India's foreign trade requires tax sops, support for R&D'

New Delhi: As Finance Minister Nirmala Sitharaman prepares to present her first Union Budget on July 5, trade associations involved in import and export want the government to take several steps to boost India's cross border trade.

Trade Promotion Council of India (TPCI) in its budget recommendation has said that the government should incentivise the exporters whose "geographical diversification is more, and not concentrated in terms of outreach and extension product and country wise".

It also sought incentives for thrust sectors like furniture and electricals, where India has a huge competitive advantage in exports.

TPCI, in a statement said that the government should permanently exempt goods procurement under certain export promotion schemes from the Integrated Goods and Service Tax (IGST) and compensation cess. Currently the exemption exists till March 31, 2020.

Emphasising on the need of research and development (R&D) in the economy, the trade associations said that innovation should be encouraged by the government.

According to the Engineering Exports Promotion Council (EEPC) of India, the budget should do away with any duty on imports made for R&D in the country.

"Research & Development is the backbone for sustained growth of any industry. This will help to develop new products, and compete with other international players.

"Currently, any import for R&D is subject to payment 5 per cent duty with lot a paper work and approvals. This actually hampers the R&D of any Organization," EEPC said in its budget recommendations.

It suggested that there should be no import duty for R&D purposes so that more and more investment can take place in this sector.

"For availing zero duty, conditions like DSIR certification, R&D with minimum staff of 30 personnel, grant of minimum five patents, etc. can be put," it said.

The Federation of Indian Export Organisations (FIEO) also urged a review of the Section 35 (2AB) of Income Tax Act to provide tax deduction not only on R&D but also on product development.

"The tax deduction on R&D expenditure which has come down from 200 per cent to 100 per cent now may be restored to its original position as R&D investment in India is extremely low (1 per cent of GDP) and most of the R&D is being done at the behest of the Government or in sectors like pharma," FIEO said.