The DSIR (Department of Scientific and Industrial Research) provides recognition to software product and manufacturing companies. The recognition is provided to companies, registered in India. It is further aimed at encouraging the culture of R&D and innovation in India by providing Income Tax reductions for carrying out R&D activities.
Current Income Tax reduction is 150 percent (u/s 35(2AB) of Income Tax Act) on the expenses made for R&D. However, from April’14 till March’17, this 150 percent tax reduction used to be 200 percent. This decrease in reduction being a retrogressive step had been criticized a lot and there was a lot of uproar from the industry.
Recently, a standing committee has suggested NITI Aayog to reconsider the decision and to restore the income tax reduction to 200 percent. The committee, citing the example of Hindustan Newsprint Ltd. and BHEL, stated that the Central Public Sector Enterprises (CPSEs) are still relevant and they stand a chance to revive and progress if provided with proper financial assistant.
Well, it indeed makes sense since increasing the tax benefits will not only encourage the companies to carry out and expand the R&D but will also be more in line with the Government’s Make in India program.
How the Government is going to act on it? Well, we just have to wait and watch and hope for the best!