Clinical trials and other research activities undertaken by drug companies are expected to get fiscal incentives or tax benefits from the Centre for work done locally.

However, expenses on IP-related activities done overseas, such as filing patents abroad, may remain outside the ambit of Budget 2007-08, an official with the Union Chemicals and Fertilizers Ministry told Business Line.

Research done by drug companies - directly, through a University or a third party - will be eligible for tax incentives provided the companies are able to justify their expenses, the official said.

Similar benefits are expected to be outlined for the biotech industry as well.

This is a departure from earlier proposals from the Ministry, where companies had to meet the "gold standard," meaning that companies had to invest a percentage of their turnover in research or had to employ a certain number of people.

However, clinical trials, patent litigation and filings done overseas are unlikely to cut ice with the Union Finance Ministry, as such activities are more difficult to verify, the official said.

Drug companies currently avail of the 150 per cent weighted deduction on expenditure incurred from in-house research.

The scheme expires in March this year; it received a two-year extension in 2005.

Drug companies are hoping for this incentive to be extended for another 10 or 15 years, as they shore up research efforts.

In the event of the scheme not being extended, they hope that the Government will support their research activities through grants.

Mr Alok Gupta, Country Head (Life Sciences and Technology), Yes Bank, said that a large number of domestic drug companies spend 3-5 per cent of their turnover on research, with some of the larger companies investing 8-12 per cent.

But global drug majors in developed countries invest an average of 15 per cent of their turnover in research, he added.