GST ON GRANTS: TAXING BLOW TO RESEARCH?

GST ON GRANTS: TAXING BLOW TO RESEARCH?

It’s Tax Terrorism Say Academicians And Could Derail Projects And Curtail Innovation 

Pushpa.Narayan@timesofindia.com 4.9.2024 

There’s a storm brewing in India’s academic circles, and it’s not about a new discovery or theory, but an unexpected tax on research grants. Seven Indian institutions – including the govt-run IIT Delhi, and Anna University in Chennai – recently got showcause notices from the directorate general of GST intelligence (DGGI) for unpaid taxes on research grants they received since 2017. 

While IIT Delhi faces a demand for ₹120 crore, including penalties over the past seven years, other universities have been asked to pay between ₹5 crore and ₹60 crore. “Tax terrorism” is what entrepreneur and Infosys co-founder T V Mohandas Pai called it on social media handle X, tagging GST India and PM Modi. While the DGGI says research and develop ment grants received by educational institutions are not exempt from tax, many academicians, scientists, and funding agencies disagree. They say grants, especially for educational institutions, are difficult to secure, and tax relief on these funds is a common practice in several countries. 

“GST on research grants will reduce money allocated for research. So, the govt must remove GST,” says Infosys co-founder Kris Gopalakrishnan, a strong advocate for education, who funds research projects in institutions such as IIT and 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 reputable research studies go on for several years. 

The Framingham Heart Study, for instance, is a long-term, ongoing cardiovascular co hort study of residents of Massachusetts that began in 1948,” says orthopaedic surgeon Dr George Thomas, former editor of the Journal of Indian Medical Ethics. “The National Institutes of Health invested USD 14 million in the Lower Extremities Assessment Project (LEAP), a comprehensive research initiative designed to evaluate and improve outcomes in patients with severe injuries of the legs. Without large investments, breakthrough research is difficult. Taxing research grants reduces the already low investments.” Researchers also say funds for research have remained the same for years, though the scope of research has expanded. “It has not kept pace with inflation,” says scientist Ashok Jhunjhunwala, who has chaired govt committees and boards of institutions such as IIT. He says GST on research could be covered by the grantee. 

“When researchers receive grant money from the ministry, the govt should pay the GST. Researchers would welcome it because they currently pay GST on equipment or components bought with grant funds. If grants were given with GST already paid, they could offset the GST costs they currently bear,” he says. Research grants are fully itemised with amounts allocated for equipment, components, travel, salaries and overheads. “Where is the GST money supposed to come from within this? Placing a GST demand on research institutions is just harassment.” While several universities are gearing up for litigation against the demand, legal experts say Centre should reconsider this issue before it reaches the courts. 

“GST is levied on the supply of goods and services,” says advocate K Vaitheeswaran, an expert on taxes and head of the taxation committee of the Madras Chamber of Commerce and Industry. “For example, at a shop there is a tax on sold goods. GST is on the supply of goods or services for consideration. When a university receives a research grant, there is no quid pro quo to provide any goods or services. A grant is not a consideration; it is akin to a donation.” Legal experts say there is no certainty in research outcomes, which may or may not result in saleable goods or services, and so, research grants and donations received from govt or private agencies should not be taxed based on anticipated outcomes but on monetised results. “When income tax provides an accelerated tax shield for research institutions notified under section 35(1)(ii), GST too should extend the same reasoning and logic for research grants,” they say. 

Academicians hope this issue will be discussed at the GST council meeting on Sept 9, chaired by Union finance minister Nirmala Sitharaman. “Research grants to universities must be considered a subsidy as funds are used solely for delivering public good without any profit motive, making it a quasi-government endeavour by the university,” says an academician. Pai recommends setting up an expert committee within GST India like the one at the Institute of Chartered Accountants of India. “Questions should be referred to this committee, position paper prepared, put out for public comments and after that issued as the official view,” says the public policy advocate. “This will ensure uniform policy throughout the industry and eliminate arbitrary action by GST officers which harm the country and business as well as reduce tax terrorism. Officials must  raise contestable questions and debate it out before they issue such notices. Tax on research grants given to universities can have a chilling effect on research outputs. I hope it’s axed.”