Please Don’t Neglect R&D, Finance Minister.

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.
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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 rajeev@scinnovation.in

DSIR recognized R&D centres on GST exemption

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
(No exemption)

NO SAVINGS
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.

Let’s talk
For a deeper discussion of how this issue might affect your business, please contact:
letstalk@scinnovation.in
Head Office
109, Marine Chambers, 1st Floor, 43,
New Marine Lines, Mumbai-400020. (INDIA)
Phone: +91 9962696204 
Email: letstalk@scinnovation.in

Top reasons for rejection of DSIR Recognition

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:

  1. 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.
  2. Company may not have clarity on R&D activities which can be allow by DSIR under this
    scheme.
  3. Company may not identify the R&D expenses for last three years and not showing in
    application properly.
  4. Company may not identify the major ongoing and future projects.
  5. Company may not have clarity on future plans for R&D activities and not able to explain to
    DSIR scientist.
  6. Company may not have dedicated manpower, area and account for R&D.
  7. Company may not shoot proper walk-in video for R&D facility.
  8. Company may not show the proper finance figure in the application.
  9. 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:
http://www.dsir.gov.in/#files/12plan/bird-crf/rdi_guidelines_201511.html

Let’s talk
For a deeper discussion of how this issue might affect your business, please contact:
letstalk@scinnovation.in
Head Office
109, Marine Chambers, 1st Floor, 43,
New Marine Lines, Mumbai-400020. (INDIA)
Phone: +91 9962696204 
Email: letstalk@scinnovation.in

Increasing R&D investment in India: Need of the hour

Abstract:

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 private sector.

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.

Another 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.

Another 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 success.

Recommendation:

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 market.

*** Keywords:

R&D investment, DSIR, Section 35 (2AB), R&D investment, STIAC

About the Author:

Rajeev Surana is a seasoned professional in the area of innovation ecosystem with 10+ years experience as 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.

Rajeev is founder at Scinnovation Consultants Pvt. Ltd. as also an exciting organic footwear company, Colour Me Mad and based out of Mumbai, India.