Major tax incentives for R&D facilities under taxes code
BS Reporter / New Delhi Sep 01, 2010, 01:31 IST
Companies with research and development (R&D) facilities in pharmaceuticals and biotechnology will continue to enjoy major tax incentives under the new Direct Taxes Code (DTC).
The DTC Bill introduced in the Parliament on Monday allows a tax deduction of up to 200 per cent of expenditure incurred on creating and maintaining an in-house R&D facility.
However, the decision failed to excite the contract research segment of the industry as they had been for long seeking an extension of such tax sops for companies that take up R&D as their main business.
Sujay Shetty, leader of the pharma practice at global consulting firm PricewaterhouseCooper in India welcomed the government decision to maintain “status quo” on the 200 per cent tax deduction on R&D spend.
The DTC Bill has also given a 175 per cent tax deduction to contributions or donations made to research institutions, national laboratory or universities. For donations to institutions engaged in statistical research or research in social science, the amount of deduction is 150 per cent.
Shetty welcomed the move as very “positive” and said any attempt to attract funds to national research institutions is a welcome development.
The government has also approved 100 per cent depreciation on all assets other than land used for scientific research. The rate of depreciation for life saving medical equipment is 40 per cent.
The R&D expenses include salary paid to an employee or purchase of material used in research within a period of three years immediately preceding the commencement of the research operations.
The DTC Bill proposes to allow "tax deduction of up to 200 per cent of expenditure incurred on creating and maintaining an in-house R&D facility." It is suggested that the weighted deduction be deferred and allowed from the income generated, from the R & D based projects (i.e. when they commence commercial production and generate profits). However, if the research is not fruitful, writ-off of the actual expenditure may be allowed, in the year in which the research is given up. Otherwise there is a possibility of claiming normal business expenditure as R & D expenditure, especially in case of in-house R & D. For instance, cost of staff bus and its running and maintenance expenditure were claimed as R & D expenditure by a company, though it was mainly for the general staff.
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