Section 35 — Deduction for Scientific Research and R&D Expenditure

India's income tax law provides deductions for expenditure on scientific research and development (R&D) to encourage innovation. Section 35 of the Income Tax Act offers deductions ranging from 100% to 150% (previously 200%) on eligible R&D expenditure — applicable to companies engaged in manufacturing or production. Here is the complete guide.

Types of Section 35 Deductions

35(1)(i) — Revenue Expenditure on In-House R&D:

• 100% deduction of revenue expenditure incurred on in-house scientific research related to the taxpayer's business
• Includes: salaries of R&D personnel, materials, power, consumables used in R&D
• Does NOT include capital expenditure on land

35(1)(ii) — Contributions to Approved Scientific Research Associations:

• 100% deduction for contributions made to a scientific research association, university or college approved for this purpose (DSIR-approved institutions)

35(1)(iii) — Contributions to Approved Universities for Social Science Research:

• 100% deduction for contributions to approved universities for research in social sciences or statistical research

35(2) — Capital Expenditure on In-House R&D:

• 100% deduction in the year of expenditure on capital assets (other than land) used for in-house scientific research
• Normal depreciation is not available on these assets (since 100% deducted already)

35(2AB) — Weighted Deduction for Companies:

• 100% deduction (enhanced from 200% which applied up to FY 2016-17 and then 150% till FY 2019-20)
• Available to companies in manufacturing (other than tobacco, liquor, cosmetics) on R&D expenditure approved by DSIR
• Form 3CK must be filed — DSIR (Department of Scientific and Industrial Research) must approve the R&D facility

DSIR Approval Process

• Apply to DSIR for recognition of in-house R&D facility in prescribed format
• DSIR evaluates R&D facility, personnel, equipment and outputs
• Annual Form 3CK (audit of R&D expenditure) must be filed along with ITR

Conclusion

Section 35 provides significant tax incentives for R&D investment — making it an important tool for manufacturing companies, pharma companies and technology businesses. SPOTON provides Section 35 deduction advisory, DSIR registration support and ITR filing with R&D deduction claims for companies in Kerala. Contact us for expert corporate tax planning services.