The Hindu Business Line : Auto component makers seek clarification on R&D benefits

THE Automotive Components Manufacturers' Association (ACMA) has sought a clarification from the Government on whether components manufacturers are eligible for the proposed tax break on R&D expenses.

The Budget said that 150 per cent of what a company spends on in-house R&D might be claimed as an expenditure in calculating taxable profit.

The tax break is significant because it effectively means that for every Rs 100 spent on R&D, the Government reimburses Rs 18 to the company (reckoned at a corporate tax rate of 36 per cent).

But the question is, whether only the vehicle manufacturers get it, or the components producers also.

On Budget day, ACMA did welcome the proposal "under the assumption" that the benefit is applicable to the component manufacturers also.

However, a written clarification is necessary to avoid subjective interpretation at lower levels.

The ACMA President, Mr K.V. Shetty, raised this question at a meeting organised by the Confederation of Indian Industry.

He was first told to give a `list of excluded products' to the Revenue Secretary, but upon being told that there was no `list of excluded products' and that the whole industry was involved, the Finance Ministry agreed to look into ACMA's case.

"In future, all the R&D work in the automotive sector will happen in the components industry; OEs will just be vehicle assemblers," Mr Shetty told Business Line.

Mr Shetty, like many other players in the auto components industry, is sure that when a notification is issued, it would cover the components sector also because although the Budget used the word `automobile industry', it actually meant `automotive industry'.

But it is not clear as to how many units will immediately benefit, because for a company to be eligible for the benefit, it should have had its R&D facilities approved by the Department of Science and Technology.

The process could take anywhere between six months and a year.

ACMA has also sought clarification on another point: whether or not the accelerated depreciation is allowed for greenfield projects.

The Budget said that if a company expands its manufacturing capacity by 10 per cent - against the earlier stipulation of 25 per cent - the company may claim a higher depreciation, of 1.15 times the normal depreciation.

Is this allowed only for expansion projects or for new projects also? This is the question.

ACMA has a few other demands: the continuation of DEPB scheme until the duty drawback scheme is fine-tuned and allowing of second hand machinery over 10 year old also to be imported under the EPCG scheme.

The Finance Ministry has told ACMA to raise these issues with the Commerce Ministry.

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