The unexpected cut today in corporate tax to 22% excluding surcharge by the Finance Minister on 20th Sep. applicable for FY 2019-20 is a bold move to simulate investments especially for new manufacturing companies which has been bought down to 15% excluding surcharge. The FM and PM mentioned that it would lead to a stimulus to Make in India but we also need increased incentives for R&D for which the weighed tax deduction should be increased and the scheme made permanent so that there can be increased investment in Design & Development in India.
As we all are aware Income Tax benefits u/s 35 (2AB) pertaining to DSIR approved companies which have received Form 3CM with tax deduction of 150% is scheduled to be wound down to 100% by end of FY 2019-20 i.e. 31st March 2020 and it has the entire manufacturing and research based companies aghast at this move.
On one hand we talk of Make in India but on the other hand there is no financial incentive to Design & Develop in India? We have been trying to get the voices of the Industry & Research community including international partners to the Government so that they can understand the sheer loss of growth, highly skilled jobs and innovation in this country if we go down that path.
The Founder of SCPL, the parent company of DSIR.in had an opportunity to meet the Principal Scientific Advisor (PSA), Prof. Vijay Raghavan to Govt. of India in last week of August 2019 whereby the industry view and international practices around R&D incentives was shared with him and his team.
He sounded cautiously optimistic and mentioned that they are working with the Finance Ministry to find a way out and restore the R&D incentives provided to Industry. All is not lost and there is still hope for R&D in this country.
It’s that time of the year when you are finalising your company Income Tax returns and have no clues how to avail income tax benefits for your R&D expenditure although you have your DSIR approval i.e. Form 3CM in place.
Step 1: Prepare a list of all eligible capital and operating expenditure for previous Financial Year 2018-19 in the format as per Form 3CL
Step 2: Get it certified by your statutory auditor
Step 3: File Form 3CL with DSIR physically and online with Income Tax site along with your IT return copy.
Don’t have the expertise or the time to accomplish the same? Call DSIR.in helpline number and we will assist you in professionally filing your Form 3CL in time with maximum tax benefits and importantly no undue claims which may be disallowed by DSIR.
SCPL, the parent company of DSIR.in has experience of handling 3CL filings for companies of all sizes with expenses ranging from 50 lac to 100 crore and has handled 3CL filings with R&D expenses in excess of Rs.500 crore.
Manufacturing has emerged as one of the high growth sectors in India targeting global markets and are becoming formidable global competitors. India has jumped 30 places to reach the 100th spot in the World Bank’s “Doing Business Report 2017” and has been one of the top improvers. The country is expected to rank amongst the top three manufacturing destinations by 2020. Manufacturing sector is estimated to touch USD $1 Trillion by 2025 accounting for about 25 – 30% of the country’s GDP, creating up to 90 million jobs domestically. The Government of India has set up an ambitious plan of locally manufacturing around 181 products. This along with digital push could be a big catalyst to sectors such as power, oil & gas, automobile manufacturing.
In recent years, the Indian government has implemented a number of tax incentives for manufacturers. These incentives were created by the Make in India program and the Goods & Services Tax (GST), which are expected to increase the nation’s share of the global electronics manufacturing market. The Make in India Program, established in 2014, provides new incentives aimed at promoting investment, fostering innovation, and protecting intellectual property. In 2017, India’s GST program was launched and it provides a uniform, transparent tax code. The goal of both programs is to create more jobs across the country and across many industries that have often been outsourced across the globe. India’s Manufacturing Tax Incentives
The tax incentives are designed to attract investors to the Indian manufacturing sector while increasing the job market and improving the Indian economy. They fall under several different categories, including tax holidays and credits, rebates, and investment allowances. There are other tax incentives that vary based on industry, region, and other criteria.
Activity Incentives: These incentives are for any manufacturers and producers fulfilling certain conditions. They provide a 150% deduction on on-premises research and development, as well as funding the importation of any materials needed for these activities. Eligible manufacturers and producers also qualify for an exemption of customs duty.
