Globally, governments provide significant tax incentives to corporations for expenditure on research and development (R&D) to foster innovation. Studies have argued that India’s tax regime has been more liberal and generous than most countries. In India, several R&D tax incentives are provided to firms registered under the Department of Scientific and Industrial Research (DSIR). Firms not registered under DSIR can also avail of the income tax deduction on R&D expenses, patent box regime (PBR), and tax holidays, if eligible. Recently, the Union Budget 2022-23, saw the withdrawal of a few customs duty exemptions for R&D. But India’s gross expenditure on R& D is low, at 0.7% of GDP for 2019-20, which is less than half the spending of major economies of the world at 1.5% of their GDP. And business enterprises finance 41.3% of R&D, compared to a global standard of 50%.
Hence, the question arises, how effective are the tax incentives in promoting R&D? Don’t they deserve more scrutiny and maybe enhanced a bit?
Please share your opinion with us.