Miss these R&D tax breaks? You're losing money fast
What's the story
India's innovation engine is revving up, and tax breaks for R&D could be your biggest ally.
From tech titans to budding startups, businesses can fuel groundbreaking discoveries while slashing tax bills. Curious how?
This guide deciphers key sections of India's Income Tax Act that reward R&D investments, making it easier to embrace tax-smart innovation and stay ahead in the game.
Don't leave money on the table—let's explore the treasure trove of incentives.
Core benefit
Section 35: The backbone of R&D tax incentives
Section 35 of the Income Tax Act is a goldmine for companies engaged in R&D. It provides a 150% weighted deduction for expenditures on scientific research (except land and building) incurred by the company.
This includes expenses such as salaries, materials, and utilities associated with research projects.
The aim is to incentivize companies to invest in new technologies and products by substantially reducing their taxable income.
Boosting innovation
Enhanced deduction for in-house research
Companies that set up their own R&D facilities, approved by the prescribed authorities, used to benefit from a 200% deduction rate until the 2016-17 fiscal year.
This has been reduced to 150%, but it remains a powerful incentive for innovation.
This shows the government's strong commitment to fostering indigenous innovation across different sectors.
Sector-specific incentive
Special provisions for companies engaged in biotechnology or manufacturing goods
Understanding the importance of strategic sectors like biotechnology and manufacturing in driving economic growth, the government offers special benefits under Section 35(2AB) specifically for companies operating within these domains.
Eligible companies can claim a weighted deduction of up to 100% on capital expenditures (excluding land and building) incurred on scientific research.
This incentive is designed to encourage substantial investments into state-of-the-art research facilities and technology development.
Collaborative efforts
Deduction on contributions towards national laboratories
Companies that donate to national laboratories, universities, or other approved institutions conducting scientific research are eligible for deductions under Section 35(1)(ii).
Contributions to such institutions enable a company to claim a deduction of 175% of the donated sum.
This provision encourages public-private collaboration by providing incentives for corporate donations to public research institutions.
Compliance key
Conclusion: Navigating through compliance
In order to fully capitalize on the significant financial benefits of these tax incentives, companies need to ensure strict adherence to all necessary documentation and approvals from the respective authorities.
Keeping accurate records and making timely submissions are key to accessing these incentives without any hiccups.
This is important to prevent any issues during the scrutiny processes undertaken by the tax authorities, guaranteeing a smooth experience.