Exportation Incentives: These incentives tend to offer rebates or waivers from charges and fees related to exportation and purchase of goods within a Special Economic Zone (SEZ). This includes exemptions of customs duty, VAT, excise duties, and Service Taxes. These incentives are incredibly attractive for exporters, as they can cut back significantly on their operation, transport, and sale costs and fees. These incentives also offer to deduct 100% of a manufacturer’s export profits for the first 5 years of participation. This drops to 50% for the second 5 years and stays at 50% for another 5 if profits fulfil certain terms and conditions, including going to a special account for the purpose of buying manufacturing equipment.
Industry Tax Incentives: These tax incentives fall within specific industries that have unique or specific needs and requirements. The incentives supply tax deductions or direct reimbursement of many industry-incurred expenses, such as material storage and other necessities. They might also include the costs associated with running a hotel, developing a housing unit or sector, building a specialty transport system for unique materials, or maintaining specialty storage units for sensitive food- and medical-grade materials. Eligible manufacturers in these industries will receive incentives in the form of tax deductions or repayment equalling 100% of the total fees associated with running their company.
Investment-based Incentives: In order to attract investment in specified sectors and to boost the exports, these incentives are offered on the investment made by the industries. The Government offers capex subsidy of 20-25% and grant-in-aid of 50- 75% of the total project cost for those companies meeting the criteria.
State-Based Incentives: These incentives can vary significantly from state to state. The states in north eastern India have a set of tax incentives for manufacturers. These vary based on the available industries, region size, investment potential, and the products produced in the region, among other considerations. Incentives might be tied in to the land on which the manufacturing process takes place. These incentives might include waivers or permissions related to registration fees, stamp duties, property taxes, or more. If they’re related to the business infrastructure, they could include rebates or waivers on duties and tariffs related to utilities or subsidies on equipment related to manufacturing or clean air.
Tax Incentives For Infrastructure Development Undertakings Enterprises engaged in the business of power generation, transmission, or distribution; developing or operating and maintaining a notified infrastructure facility, industrial park, or SEZ; substantially renovating and modernising the existing network of transmission or distribution lines (between specified periods); or laying and operating a cross-country natural gas distribution network are eligible for a tax exemption of 100% of profits for any ten consecutive years falling within the first 15 years of operation (first 20 years in the case of infrastructure projects, except for ports, airports, inland waterways, water supply projects, and navigational channels to the sea).
Tax Incentive Of Capital Expenditure On Certain Specified Businesses Deduction of capital expenditure is allowed at 100% in the year when the commercial operations begin in respect of the following specified businesses: Setting up and operating cold chain facilities. Setting up and operating warehousing facilities for storage of agriculture produce. Setting up and operating an inland container depot, freight station, or warehousing facility for storage of sugar, beekeeping, and honey and beeswax production. Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such a network. Building and operating a hotel of two-star or above category in India. Building and operating a hospital with at least 100 beds. Developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the government. Developing and building specified housing projects under an affordable scheme of the central/state government. Investing in a new plant or newly installed capacity in an existing plant for production of fertiliser.
Conclusion A clear strategy for securing incentives should be built into any investor’s game plan. India offers many attractive tax benefits, we advise working with a professional firms like us which is familiar with India’s regulatory environment. We can help businesses identify all relevant tax breaks and incentives and draft a step- by-step guide outlining the application process.
Indian software companies, big and small carry out development projects for clients outside India either onsite at client locations or their development centers based in and outside India. The question is why most of these software companies not claiming R&D incentives for their research or development work which are eligible for the R&D tax credit in countries of their operation. Most of the leading economies of the world offer R&D tax credit, be it in Europe, North America, Australia, and Southeast Asia. The reason is simple, most of them are not aware that software companies can be eligible for R&D tax credit or apprehensive whether they would be eligible for the same. Did you know who is the largest beneficiary of R&D incentives in the United States of America? You would imagine a large industrial company right? No!!! The answer is Amazon, which saved about USD 400 million in R&D incentives which is also one of the reasons they don’t have to pay corporate tax in the USA. So the question is how do you identify R&D activities and projects which are undertaken by your company. The answer is to segregate client projects and projects which are not directly linked to client delivery (independent). In client projects, the risk of failure lies with the company which simply means if the project is unsuccessful your company has to bear the cost. The incentives range from country to country but in most cases, the savings can range from about 15% going up to more than 100%. This will help you get the extra funding to put in cutting edge technologies in Robotics or AI or NLP which is where the future lies. So isn’t it time to get started??
