The Government of India is all set to table its Union Budget on 1st Feb, 2020 in the Parliament. It is anticipated that, a bold step will be taken towards reviving the economy through this budget like increase in 80-C, Cap on deductions & rise in tax exemption limit for the citizens. As we are here to discuss our expectations from the government to promote R&D in India, we will also analyze what has been done earlier and what should be done now to promote R&D in India.
In its previous budget the Government of India reduced the corporate tax rate to 22% (plus surcharge & cess) from 30% for all the existing companies which was a tactical move with a catch.
The Department of Scientific & Industrial Research (DSIR) offers manufacturing companies, tax exemptions up to 150% for expenses incurred on R&D in their respective field. This exemption let companies to spend more money in their R&D and helps in innovating new technology, product development & related processes.
The government lowered the corporate tax rate to 22% with a specific clause which says that companies availing any other tax incentives would have to relinquish those including tax exemption Under Section 35 (2AB) for research purposes i.e. R&D.
This is seen as a major obstacle for companies who are engaged in research work as the new section under 115 BAA excludes availing tax concession under section 35 (2AB) which comprises of expending capital as well as operating expenditure for scientific research at 150% which excludes land and building. In effect, if a company decides to avail lower corporate tax rate at 22% then they cannot claim benefits under section 35 (2AB) for both capex and there is a specific clause on the tax exemption U/S 35(2AB) which will effectively lower the current rate of 150% to 100% by April, 2020.
Mr. Rajeev Surana, Founder of Scinnovation Consultants recently met Prof. K. Vijay Raghavan, Principal Scientific Officer with apprehensions he had with the specific clause and the way DSIR is functioning. Prof. K. Vijay Raghavan requested SCPL to submit a report on the same. SCPL conducted a survey by gathering opinions from the top people from the Indian industry setup. The results of the survey clearly points to the government to take steps to invest in R&D.
A CEO of a large pharmaceutical company said “Government should not treat Corporate Tax and Research Incentives in the same way, rather offer additional incentives for doing state of the art research”
Another R&D Head from Automobile Industry suggested increasing the rate of tax exemption from 150% to 200%
Having said, we presume the government takes promising measures to promote “Make in India” initiative by providing incentives to companies for innovation in India through research.