R&D expenditure cannot exceed 50% of approved project cost

According to the new guidelines, only expenditure on R&D that leads to manufacture of products will be considered eligible for incentives under MSIPS. Standalone R&D units are not eligible for subsidies

By EB Bureau

Govt PolicyTuesday, August 12, 2014: The Indian electronics industry needs to focus on strengthening its research and development (R&D) activities to compete and grow in the global market, stated Dr Ajay Kumar, joint secretary, Department of Electronics and Information Technology (DeitY), at an event recently. Since its inception, DeitY has focused on promoting R&D efforts in the electronics industry. Accordingly, DeitY provides financial support as grants-in-aid to academic and R&D organisations for various projects and schemes, and also to organisations and professional bodies for arranging conferences, workshops, seminars and symposiums in the areas of information and communications technology (ICT).

Realising the importance of R&D for the growth of the electronics industry, on April 17, 2014, DeitY released its notification No 27(36)2013–IPHW, which has the guidelines on incentives for expenditure related to R&D activities of potential MSIPS applicants.

Scope of R&D

The purpose of the MSIPS is to offset disability and to promote large scale manufacturing in the ESDM sector. Hence, only proposals for which R&D leads to the manufacture of products would be considered eligible for incentives under the MSIPS. Standalone R&D units are not eligible for subsidies under this scheme.

According to the guidelines, R&D expenditure should be related to the products for which the MSIPS application is made. Here, the term ‘related’ refers to all the stages in the value chain of the product proposed to be manufactured, including software that is integral for the functioning of the product.

Product development costs

All expenditure directly attributable to product development will be considered as R&D expenditure. Here are some examples of product development costs:

  • Capital equipment, including purchase of design tools, software costs (directly used for R&D) and licence fees, technology, IPR, patents and copyrights for R&D

  • Expenditure on materials and services used or consumed for prototype development

  • Salaries, wages and other employment related costs of personnel directly engaged in product development activities

  • Any other expenditure that is directly attributable to product development, such as fees to register a legal right

Eligibility criteria

Any application for a subsidy for R&D expenditure should also have a valid proposal under MSIPS for manufacturing. R&D expenditure should be a part of the overall MSIPS application and not exceed 50 per cent of the approved project cost.

In case the expenditure on R&D exceeds 20 per cent of the total project cost:

(a) The applicant’s in-house R&D unit must hold valid recognition from the Department of Scientific and Industrial Research (DSIR) at the time of application. In such cases, the applicant must ensure valid renewal of recognition of its in-house R&D units by DSIR for the entire duration of its project under MSIPS.

(b) IPR generated from the R&D activities should be in the name of the applicant. The applicant needs to submit an undertaking to this effect at the time of application. At the time of claiming reimbursement for R&D expenses, the applicant should submit the necessary documents in this regard.

Support for R&D expenditure

The guidelines state that R&D expenditure should not exceed 50 per cent of the approved project cost. In case a project will be implemented in more than one phase, then R&D expenditure eligible for incentives under MSIPS for any phase should be equal to or less than 50 per cent of the cost approved for that particular phase.

Expenditure related to salaries, wages and other employment linked costs should be capped at 15 per cent of the eligible R&D expenditure for each of the phases of the project.

The technical evaluation committee (TEC) will evaluate the proposal for R&D expenditure. The scope of the TEC’s evaluation will include the following:

  • Ascertain whether the proposed R&D activities relate to the manufacture of the products

  • Assess whether the machinery, equipment, technology and manpower are commensurate with the R&D activities.

Applicants need to provide an undertaking that they have not obtained or applied for grants for the same purpose from any entity other than the state government, or any of its agencies.

The applicants also need to provide a CA certificate regarding expenditure incurred towards R&D activities. They should also provide information relating to the success ratio of R&D activities, as well as information on R&D projects as stipulated by the Department of Scientific and Industrial Research (DSIR), i.e., annual outlays on R&D activities (revenue and capital expenditure) for the past four years.

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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