Section 207 — Patent Box Regime — Concessional Rate on Patent Royalty (formerly s. 115BBF)

Section 207 — Section 207 — Patent Box Regime — Concessional Rate on Patent Royalty (formerly s. 115BBF)

Section 207 (formerly 115BBF) is the Patent Box regime — concessional 10 per cent rate on patent-royalty income. Aimed at incentivising IP development and retention in India.

SCOPE. Royalty + lump-sum technology transfer payments from PATENT DEVELOPED AND REGISTERED IN INDIA. Conditions: patentee resident, 75 per cent Indian R&D expenditure, Indian patent registration.

EFFECTIVE TAX. 10 per cent + surcharge + cess = 11.96 per cent (vs 25 per cent normal corporate rate; vs 30 per cent individual / professional). Significant saving.

ELECTION YEAR-WISE. Section 207 must be elected each year via Form 10FB. Once opted out, 4-year cooling-off before re-entry.

DEDUCTION RESTRICTION. Section 207(3) — R&D expenditure incurred is NOT separately deductible against patent box income. Cannot double-claim Section 36 R&D weighted deduction + Section 207 concessional rate.

TRANSFER PRICING. If licensee is associated enterprise, ALP determination required. For independent licensees, no AE complication.

PLANNING. (i) Pharma / IT companies with Indian patent registration — Section 207 election year-by-year analysis. (ii) Combine with Section 36 R&D deduction (until 31-3-2026 sunset) for best result. (iii) Coordinate licensing strategy — bundle patent royalty with technical service fees to maximise Section 207 base. (iv) Detailed example: Bharat Tax Case Studies Vol 11 Case 2.

LITIGATION DEFENCE. (i) Patent registration in India (defence — Patent Office certificate); (ii) 75 per cent Indian R&D (defence — Form 3CL audit report, DSIR records); (iii) Royalty character of receipt (defence — license agreement, royalty computation methodology).