At present, seven selected Indian institutions like IIT Delhi and Anna University Chennai are facing a serious financial problem. Federal GST officers in DGGI have even served show-cause notices requesting the institutions to explain why they had not paid taxes on the various research grants received from 2017. This has fuelled a lot of debate in the academicians with many calling it “tax terrorism”.
In its submission, the DGGI has postulated that grants in aids for research and development made to education institutions are recoverable. That, however, is a matter of debate among academicians, scientists, and funding agencies arguing that such grants are normally free from taxation in other countries as well as being very competitive.
For instance, IIT Delhi had been made to pay ₹ 120 crore including the penal amount during the past one and seven years while other institutions have several demands varying from ₹ 5 crore to ₹ 60 crore. The move drew flak; Infosys co-founder T V Mohandas Pai labelled it as ‘tax terrorism’ on his social media feed, tagging GST India and PM Modi. Even Kris Gopalakrishnan, another Infosys co-founder, a man who was brought up by free education gave voice to the above concerns arguing that applying GST to research grants would cut down the available research kitty. He requested the government to bring such grants out of GST to encourage innovation and research.
Other leading writers emphasize that research is always associated with risks and colossal expenses in terms of time – sometimes reaching several years – to obtain revolutionary results. They suggest that shifting the tax burden elsewhere would prompt institutions to get involved in high risk-creating innovation projects. Dr. Orthopedic surgeon Dr. George Thomas also former editor of the Journal of Indian Medical Ethics also emphasized long term research referring to examples like Framingham Heart Study, Lower Extremity Assessment Project (LEAP), which required millions of dollars to be spent to get those kind of results.
Worse still, researchers argue that resources allocated to research have not grown with inflation and yet the frontier of research widens day by day. Ashok Jhunjhunwala, scientist and former chair of the government committee such as committee to recommend the formula to calculate the stamp duty, said that the government should bear the GST cost from its own fund while disbursement research fund. He suggested that ministries award grants including GST so that institutions are able to recover the taxes they pay on equipment and component bought through grants.
Most often funds received for grants are usually set for expenditure on things like equipment, travel, and salaries and does not allow for other items like the ones above which would attract taxes. While supporting his argument Jhunjhunwala said that it is harassment for the government to charge GST for these institutions. Consequently, several universities are planning for a legal fight against the GST demand, the legal brains however counsel the government to avoid such an incidence in lieu of the legal confrontation.
K. Vaitheeswaran, an advocate and tax expert clarify that for GST imposable; Goods and Services Tax is levied on supply of goods and services for consideration. This, he said, is because research grants are not a quid pro quo situation, but more like receiving a gift. Taxing such grants is improper because the results of researches are unpredictable and many times non-profitable.
The legal professionals added that tax benefits under any income tax exemptions, including section 35(1)(ii), should ideally apply to GST because research was a public good and not a revenue-generating service.
Delhi Minister Atishi express her disapproval on GST on research grants during GST Council meet and complaining about show cause notice served to institutions like IIT Delhi and Punjab University. She pointed out that research is the investment towards the nations’ future and opposed to introducing taxes on research grants especially in situations where governments are cutting grants towards research.
Hoping that this problem will be solved at GST Council meeting presided over by Union Finance Minister Nirmala Sitharaman. Some of them have suggested that research grants should be reclassified as subsidies, as the latter fulfill the tasks of promoting the general public good excluding profit-making intentions.
To manage these concerns, Mr.T V Mohandas Pai proposed to set up an expert committee in GST India to come up with policy standard measures in the aspect towards such matters. He stressed on the appropriate discussion before the tax measures introduced enough that will adversely influence researching and development. Pai was also optimistic that the Israeli government would come up with ways of either easing or removing the tax on the research grants.
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