essential patent-box features continue: a resident patentee, royalty from a patent developed and registered in India, a 10% rate, no deduction for expenditure or allowance against that qualifying royalty, a prescribed option and a five-year consequence where the regime is not followed after opting in.
The Income Tax Department's current guidance identifies Form 65 as the form for exercising the option under Section 194(1), Table Sl. No. 2. It corresponds to former Form 3CFA under the Income-tax Rules, 1962. Rule 134 of the Income-tax Rules, 2026 governs the exercise of this option.
Section 115BBF and Section 194 at a glance
| Point | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Provision | Section 115BBF | Section 194(1), Table Sl. No. 2 |
| Subject | Tax on income from patent | Qualifying patent royalty within tax on certain incomes |
| Special rate | 10% | 10% |
| Development test | At least 75% of relevant expenditure incurred in India | At least 75% of relevant expenditure incurred in India |
| Option form | Form 3CFA under the former Rules | Form 65 under Rule 134 of the Income-tax Rules, 2026 |
Official resources
Note: This article is a general legal and tax reference. The applicable Act, tax year, return due date, prescribed form and facts of the patent arrangement should be checked before filing or taking a tax position.