Budget 2020: Nirmala Sitharaman may restore tax benefits on R&D for pharma companies

Budget 2020: The government is mulling restoring tax benefits on research and development (R&D) cost incurred by local pharma companies in the Union Budget. Finance Minister Nirmala Sitharaman will present the Budget 2020 today.

The move to restore tax benefits on R&D might come as the government is looking to boost research in drug manufacturing. This recommendation is one of the key suggestions in the proposal submitted by the Department of Pharmaceuticals (DoP). The industry wants the weighted deduction on expenditure incurred on R&D to be 200 per cent.  

The government had introduced weighted tax deduction of 200 per cent on expenditure on R&D in the Union Budget 2010. However the government slashed it to 150 per cent in 2017 and further to 100 per cent from 2020. While the industry enjoys 150 per cent weighted deduction on R&D currently, it is soon scheduled to fall to 100 per cent.

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Under Section 35(2AB) of the Income-tax Act, a company is allowed 200 per cent weighted deduction on expenditure (not being in the nature of cost of any land or building) incurred on approved in-house research and development facilities.

The Department of Pharmaceuticals has also suggested offering incentives to encourage domestic manufacturing of Active Pharmaceutical Ingredients (API) that is used as raw material for medicine.

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The government might also announce 100 per cent deduction for capital expenditure for hospitals with minimum 50 beds in Tier II and III cities and of 25 beds in rural areas to boost growth.

The announcements are likely to come as Modi govt is focussing on the upliftment of the health standards in the country. The govt is also aiming to provide universal access to world-class healthcare facilities.

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