As the deadline for filing your R&D Expenditure (Form 3CL) with DSIR is approaching soon for financial year 2018-2019 it is time you gear up for the same.
Section 35(2AB) of the Act provides weighted tax deduction of 150% of expenditure incurred by a company, on scientific research (not being expenditure in the nature of cost of any land or building) in the in- house R&D centres as approved by the prescribed authority.
The Department of Scientific and Industrial Research (DSIR) has recently updated the guidelines for approval of in-house research and development (R&D) centres and submission of prescribed report under section 35(2AB) of the Income-tax Act, 1961 (the Act). Section 35(2AB) of the Act.
Upon receiving recognition from DSIR as IN-HOUSE R&D UNIT, companies are eligible for definite tax benefits u/s 35 (2AB). To avail these benefit, filing of form 3CL is mandatory. The cutoff date for the documents to be submitted for availing 3CL benefits is 31st October of each preceding financial year of approved period to facilitate submission of Report in Form 3CL.
Required information to be filled in form 3CL
Name and Address of the registered company including Telex/Fax/Phone numbers
Permanent Account Number (PAN) of the company Name and designation of the Principal Officer of the company.
Nature of Business, manufacturing details of products Drugs like Pharmaceuticals, Electronic Equipment or any other article or thing notified under sub-section (2AB) of section 35.
Annual production of the eligible products of the company during the past three years.
Proposed objectives of scientific research contemplated by the company.
Whether the nature of the business is related to the proposed objectives of the scientific research contemplated by the company.
Details of the nature of in-house R&D facilities.
Whether recognition granted to the in-house R&D centre of the company by DSIR.
Total cost of in-house research facility, giving break-up of expenditure on land and buildings.
Agreement for co-operation, R&D facility, audit of the accounts maintained for that facility.
Along with it, documents like Auditor’s Certificate, complete details as per appendix II to annexure IV of DSIR guidelines are required as well.
FORM 3CL is needed to be filed to DSIR and a FORM 3CLA (to be filed by the auditor) to Director General of Income Tax.
With this, the process of availing the income tax benefits is completed!
R&D incentives is a key tool used by Governments globally to promote innovation, create high paying jobs and simulate industry growth with countries like United States of America which has made the R&D Tax credit policy permanent in 2016 recognising the impact it has on economic growth of the country. India is at the cusp of start up growth as also industries has seriously started investing in Research & Development over the last 5 years to leverage market opportunities, address environmental concerns and create indigenous technologies which is a must for India to become an economic superpower. Unfortunately the Government policy making towards R&D incentives has been short sighted and temporary making it hard for serious investors to invest in R&D to plan long term as also for SMEs who are now gearing up to make substantial investment in R&D to create new products and technologies for disrupting the market. The R&D tax benefits is granted in India based on getting certification from Dept. of Scientific & Industrial Research (DSIR) which can easily take one year or more as also the scheme is tied to the physical location of the company whereas globally the incentives are project based which is flexible, transparent and quick to implement. In fact despite being in middle of recession for last few years European Union (EU) has been significantly increasing incentives in R&D and their Vision 2020 program has already been envisaged beyond 2020 as investing in innovation is the only way to increase growth and create jobs. India needs to take a holistic view of R&D incentives as a policy making tool which can stimulate growth and make India an attractive R&D destination. *** Rajeev Surana is a Patent Attorney and author of Protect Your Ideas book. He is also an avid marathon runner and been deeply involved with the innovation ecosystem in India. He can be reached on email@example.com
The Indian public, the industries and the companies recognized by Department of Scientific and Industrial Research (DSIR) were in dilemma with the exemption of Custom duty and GST on purchase of capital goods, but there have been new notifications for Custom and GST, introduced by Government of India, Ministry of Finance:
Custom notification vide no. 43/2017 Customs dated 30.06.2017 IGST notification no 47/2017 Integrated Tax (Rate) dated 14.11.2017; No. 9/2018 Central Tax (Rate), No. 09/2018 Union Territory Tax (Rate) & No. 10/2018 Integrated Tax (Rate) dated 25.01.2018 against the previous notifications of Custom and excise duty.
