In a significant decision that will boost research and innovation across the country, the Goods and Services Tax (GST) Council has recommended that research and development (R&D) grants provided to academic institutions will be exempted from GST. This exemption applies to both public and private sector grants given to recognised institutions, including institutions covered under state or central laws or exempted under the Income Tax Act.
Finance Minister nirmala sitharaman The decision was announced during the 54th meeting of the GST Council. He said, “R&D grants given to three categories of research institutes, colleges or universities will be exempted from GST. These include institutions recognized under state laws, central laws or institutions with income tax exemption. This exemption will be available to both government and private institutions and there will be no limit for this.”
This decision has been welcomed by the academia and research community as it has the potential to positively impact the future of scientific progress and higher education in India. Here are the key reasons to appreciate this move.
A big boost to innovation and research
Exemption of GST on R&D grants is an important measure to promote R&D in India. Indian Institutes of Technology (IITs), state universities and private research institutions are heavily dependent on grants from both the public and private sectors to fund their cutting-edge projects. Removal of GST on these grants will enable these institutions to focus more on their core mission of innovation without the financial burden of taxation.
In addition, research institutes often work closely with government bodies such as the Council of Scientific and Industrial Research (CSIR), the Indian Council of Medical Research (ICMR) and the Science and Engineering Research Board (SERB). These partnerships are crucial for technological advancement and scientific breakthroughs. By exempting R&D grants from GST, the government is effectively encouraging deeper collaboration between academia, industry and the public sector.
This policy change is especially important for sectors such as pharmaceuticals, engineering, and environmental studies, where research funding is essential to solve real-world problems. For example, innovations in healthcare and technology have been led by institutions such as the Sree Chitra Tirunal Institute for Medical Sciences and Technology and the Indian Institute of Technology (IIT), which previously received show-cause notices for not paying GST. The tax exemption will allow such institutions to streamline their efforts in research without worrying about additional costs.
Scope for resolution of past disputes and regularization of demands
The backdrop of this decision includes the GST disputes being faced by several prestigious academic institutions. In August, the Directorate General of GST Intelligence (DGGI) issued show-cause notices to seven universities and research institutes, demanding outstanding taxes totalling ₹220 crore. The institutes targeted included IIT Delhi, Panjab University, Centre for Sponsored Research and Consultancy at Anna University, Amrita Vishwa Vidyapeetham and others. The DGGI argued that R&D services provided to government bodies such as CSIR, ICMR and SERB in exchange for grants were not eligible for GST exemption.
This confusion has arisen from a grey area in the interpretation of the GST law on what is a taxable service. While grants are generally viewed as financial assistance to support research, the DGGI argued that the institutes provide services in return, making the grants taxable under GST.
This dispute may finally be resolved after the new recommendation of the GST Council. However, Finance Minister sitharaman Though it is not clear whether the existing demands on these institutions will be waived off or not, the existing exemption for R&D grants points in a positive direction. If the past demands are regularised, it will provide the much-needed relief to institutions that were previously burdened with huge tax liabilities.
The academic and research community is awaiting clarity on how these ongoing cases will be resolved. If the government moves to waive these past demands, it will further improve the environment for research in the country, allowing institutions to focus on innovation rather than litigation.
An encouraging step for Public-Private Partnership (PPP)
The GST Council’s move is likely to encourage greater collaboration between the public and private sectors in research. The exemption applies to grants from both public and private entities, which could encourage private companies to increase their contributions to academic research. In recent years, corporate social responsibility (CSR) funding has been a growing source of research grants for academic institutions, and the exemption could make such contributions more attractive to companies.
Private sector participation is crucial in sectors such as technology and pharmaceuticals, where research costs are high, and the benefits of innovation are substantial. Companies seeking to invest in R&D often collaborate with academic institutions to carry out specialised research tailored to their business objectives. By exempting these grants from GST, the government is removing an important financial barrier, encouraging greater private sector investment in R&D.
Apart from direct funding, the move could also lead to an increase in joint ventures between universities and corporations. Such partnerships could lead to more applied research, leading to technological advancements and commercialisation of innovations that could benefit society at large.
Strengthening India’s global competitiveness
One of the wider impacts of this GST exemption on R&D grants is the potential to raise India’s position in global research and innovation rankings. Currently, India lags behind other countries such as the United States, China and South Korea in terms of research output and investment in R&D. However, with greater funding and policies that encourage collaboration, India could begin to bridge this gap.
By removing financial barriers to research funding, the government is enabling academic institutions to compete on a global platform. Institutions like the IITs, already known for their world-class research, can now further expand their capabilities without being burdened with GST liabilities. This can lead to more international collaborations, increased publication of research papers, and the development of innovative products and technologies that can be commercialised both domestically and internationally.
One step forward towards ‘self-reliant India’
Prime Minister Narendra Modi’s vision of ‘Aatmanirbhar Bharat’ relies heavily on strengthening the country’s research and innovation ecosystem. By exempting R&D grants from GST, the government is laying the groundwork for a more self-reliant economy driven by domestic innovation. This decision will give a boost to ‘Make in India’ and ‘Make in India’ initiatives.Startup India‘Both rest on a strong foundation of research and technological development.
With this move, India’s academic institutions can take the lead in developing cutting-edge technologies that can solve local challenges as well as contribute to global progress. From improving healthcare outcomes to advancing renewable energy technologies, the possibilities are limitless when financial support for research is prioritized.
