All you need to know about Tax Credit - Research
and Experimentation
Research and experimentation tax credit, or as it is generally known as
R&D tax credit in business circuit, is a kind of tax credit under section
41 of Internal Revenue Tax Act of 1981. Not everyone is aware of its basic
nature and the features. Here is look into the idea of research and
experimentation tax credit.
What is qualified research?
The US congress in 1981 had passed the Economic Recovery Tax Act or ERTA
in order to stimulate investment within the United States of America. In this
act there is a provision named “Credit for Increasing Research Activities” also
known as “the Credit”, the purpose of which was to reverse the process of decline that was perceived by the Congress in
the US research spending. However, for all practical purposes, what is supposed
to be “Qualified Research” is often limited to the “Four Part Test” that can at
best provide a referential framework.
Four Part Test
Qualified research is ideally an activity or some project that a general
taxpayer undertakes, either directly or with the help of a third party who
spends the money on their behalf. This test has four specific parts-
- Permitted Purpose- the main purpose that is aimed is providing new or improving the existing functionality, reliability, performance etc of an existing component of business, such as any process, product, technique, innovation and the likes.
- Eliminating the uncertainty- the intention of the taxpayer who undertakes this research should be the elimination of uncertainty regarding the function or development of the business component.
- Experimentation Process- the taxpayer has to undergo a systematic procedure to achieve a result, which was earlier unknown to them.
- Technological in Nature- the process of experimentation that has to be followed must be fundamentally related to physical or biological or computer sciences.
0 comments:
Post a Comment