INDEX
- Summary
R&D Incentives (Effective from April 1, 2014)
Requirements for Super Deduction
Qualifying Expenditure for R&D
IP and Jurisdictional Restrictions
Carry Forward of Benefits:
Tax Deduction for Research & Development
Summarized Table for Research & development Tax incentives & Benefits in India
Aspect | Details |
Nature of Benefits Available | 1. 200% Super Deduction for in-house R&D expenditure. |
2. 125%-200% Super Deduction for payments to research institutions. | |
3. Deduction for R&D employee salary and materials consumed within 3 years before business commencement. | |
Pre-Approval Requirements | No specific pre-approval required, but annual filing of audit reports for R&D facilities is mandatory. |
Refundable/Carryforward | Unused benefits can be carried forward for 8 years if the taxpayer is in a loss situation. |
R&D Activities Location | R&D activities must occur in India to qualify for the deductions. |
Cap/Limitations on Benefits | No cap or limitations on benefits, except for industry eligibility and specific activities. |
Intellectual Property (IP) Requirement | IP rights could be held either within or outside India, but the focus is on the location of the R&D activities and not necessarily the location of the IP. |
Industry Eligibility Restrictions | 200% Super Deduction is limited to businesses in biotechnology or those producing/manufacturing certain products (excluding those on the negative list like alcoholic beverages, tobacco, etc.). |
R&D Incentives (Effective from April 1, 2014)
- 200% Super Deduction for In-House R&D:
- Eligible industries: Biotechnology, manufacturing, or production (excluding products on a negative list, such as alcoholic beverages, tobacco, cosmetics, etc.).
- The super deduction applies to R&D expenditures, including capital expenses (except land and buildings).
- R&D facility approval: Must be approved by the Department of Scientific and Industrial Research (DSIR).
- The benefit is available until 31 March 2017.
- 125% to 200% Super Deduction for Specified Payments:
- Eligible payments: Payments made to approved entities conducting R&D in India.
- 100% Deduction for R&D Expenses:
- Available for expenses not qualifying for the above super deductions, including employee salaries and materials used within 3 years prior to business commencement.
- No cap on R&D benefits.
Requirements for Super Deduction:
- Separate R&D Unit: The R&D unit must be in a separate earmarked area.
- Personnel: The unit must have its own dedicated personnel.
- R&D Expenses: Cannot be deducted under any other tax provision.
- Exclusivity: The facility must not be used for market research, sales promotion, routine data collection, or similar activities.
- Separate Accounts: A separate account must be maintained for each approved R&D facility, which must be audited annually and submitted to DSIR by 31 October.
- Approval for Asset Disposal: Assets related to the R&D facility cannot be disposed of without DSIR’s approval.
Qualifying Expenditure for R&D:
- Eligible Costs: Wages, supplies, utilities, and expenses directly related to R&D.
- Excluded Costs: General & administrative (G&A) costs, depreciation, overheads, and allocated expenses.
- Clinical Drug Trials: Expenses qualify if pre-approved by regulatory authorities and a patent application is filed.
IP and Jurisdictional Restrictions:
- R&D Location: R&D activities must be conducted in India.
- Intellectual Property: No specific location restrictions on IP.
Carry Forward of Benefits:
- Unused R&D benefits can be carried forward for 8 years but cannot be carried back.
Conclusion:
India offers significant tax incentives for R&D activities, especially for businesses in biotechnology and manufacturing. These incentives include generous super deductions, with specific conditions and requirements for eligibility, location, and expenses.