Corporate Tax (R&D Tax)

A direct tax imposed by the government on a company’s profits is known as a corporate tax. According to the provisions of the Income Tax Act of 1961, the tax is imposed.

For research and development, use R&D. Every firm engages in R&D activities to expand and enhance their operations. Research and development (R&D) activities involve studying the market to better understand customer wants and creating or upgrading company products to meet those needs. Nonetheless, the cost of the company’s research and development is substantial.

The Indian government has offered a number of tax breaks to promote investment in research and development (R&D). The incentives are offered in relation to the revenue and capital outlays that the entities spend when conducting business-related R&D operations, which also includes payments to various institutions or organisations for conducting scientific research.

Tax credits for research and development (R&D) are a useful government relief that compensates businesses for making innovative investments. Corporate Tax (R&D) only enables a corporation to get tax relief if that company is required to pay Corporate Tax.

R&D Tax – Benefits and Claims on Expenditure Incurred on Scientific Research.

India’s government actively supports research and development. The company engaged in R&D activities receives a number of advantages from it. The business spends a lot of money on research and development. Yet, due to ignorance, the corporations are unable to make use of the legal deductions, perks, and claims for research and development granted under the Income-Tax Act.

• The cost of doing R&D operations can be deducted entirely from the company’s income.
• On internal capital expenditures incurred for scientific research, a 100% deduction is permitted.
• Any capital expenditures made by the company for scientific research prior to the start of operations are eligible for a 100% deduction as long as they were made within the three years before the start of operations.
• Any contribution made by the taxpayer to an approved Indian entity for scientific research work is eligible for a 100% expense deduction.
• The taxpayer can also gain from income-tax authorities by making contributions or donations to institutions like universities or colleges that carry out social science or statistical research. to be deducted.
• By securing approval from the income-tax authority, the taxpayer’s donation made to businesses for scientific research activities may also qualify for a 100% deduction.
• Under the Income Tax Act, the Government of India has provided conditional tax benefits for expenses incurred or donations made to third parties. For instance, under income tax legislation, Indian organisations and foreign corporations that spend more on scientific research in India are eligible for tax incentives. Nonetheless, foreign organisations that incur these costs may request a deduction from their Indian registered organisations.

Eligibility Criteria of Claiming (R&D) Tax Credits

• The Company Act of 2013 or the 1956 should be used to register the company.
• Three financial years must pass since the company’s formation for the entity.
• The application should specify the applicant’s regular source of income, which must have been in place for at least two years.
• An additional company that provides technical services or engages in manufacturing is likewise eligible for this benefit.
• For the advancement of novel products and/or technology, the company should have clearly defined, time-bound R&D plans.
• For the R&D activities, a minimum space of at least 1000 square feet should be used.
• For performing the R&D activities, sufficient technically qualified personnel should be available.
• The corporation must provide evidence that the research and development units only work in the locations designated by the central government and not in residential areas.

List of Essential Documents for Claiming (R&D) Tax Credits

The following paperwork is required in order to claim (R&D) Tax Credits.

• A CD containing an overview of the R&D unit’s operations
• Most recent annual report of the business.
• A thorough description of the R&D units’ research and development efforts.
• Information on R&D units in detail, including the facilities available for research, the date of installation, the cost of the units, and the qualifications and designations of the individuals working on them.
• Images of the R&D units
• A duplicate of the company’s articles of association and memorandum

Procedure for Obtaining R&D Tax Credit

• To qualify for an R&D tax credit, the following steps must be taken.
• The initial step is to submit an application with the required supporting documentation that has been duly signed by the Managing Director/whole-time director of the Company.
• The next stage is for the authority to verify the documents to make sure the information is accurate.
• After accurately confirming the application and supporting papers, the authority grants the R&D Tax Credit.

What are Tax Rate Applicable Corporate for A.Y 2022-23?     

• If the previous year’s gross receipts and turnover did not surpass Rs. 400 crores. 25% will be the applicable tax rate (Excluding surcharge and Cess).
• If the prior year’s gross receipts and turnover totaled more than Rs. 400 crores. 30% will be the applicable tax rate (Excluding surcharge and Cess).
• The applicable tax rate for some domestic manufacturing companies is 25%. In some circumstances, a surcharge may be required.
• The applicable tax rate for all other domestic companies is 22%, with a surcharge of 10% of the total taxable income applied if net income exceeds 1 crore. Together with the surcharge, a 4% Health and Education Cess will also be applied to the total income tax.

Corporate Tax- R&D Tax : Our Role

Kra Paymall provides the following Services

• Liability evaluation for claiming R&D incentives
• helping to create systems and procedures for gathering the required data about R&D incentives
• assistance with the preparation and processing of application forms necessary for the approval and recognition of R&D facilities
• Finding the costs that qualify for R&D incentive claims
• preparing, reviewing, and assisting claims for R&D tax incentives
• assistance with realising R&D incentive claims

Frequently Asked Questions

Corporate tax is levied on which entities?

Both domestic and foreign companies that are corporate legal entities are subject to corporate tax. A legal organisation conducting business operations within India is required to pay corporation tax at the most recent tax rate specified in the Income-Tax Act.

What are the benefits that can be claimed on expenditure made on R&D?

Benefits from deductions are accessible to businesses, and organisations engaged in R&D can claim a 100% deduction.

Which Authority has a right to grant approval for Recognition and Registration?

To be recognised and registered, the company requires permission from the Department of Scientific & Industrial Research (DSIR).

What are the documents that need to be submitted by the applicant?

Application form properly signed by the company’s MD or WTD, annual report, detailed information about the R&D units, and a CD containing a presentation on the R&D units’ activities must all be submitted. R&D unit drawings, copies of MOA and AOA, etc.

Where do the Research and Development units operate?

The Central Government will specify the locations for research and development.