Companies claiming R&D deductions to furnish accountant certificate

The revenue department said that companies will have to produce a certificate from an accountant for claiming tax deductions on such expenditures


Arun Jaitley in his Budget 2016-17 tightened the norms for claiming deductions by reducing the weighted deduction available for in-house R&D from 200% to 150%. Photo: Elena Elisseeva/istockphoto
Arun Jaitley in his Budget 2016-17 tightened the norms for claiming deductions by reducing the weighted deduction available for in-house R&D from 200% to 150%. Photo: Elena Elisseeva/istockphoto

New Delhi: Seeking to check diversion of funds in the name of in-house R&D, the revenue department has said that companies will have to produce a certificate from an accountant for claiming tax deductions on such expenditures.

The provision will have a bearing for bio-technology companies and also those which rely heavily on in-house research & development (R&D).

Finance minister Arun Jaitley in his Budget 2016-17 has tightened the norms for claiming deductions by reducing the weighted deduction available for in-house R&D from 200% to 150%.

The expenditure incurred will also have to be ratified by the secretary in the department of scientific and industrial research (DSIR), the notification issued by the Central Board of Direct Taxes (CBDT) said.

It said that the companies can e-file their forms claiming deductions on R&D expenses, instead of manual filing.

Changes to the rules and forms for claiming deduction under section 35(2AB) would entail moving to paperless tax administration, decentralising the authority of DGIT (Exemptions), eliminating subjectivity and increasing the credibility of report filed by the taxpayer by introducing accountant certificate, experts said.

“However, obtaining a CA certificate in respect of expenditure incurred on scientific research eligible to claim deduction shall be seen as an additional compliance burden, but one should see the same as an added credibility to the data furnished in the report, since the tax authorities are less likely to question the data audited by a CA,” Nangia & Co managing partner Rakesh Nangia said.

He said the reduction of deduction limit to 150% was in direction of phasing out of exemptions, while taking up government revenues over the years as effective tax rates go up.

Also the sunset clause of 1 April, 2021, introduced in Budget 2016-17, will ensure that impact of reduction in rate of deduction on corporates is gradual.

The CBDT notification has also changed the jurisdiction of the taxpayer from DGIT (Exemptions), to principal chief commissioner or chief commissioner or principal director general or director general of income-tax.

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