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Budget 2001 - 02 : Income Tax Benefits on Expenses Incurred for
Regulatory Approvals & Clinical Trials in India.
We wish to share with you our interpretation of the recent IT benefits for expenses incurred on regulatory approvals and clinical trials.
A  is the provision from the finance bill and  B  gives our interpretation of it.
  A. Weighted deduction in respect of expenditure on in-house Research & Development :
Under the existing provisions contained in clause (1) of sub-section (2AB) of section 35 of the Income-tax Act, a company engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board is allowed a deduction of sum equal to one and
one-half times of the expenditure incurred on scientific research ( not being expenditure in the nature of cost of any land or building) on in-house research and development facility, as approved by the prescribed authority.

With a view to give further boost to research and development activities and provide impetus to economic growth, it is proposed to provide that the weighted deduction on expenditure for research and development shall also be available for the business of bio-technology. It is further proposed to provide that for the purpose of the said sub-section, expenditure on scientific research shall include expenditure on clinical trial, regulatory approval and filing patent.

The amendment is effective from 1st. April 2002 and accordingly, is applicable from the assessment year 2002-2003 and subsequent years.
This notification states that all expenses incurred for obtaining regulatory approvals and for clinical trials will be eligible for 150% weighted deduction.
This means that, if you spend Rs.100 on regulatory approval or clinical trials, you will not be paying 40% tax on Rs.150 of your taxable income. You will save Rs. 60 on taxes, hence, effectively, your expense on regulatory approvals / clinical trials becomes Rs. 40 instead of Rs.100.

Another way of looking at this is as follows:
Suppose you do not spend the Rs.100 on regulatory approvals / clinical trials, and let it add to your taxable income, you will have to pay 40% tax on the same and lose Rs. 40.

Totalling the above, the tax payable on Rs. 250 of taxable income is Rs.100. You may give it to the Government. as income tax, OR spend the same Rs.100 on regulatory approvals/ clinical trials and enjoy the benefits!!!
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