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How DSIR Recognition associated Tax Benefits Work

The DSIR, which is the Department of Scientific and industrial Research, provides recognition to software product and manufacturing companies with “in- house” R&D centers.

The recognition enables the company to get 150% weighted tax reduction on the purchases made for R&D among other benefits. This 150% weighted reduction translates into saving of Rs. 17 Lac on per Cr of R&D Expenditure. You have heard us say this all the times. But do you actually know how this “150% tax benefits” work?

Well, let me explain, how.

Assume two scenarios,

Scenario 1) Company A (no DSIR recognition):

TURNOVER EXPENDITURE ON R&D OTHER EXPENDITURE TOTAL EXPENDITURE PROFIT INCOME TAX

(@ 34%)

10,00,00,000

(10 Cr)

1,00,00,000

(1 Cr)

7,00,00,000

(7 Cr)

8,00,00,000

(8 Cr)

2,00,00,000

(2 Cr)

68,00,000

(68 Lac)

 

Scenario 2) Company A (after DSIR recognition):

TURNOVER Adjusted EXPENDITURE ON R&D (u/s 35(2AB) of IT Act) EXPENDITURE ON OTHERS TOTAL EXPENDITURE PROFIT INCOME TAX

(@ 34%)

10,00,00,000

(10 Cr)

1,50,00,000*

(1.5 Cr)

7,00,00,000

(7 Cr)

8,50,00,000

(8.5 Cr)

1,50,00,000

(1.5 Cr)

51,00,000

(51 Lac)

 

*Since the Company is now DSIR recognized, they can show their R&D expenditure which was 1Cr. in this case, as 1.5Cr (as per Section 35(2AB) of the Income Tax Act).

So Be Aware, and

Get your R&D DSIR recognized!

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