In brief, under the above stated notification, if a research institution (other than a hospital) is registered with the Government of India with Department of Scientific and Industrial Research (DSIR), the company is exempted from paying any Custom duty on purchase of any goods (equipment, consumables, computer software, prototypes etc.) for conducting R&D. The subsidized GST rates for such items is 5% in case of import & interstate purchase and 2.5% along with SGST and 2.5% in case of purchases within state. Hence the customs exemption has not been scrapped entirely; however earlier central excise duty exemption has been revised to GST concession.
Following are the items which are eligible for GST concession as per amendments made in the above notifications:
a) Scientific and Technical Instruments, apparatus, equipment (including computer) b) Accessories, Part, Consumables and live animals (Experimental Purpose) c) Computer Software, Compact-Disc Read, Only Memory (CD-ROM), recorded magnetic tape, microfilms, microfiches d) Prototypes (the aggregate value of prototypes received by an institution does not exceed fifty thousand rupees in a financial year).
Following is the example of savings for the companies in terms of GST: –
GST GST PAYABLE SAVING
IGST Only 5% GST @ 12%: Saving is 7%
GST @ 18%: Saving is 13%
GST @ 28%: Saving is 23%
CGST Only 2.5% GST @ 12%: Saving is 3.5%
GST @ 18%: Saving is 6.5%
GST @ 28%: Saving is 11.5%
SGST As applicable on the item
UTGST 2 Only 2.5% GST @ 12%: Saving is 3.5%
GST @ 18%: Saving is 6.5%
GST @ 28%: Saving is 11.5%
To obtain concessional GST, the company will provide a certificate to supplier at the time of supply. To summarize, DSIR recognized centres can avail customs duty exemption. This was the earlier scenario as well, but in case of GST there is comparatively better savings of indirect tax which was exempted earlier in terms of central excise duty exception.
For a deeper discussion of how this issue might affect your business, please contact:
109, Marine Chambers, 1st Floor, 43,
New Marine Lines, Mumbai-400020. (INDIA)
Phone: +91 9962696204
In brief The Department of Scientific & Industrial Research (DSIR) is operating a scheme for granting recognition & registration to in-house R&D units established by corporate industry.
The in-house R&D units applying for recognition to DSIR are expected to be engaged in innovative research & development activities related to the line of business of the firm, such as, development of new technologies, design & engineering, process/product/design improvements, developing new methods of analysis & testing; research for increased efficiency in use of resources, such as, capital equipment, materials & energy; pollution control, effluent treatment & recycling of waste products or any other areas of research.
Market research, work & methods study, operations & management research, testing & analysis of routine nature for operation, process control, quality control and maintenance of day to day production, maintenance of plant are not considered as R&D activities. The Department of Scientific and Industrial Research (DSIR) has recently started to release the list of companies who get recognized by DSIR, closed by DSIR and who withdrawn their application. Over all, only about approx. 2000 companies are recognised by DSIR in India at this time, which is miniscule considering there are about 7000 companies listed in Bombay Stock Exchange (BSE) and there are about 1.5 million SMEs in India.
This directly points to the lack of awareness of this scheme and how companies that believe they don’t do R&D or have a proper set up can benefit by this scheme. From the recent list we can see that four out of five companies who applied for recognition get rejected due to lack awareness of R&D activities, set up etc.
Eligibility criteria The basic criteria for DSIR recognition are given below: Company should be three years old Company should be listed under Pvt Ltd, Public Ltd. Company has minimum 1000 sq ft R&D area. Company should be involved in new product development, new process development and improvement of existing process.
Reason for Rejection
The reason for getting rejection from DSIR are many like lack of awareness about R&D
activities, how to show the R&D layout etc. Some of major reason of the same are given below:
Company may not have a dedicated R&D Area or set up but it is engrained in the business
without giving special emphasis to Research & Development.
