Poised to boost private sector innovation in defence R&D, MoD rolls out GST refund plan.
The Ministry of Defence (MoD) will reimburse the 18% Goods and Services Tax (GST) charged on research and development (R&D) defence projects undertaken by private companies, including MSMEs and start-ups. The move is aimed at boosting innovation and easing the tax burden on private players working on projects for the armed forces.
The decision follows earlier reports highlighting how GST costs discouraged private sector participation in defence R&D. While entities registered under the Department of Scientific and Industrial Research (DSIR) are already exempted, others were required to pay GST, affecting their competitiveness.
Under this plan, the MoD will reimburse GST to eligible MSMEs and start-ups executing projects under the iDEX (Innovations for Defence Excellence) and DRDO’s Technology Development Fund (TDF) schemes. The reimbursement will be based on documentation and proof of the input tax credit.
The arrangement, currently seen as an interim measure, will require approval from the GST Council after clearance from the Union Finance Ministry and the Fitment Committee. Defence Minister Rajnath Singh had earlier raised the issue with Finance Minister Nirmala Sitharaman to encourage innovation in the sector.
Industry representatives welcomed the move, calling it a positive step to attract more private sector participation in critical defence innovation. However, they emphasised the need for swift GST Council ratification to ensure timely relief for companies.
The decision aligns with the government’s broader focus on enhancing R&D and fostering self-reliance in defence manufacturing under the ‘Aatmanirbhar Bharat’ initiative.
