R&D ORIENTED TAX ADVISORY
LEVERAGING EXISTING POLICIES/SCHEMES FOR R&D TAX/EXPENDITURE RELIEF
With Indian entities becoming R&D-focused, leveraging tax reliefs and incentives is essential. However, many miss these benefits due to time, policy missteps, or guidance issues, leading to higher taxes. Engaging professionals for clarity and execution can optimize savings, with some offering success-based compensation, making it cost-effective.
STARTUP INDIA ACTION PLAN OF DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE (DPIIT)
The Startup India Action Plan offers tax exemptions under Sections 80 IAC and 56 of the Income Tax Act for eligible startups, including a 3-year tax holiday and benefits for capital limits under ₹25 crore. To qualify, startups must operate within 10 years of incorporation, maintain turnover below ₹100 crore, and focus on innovation or scalability. Entities formed by business splitting are excluded. The plan also reduces IP registration costs via the SIPP scheme, with government-appointed facilitators handling processes and fees limited to reduced statutory rates.
A number of other Schemes backed by the Government can be seen on the DPIIT website here, which include schemes pertaining to bank loans at reduced interest rates (such as by SIDBI), IP Protection outside India (such as by BIRAC and MEITY), Industry Support/Cooperation Schemes, among many other Industry specific schemes.
TAX/GST EXEMPTION FOR DSIR RECOGNIZED CENTRE’S
The Department of Scientific and Industrial Research (DSIR) offers multiple benefits to research-focused entities, including:
Custom Duty Exemption
DSIR-registered institutions (excluding hospitals) are exempt from customs duty on R&D goods like equipment and software.
Reduced GST Rates
Subsidized GST rates of 5% for imports/interstate purchases and 2.5% + SGST for in-state purchases.
Duty-Free Imports
In-house R&D units in pharmaceuticals and biotechnology can import specified goods duty-free.
Weighted Tax Deduction
Approved R&D expenses in sectors like chemicals, electronics, and biotechnology are eligible for a 1.5x weighted tax deduction under Section 35 of the Income Tax Act.
Commercial R&D companies approved by DSIR before 1st April 2004 are eligible for 10 years of tax holidays. A comprehensive list of projects supported by DSIR can be seen here.
PROVISIONS UNDER SECTION 35 (2AB) AND OTHER PROVISIONS UNDER THE INCOME TAX ACT
Section 35 of the Income Tax Act provides deductions for scientific research expenditures:
Section 35(2AB)
Companies in biotechnology or manufacturing (excluding items in the Eleventh Schedule) can claim a 150% weighted deduction for in-house R&D expenses, including clinical trials, regulatory approvals, and patent applications. From April 2020, this is reduced to 100%. Capital expenditures (excluding land) are fully deductible, but depreciation is not allowed.
Section 115BBF:
Patentees in India can pay a 10% tax on royalty income from patents developed and registered in India.
Section 10AA
SEZ units get 100% tax deduction on export profits for the first 5 years, 50% for the next 5 years, and up to 50% reinvested profit for another 5 years. This requires allocation to the SEZ Reinvestment Reserve Account.
These provisions encourage R&D and patent development while offering substantial tax benefits.