Company may not have clarity on R&D activities which can be allow by DSIR under this
Company may not identify the R&D expenses for last three years and not showing in
Company may not identify the major ongoing and future projects.
Company may not have clarity on future plans for R&D activities and not able to explain to
Company may not have dedicated manpower, area and account for R&D.
Company may not shoot proper walk-in video for R&D facility.
Company may not show the proper finance figure in the application.
Lack of confidence at the time of interview, and not able to explain what kind of R&D they are
doing in front of DSIR scientist.
Checkpoints of DSIR process:
Identification of R&D layout and extract the dedicated lab for R&D from existing layout
Identification of R&D equipments, manpower
Identification of R&D expenses for last three years
Identification of R&D achievements for last three years
Finalization of R&D expenditure
Internal audit of R&D expenses, if any
The guidelines can be accessed from the following link:
For a deeper discussion of how this issue might affect your business, please contact:
109, Marine Chambers, 1st Floor, 43,
New Marine Lines, Mumbai-400020. (INDIA)
Phone: +91 9962696204
India needs to become technically self reliant in key areas
such as natural
resources, agriculture and defense whereby
its R&D investment has been lacking
as also the only incentive available for the private
sector through DSIR
certification leading to income tax benefits u/s 35 (2AB)
of Income Tax Act is being
withdrawn from 1st April 2020 which
STIAC under PM office has
recommended to continue along with other steps
to improve R&D
investment scenario in India including public research institutions.
Although we all are aware that R&D investment is a critical area
for India to create appropriate technologies for its social
problems it has been an underinvested area both by the Government as also the
In today’s age of disruption and hyper innovation it is extremely relevant for organizations to be future ready which requires an open mindset
towards innovation and R&D investment is a critical
barometer of the same.
To address this issue, Science Technology and Innovation Advisory Council (STIAC) under Prime Minister of India has recommended that companies in key sectors set aside funds for Research & Development (R&D) to the tune of 2% for developing and implementing technologies related to priority areas.
important recommendation made
by STIAC headed
by Vijay Raghavan
is against the move of the Govt.
of India to withdraw providing tax benefits to companies recognized by Dept. of Scientific & Industrial Research (DSIR) under
section 35 (2AB)
of the Income
Tax Act as part of sunset clause applicable from 1st April 2020.
This is an important consideration since this
is the only incentive available to the private
sector for making investment in R&D and globally countries such as USA,
Singapore and Australia are progressive with benefits
to the tune of 400%
of the R&D investment made.
In fact Europe
which was under
severe recession over the last few years increased the investment in innovation so that it could disrupt
the market with cutting
edge technologies as also solve
important issues related
to environment, natural resources and so on.
important area being touched upon is having a faster grant process for various
Govt. departments and organizations such as BIRAC,
GITA, TDB etc.
to ensure that
the innovation funding
is made available in time which
is very critical
for researchers to achieve market
Although the recommendations is a step
in the right direction; it is imperative that it is followed up with
and implemented at the earliest
to ensure that
the private sector
and specially start
ups have both
the incentive and the financial support
to invest in R&D in India.
The R&D investment ecosystem is lacking
in India and
requires the right
policies and investment by Govt. in priority areas
to solve societal
problems as also take advantage
of the disruption which is now
gripping various industry
sectors and moving
at a much faster rate than ever before where
India has a huge advantage both due to the young talent
pool and a large captive
Surana is a seasoned professional in the area
of innovation ecosystem with 10+ years
innovation professional having
worked with startups, large companies and MNCs in the area
of intellectual property, R&D
investment, technology commercialization.
Rajeev is a qualified Patent Attorney with
a love for running which
takes him to different parts
of the world.
He is also author of the layman’s
guide ‘Protect Your Ideas’ published in 2012 as also contributor to various publications such as Entrepreneur magazine, Your Story etc.
is founder at Scinnovation Consultants Pvt. Ltd. as also an exciting organic
footwear company, Colour Me Mad and based out of Mumbai, India.