Express Pharma

Union Budget 2018 Will it please the pharma sector?

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This budget would be the last full-fledged budget of the Narendra Modi-led government before 2019 elections and like other sectors, Indian pharma industry too has high hopes from this government. Industry stakeholders share their expectations

Weighted deduction on R&D should be continued

Here are some of the key expectations from a pharma/ healthcare personal tax standpoint:

Increase in tax-free medical expenditure reimbursement from employer to employee: The current limit of Rs 15,000 per annum (pa) of tax free reimbursements for medical expenditure from employee to employer was last revised almost two decades back (i.e. in 1998).  With significant increase in healthcare costs this limit may be considered to be atleast doubled to Rs 30,000 pa.

Deduction for medical expenditure: Currently deduction for medical expenditure incurred is restricted to Rs 30,000 and allowed only where such expenditure is incurred for very senior citizens (above 80 years of age) who do not have a health insurance policy. Considering that a large mass of Indian population have limited access to even basic healthcare facilities, this deduction may be considered to be allowed to all taxpayers where they do not have any health insurance policy. From a direct tax perspective, the following may be considered:

Weighted deduction on R&D: For a sector witnessing unprecedented pressure, not only on the export front but even locally, weighted deduction on R&D should be continued. Further, weighted deduction is allowed only on expenses incurred in a recognised in-house R&D facility. However, there are certain expenses necessitated by the industry’s business that are incurred outside this R&D facility: such as clinical trials, patent approvals, overseas trials, preparation of dossiers, etc; these should ideally be eligible for weighted deduction. Considering the gestation period with regard to R&D and that benefits, if any, are available after long gaps, unutilised R&D weighted deduction should be available for carry forward for at least 10 years (if not more) and weighted deduction should be allowed while computing book profits under MAT provisions. Indigenous R&D (Patent) – option should be given to the resident taxpayer to avail benefit  of concessional tax regime or opt out of the same.

Secondary adjustment

A deemed dividend approach should be followed in case of secondary adjustment (followed in the US and Germany) rather than a deemed loan approach, since under the former only a one-time payment is made which can be settled without a carry forward impact; the key challenge under the latter being – difficulties in accounting treatment. Alternatively, if the deemed loan approach is to be followed, then interest payment should be restricted to be a one-time payment. Limitation on deduction of interest under Section 94B relating to thin capitalisation. It is recommended to delete the word implicit guarantees to ensure ease in application of Section 94B(1).

KPMG India


One can expect increased government spending in health sector

While the regulatory aspects of this sector are extremely critical to ensure effective compliance with the laws, what the Indian pharma industry needs the most  is a significant fiscal incentive from an income-tax perspective.

What pharma sector needs

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Ritu Shaktawat

Last year, apart from announcing two new AIIMS (at Jharkhand and Gujarat), the Union Budget di