Form 3CFA – Income Tax

Last Updated at: Oct 08, 2020

Form 3CFA is a form for opting for taxation of income employing royalty in respect of Patent

Form 3CFA

Form 3CFA

Form 3CFA

income tax

What is a Patent?

A patent is a license from the government allowing an exclusive right/title over an invention/innovation for an established period of time during which the owner of the patent can make, use, or sell the patented innovation. Every country has laws governing patents and grants such a license based on the application received from an inventor. The patentee is the person whose name is registered or enrolled as the proprietor of the patent. 

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Section 115BBF – Planning with patent tax in India

Section 115BBF gives a concessional rate of taxation at 10% on royalty income regarding the exploitation of patents. The notable points of Section 115BBF are as follows:

  • Applicable only to Indian citizens who are patentees (qualified taxpayer).
  • Only such limitations are under the Patents Act, 1970.
  • Further, the patentee is any person who is the correct and first creator of the invention, whose name will list on the patent register as the patentee as per the Patents Act, 1970 (Patent Act) and also covers joint and the first inventors.
  • Total interest of qualified taxpayers must enter income by way of royalty.
  • Additionally, royalty income is in reverence of a patent that has registration in India.
  • Further, at least 75% of the expense acquire in India by a taxpayer for invention.

Moreover, royalty income involves any concern for the:

  1. Transfer of all or any benefits (involving the giving of a licence) in regard to a patent.
  2. Allowing any data concerning the performance of, or the use of, a patent.
  3. Value of any patent.
  4. Rendering of any assistance in contact with the actions involved in the above clauses
Royalty also covers any lump sum payment (including advance payment on account of royalty which is not payable) but denies benefits like capital gains or compensation for the sale of product produced with the use of the patented method or the patented article for commercial use)
  • No other payment will have a provision under the tax requirements if concessional tax rate under Section 115BBF.
  • Qualified taxpayers preferring to avail Section 115BBF benefit are expected to provide Form No. 3CFA duly verified electronically both by digitally engaging it or using the electronic verification method by a person authorised to approve the return of income.
  • Moreover, Form 3CFA shall be perfect in all regards. It can have a registration on or before the due date for providing the return of income under Section 139(1).
  • Further, Form 3CFA needs certain common features (such as PAN, name, location of the taxpayer, etc.), information of the patent (such as the patent number, date of grant of a patent, description of the patent, whether granted to a single person or as a joint patent) and features of royalty interest or income and also expense acquired in India and outside India
  • Moreover, details of each suitable patent should have a list individually along with the royalty income and payment details.
  • The Director-General Income-tax (Systems) shall define the methods, forms and rules to ensure secure capture. Further, the transmission of data and shall also be liable for developing and executing proper security. Moreover, archival and retrieval systems to furnishing and confirmation of Form No. 3CFA.
  • The terms ‘invention’, ‘patented article’, ‘patent’, ‘true and first inventor’ and ‘patented process’ shall be defined as assigned under the Patents Act, 1970.