Arjuna (Fictional Character): Krishna, ISRO succeeded in Mars mission by launching the largest rocket GSLV Mark III in space after lot of efforts and spending crores of rupees on research and development. Similarly if businessmen carry out such R&D, etc. activity, then is there any provision of Income Tax which benefits him?
Krishna (Fictional Character): Arjuna, hats off to the Indian scientists. Today due to all the research activities, the world has developed. Therefore government also encourages research in business. Industrialists give more emphasis on research and thereby invent and manufacture new goods. In many industries like pharmaceutical, automobile, engineering, electrical, etc. new research projects are always being initiated. In this a lot of money is expended or invested. If research project succeeds then after selling product profit can be earned, otherwise loss has to be faced. Companies like Apple, TCS, Google, etc. are succeeding because of research. Under Income tax act, additional deduction for such expenses is given. Two types of expenses such as Scientific Research and Research and Development are covered. Additional deduction is also available as per conditions mentioned there in.
Arjuna: Krishna, How and on which research expenses can a taxpayer take benefit?
Krishna: Arjuna, the Income Tax Act gives benefit for Expenditure incurred for carrying research in own business. Earlier there are various percentage of deduction depending upon purpose of research or the organisation to which we contributed such percentages are 150%, 175% or 200%. But after the recent amendments, all the research expenditure irrespective of the purpose or the organisation to which we contributed are bring on the Par i.e. 100% deduction for any research expenses incurred by the assessee. All businessmen can take the benefit of this. But due to unawareness many do not take benefit of this. This revised percentage of deduction i.e. at par 100% will be applicable from FY 2020-21
Arjuna: Krishna, what are the various research expenses can be covered under this section 35 for the benefit of 100% deduction?
Krishna:Arjuna, 100% deduction is available on the expenses incurred in following ways:
1. If contribution paid to research association having object of under taking scientific research or university, college or other institutes to be used for scientific research
2. If contribution paid to research association having object of under taking scientific research or university, college or other institutes to be used for social science or statistical research
3. If contribution paid to National Laboratory or a University or an Indian Institute of Technology
4. Payment made to a Company to be used for Scientific Research
Arjuna: Krishna, what about in house research done by companies, will they will also get the deduction of 100%?
Krishna: Arjuna, as per section 35 (2AB) of Income Tax Act where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed 100% deduction of that research expenses. In this from of tax planning one can save tax and encouragement for developing, innovation, research is also initiated. Thus it’s useful for developing business also. For e.g. Indian companies like Reliance, Telco, Maruti, Wockhart benefit from this and continue the research work and save taxes by following the laws.
Arjuna: Krishna, What should one learn from the research and income tax provision?
Krishna: Arjuna, research is a continuous process. In India for encouraging research in industries there are various schemes. Western countries like America always encourage research, therefore business flourishes there and in this there is major contribution of Indian Scientists. If they get opportunity in India then Indian Industries will also flourish. New products are developed by research. In practical life, due to new products, festival shopping becomes more joyful. As in Christmas gifts are given. New thoughts, ideas, inventions, research are the need of life. Therefore it can be said that real wealth is hidden in research.
Dear taxguru lovers your comments please.
Republished with Amendments