Seven Indian institutions – including the state-run IIT Delhi and Anna University in Chennai – have recently received show-cause notices from the Directorate General of GST Intelligence (DGGI) for not paying taxes on research grants received since 2017. While IIT Delhi faces a demand of Rs 120 crore including penalties over the past seven years, other universities have been asked to pay between Rs 5 crore and Rs 60 crore.
Entrepreneur and Infosys co-founder TV Mohandas Pai has called it “tax terrorism” on the social media handle GST India and tagging PM Modi. While the DGGI says that research and development grants received by academic institutions are not exempt from tax, many academics, scientists and funding agencies disagree. They say that grants, especially for academic institutions, are difficult to obtain, and Tax relief Taking loans against these funds is a common practice in many countries.
“GST on research grants will reduce the funds allocated for research. Hence, the government should remove GST,” says Infosys co-founder Kris Gopalakrishnan, a strong advocate of education, who funds research projects at institutions such as the IITs and the Indian Institute of Science (IISc). Experts say research is inherently a risky endeavour. Without the burden of taxes, institutions are more likely to invest in innovative and potentially high-risk projects that could lead to significant breakthroughs. “Some large and prestigious research studies last for several years.
Academics say this is tax terrorism and could derail projects and stifle innovation
For example, the Framingham Heart Study is a long-term, ongoing cardiovascular cohort study of Massachusetts residents that began in 1948,” says orthopedic surgeon Dr George Thomas, former editor of the Journal of Indian Medical Ethics. “The National Institutes of Health has invested US$14 million in the Lower Extremities Assessment Project (LEAP), a comprehensive research initiative designed to evaluate and improve outcomes in patients with severe leg injuries. Without large investments, it is difficult to conduct successful research. Taxing research grants further reduces already underinvestment.”
Researchers also say funding for research has remained the same over the years, though the scope of research has grown. “It has not kept pace with inflation,” says scientist Ashok Jhunjhunwala, who has chaired government committees and the boards of institutions such as the IITs. GST on Research This can be covered by the grant recipient. “When researchers receive grant money from the ministry, the government should pay the GST. Researchers will welcome this as they currently pay GST on equipment or components purchased from the grant money. If the grant is given with GST already paid, they can offset the GST costs they currently bear,” he says.
Research grants fully list the amounts allocated for equipment, components, travel, salaries and overheads. “Where should the GST money come from in this? Demanding GST on research institutes is just harassment.” While many universities are gearing up for litigation against this demand, legal experts say the Centre should reconsider the issue before it reaches the courts.
“GST is levied on the supply of goods and services,” says advocate K Vaitheeswaran, a tax expert and head of the Madras Chamber of Commerce and Industry’s tax assessment committee. “For example, goods sold at a shop are taxed. GST is levied on the supply of goods or services. When a university receives a research grant, there is no quid pro quo for providing any goods or services. The grant is not a consideration; it is akin to a donation.”
Legal experts say there is no certainty in the outcome of research, which may or may not result in saleable goods or services, and hence, research grants and donations received from government or private agencies should be taxed on the basis of monetised outcomes and not anticipated outcomes. “When income tax provides an instant tax shield for research institutions notified under section 35(1)(ii), GST should also follow the same logic and rationale for research grants,” they say.
Academics hope the issue will be discussed in the GST Council meeting to be chaired by Union Finance Minister Nirmala Sitharaman on September 9. “Research grants given to universities should be treated as subsidies as the money is used only for public good without any profit motive, making it a quasi-governmental effort by the university,” says an academic. Pai recommends setting up an expert committee within GST India, similar to the one in the Institute of Chartered Accountants of India.
“Questions should be referred to this committee, a position paper should be prepared, put up for public comments and then released as an official view,” says a public policy advocate. “This will ensure a uniform policy across the industry and prevent arbitrary actions by GST officials that harm the country and business and also reduce tax terrorism. Officials should raise controversial questions and debate them before issuing such notices. Tax on research grants given to universities can have a negative impact on research outcomes. I hope this is abolished.”
