Corporate Tax- R&D Tax: An Overview
Corporate Tax is a direct tax levied by the government on the profits of a company. The tax is levied as per the provision of the Income Tax Act 1961.
R& D stands for Research and Development. The R&D activities are carried by every company for the growth and improvement of their business. R&D activities involves conducting market analysis to have a better understanding of the customer requirements and developing or improving the products of the business to cater to the needs of the customer However, the company needs to bear huge expenses for the research and development.
In order to encourage investment in Research and Development (R&D), the Government of India has provided various tax incentives. The incentives are available in respect of revenue and capital expenditures which are incurred by the entities in carrying out R&D activities related to their businesses which also include contributions to various institutions or organizations for carrying out scientific research.
Research and Development (R&D) tax credits are valuable government relief that rewards the Companies for investing in innovations. Corporate Tax (R&D) helps the company to claim tax relief only if such company is liable for Corporate Tax
R&D Tax – Benefits and Claims on Expenditure Incurred on Scientific Research.
The government significantly promotes Research and Development in India. It provides many benefits to the company involved in activities of Research and Development. The company incurs huge expenditure on Research and Development. However, due to a lack of knowledge, The companies are unable to claim the legitimate deduction, benefits and claims provided under the Income – Tax Act for Research and Development.
- The company can claim 100 % deduction on the revenue expenses for carrying out R&D activities.
- 100 % deduction is allowed on In house Capital Expenditure incurred on Scientific Research.
- In case any capital expenditure is incurred by the company on Scientific Research, before the commencement of business, then 100% Expenditure is allowed as deduction subject to expenses incurred within three years immediately before the commencement of business.
- 100 % expenditure deduction is allowed in case of any contribution paid by Taxpayer to Approved Indian Entity for Scientific Research Work
- The Taxpayer who contributes or donates to organisations like colleges that are undertaking Scientific Research, Statistical Research, university, or Social Science can also benefit from Income – Tax Authorities For deduction.
- The contribution given to companies by Taxpayer for Scientific Research Activities can also claim 100% Deduction by obtaining Approval from Income – Tax Authority.
- The Government of India has granted conditional tax benefits under the Income Tax Act on Expenses Incurred or contributionsmade to third parties. For example, Indian entities and foreign corporations that incur more scientific research expenses in India can claim tax benefits under income tax laws. However, foreign entities incurring such expenses may apply for deduction from their Indian registered entities.
Eligibility Criteria of Claiming (R&D) Tax Credits
- The company should be registered under Company Act – 2013 or 1956.
- The company must complete 3 financial years from the date of formation of the company
- The applicant must have a regular source of income for at least 2 years, which should be mentioned in the application.
- The company engaged in manufacturing or production or rendering Technical services is also eligible for this benefit.
- The company should have well-characterized, time-bound R&D programs for the improvement of innovative items and/or technologies.
- A (Minimum area of at least 1000 Sq. Ft should be utilized for the R&D activities.
- adequate technically qualified manpower should be available for carrying out the R& D activities
- The Research and development units should only operate in the premises specified by Central Government and not at residential areas; proof of the same need to be furnished by the company.
List of Essential Documents for Claiming (R&D) Tax Credits
The following documents are needed for claiming (R&D) Tax Credits.
- A CD consisting of a presentation on the R&D unit and its activities
- Latest annual report of the company.
- A detailed note on Research and Development activities of R&D units.
- Detailed information of R&D units like infrastructure available for Research, installation date, the value of units, details of person working on it along with Qualification & Designation.
- Drawings of R&D units
- A copy of the Company’s Memorandum and Article of Association
Procedure for Obtaining R&D Tax Credit
The following procedure is required to be followed for obtaining R&D Tax Credit.
- The first step is to file an application that is duly signed by the Managing Director/whole-time director of the Company along with necessary documents.
- The next step is the verification of documents by the authority to check the accuracy of the information.
- The authority provides the R&D Tax Credit after properly verifying the application and documents.
What are Tax Rate Applicable Corporate for A.Y 2022-23?
- If the Gross Receipt and Turnover in the previous year does not exceed Rs. 400 Crores. The Applicable Tax Rate will be 25% (Excluding surcharge and Cess).
- In case Gross Receipt and Turnover in the previous year exceed Rs. 400 Crores. The Applicable Tax Rate will be 30% (Excluding surcharge and Cess).
- Applicable Tax Rate for Certain Domestic Manufacturing Companies is25%., The surcharge will be applicable in certain cases.
- For all other Domestic companies Applicable Tax Rate is 22%, and thesurcharge will be 10% of Total Taxable Income if net Income Crosses 1 Crore. Health and Education Cess of 4% will also be applicable on total Income - Tax along with Surcharge.
Corporate Tax- R&D Tax : Our Role
Enterslice provides the following Services
- Assessment of liability for claiming R&D incentives
- Assisting in implementing systems and processes for capturing the necessary information relating to R&D incentives
- Assistance in preparing and processing application forms relevant for recognition and approval of R&D facility
- Identifying the expenditure eligible for R&D incentive claims
- Preparation, review and facilitating R&D tax incentive claims
- Support services for realization of R&D incentive claims