All about Form 3 CFA under Income Tax Act

What is Form 3 CFA?

Form 3CFA required to be filed with the Income Tax department according to procedure mentioned in the section 115BBF to opt for taxation of income by way of royalty on patent developed and registered in India by an eligible assessee.

Eligible Assessee for Form 3 CFA

Eligible assessee means a person resident in India and who is a patentee. Here patentee means the person or persons who are true and the first inventors of the invention.

What is meant by patent developed in India?

To claim the concessional rate of taxation under 115BBF, at least 75% or more expenses should have been incurred in India for the invention in respect of which patent is granted.

The rate offered under section 115BBF?

Section 115BBF gives concessional rate of tax i.e @ 10% on income earned by the way of royalty on patent developed and registered in India. Provided that no deduction in respect of any expenditure shall be allowed to the assessee in computing his income for taxation @ 10%.

How to arrive at the total income by way of royalty to offer tax @10%?

Royalty income means any consideration for the:

• Transfer of all or any right in respect of patent; or
• Imparting of any information concerning the working of, or the use of, a patent; or
• Use of patent; or
• Rendering of any services in connection with the activities referred in above.

Royalty also includes any lump sum consideration (including any advance payment received which is non-refundable) but excludes the income in nature of capital gains or consideration for sale of product manufactured with the use of patented process or article for commercial use.

Time limit to avail the option of Concessional rate

Eligible assessee may opt for the concessional rate taxation by way of filing the form 3CFA on or before the due date of the Income tax return.

Is there any compulsion to avail the benefit in respect of royalty income?

No, there is no compulsion to pay the taxes according to 115BBF. Assessee can pay the taxes at normal income tax rate.

However, If assessee after opting for the concessional rate of tax, pays the tax differently i.e otherwise than 10% in any of next 5 years then assessee will not be eligible to opt for the concessional rate of tax for the next 5 Assessment years from which assessee pays taxes differently. In simple words if assessee opts for concessional rate of tax then it will be valid till 5 years and in any of the 5 year assessee doesn’t comply with the provisions then assessee will become ineligible to opt for concessional rate for next 5 years.

The procedure to file the form 3CFA

Eligible assessee can furnish the from by any of the following two ways:

• Electronically through digital signature or
• Electronically through electronic verification code i.e., by OTP on registered mobile number of Assessee.
• Form shall be completed in all respects and must be filed before due date as specified above to adopt the concessional tax rate.

Contents of Form 3CFA

Very few details are required to file the form 3CFA for claiming the concessional rate of tax such as basic details of assessee including PAN Number, address and details of patent including Patent number, date of grant of patent and details of persons In whose name the patent is registered.

Download PDF of Form 3CFA