What is Section 35?
Section 35 is a rule in India’s tax law that lets people or companies save money on taxes when they spend money on scientific research. It’s like a little gift from the government for trying to make something new.
Why does the government give tax help for research?
Because research helps invent things, makes India smarter, and helps businesses do better in the world.
What is the goal of giving these tax benefits?
To encourage companies to study, invent, and test new things more often without worrying about tax.
Types of Scientific Research Covered under Section 35
1. In-house scientific research by companies
This means if a business does research inside—like scientists in a lab—they can get tax savings for the money they spend there.
2. Sponsored research through approved institutions
If they ask a special, approved company to do research for them, they can also get tax breaks for that money.
3. Payments to research associations, universities, and IITs
If a company gives money to places like IIT or a university that help with research, they can save on taxes too.
4. Contributions to national labs or other approved bodies
Giving money to important research places (like government labs) also gets tax benefits.
Tax Deductions Available under Section 35
100% deduction for revenue expenditure
All usual research costs—like wages, materials, electricity—can be fully deducted the same year they spend it.
100% deduction for capital expenditure (excluding land & building)
Big spending like equipment or machines used for research is also fully deducted right away. But land costs can’t be counted.
Weighted deductions (previously available)
Used to be more generous—150% or 200% of what was spent—so you could deduct more than you spent. But now it’s gone.
Treatment of unabsorbed R&D expenditure
If your research cost is more than your profit, you can carry it forward and use the deductions even when you make profit later.
Eligibility Criteria for Claiming Deductions
Who can claim?
Anyone paying taxes in India—individuals, firms, or companies—can claim this if they follow the rules.
Approval for an in-house R&D facility
To claim tax benefits for in-house research, companies need approval from a special authority and must keep good records.
Research must be related to business
The research must help the business—like making a better product or process.
Benefits of Section 35 for Businesses
- Reduces taxable income, so the company pays less tax.
- Encourages new ideas and inventions.
- Helps Indian businesses be global competitors.
Key Amendments and Recent Changes
Phasing out weighted deductions
Earlier, companies could deduct 150% or 200%. But after April 1, 2021, the deduction is just 100%—the same as what you actually spend.
Current rule: 100% deduction
Now, both in-house and outsourced research, capital and revenue costs—all qualify for a straight 100% tax deduction.
Recent updates till 2025
India passed a new Income-Tax Act in August 2025, aiming to simplify the rules. But this new law starts from April 1, 2026—so Section 35 still applies as is for now.
Compliance and Documentation Requirements
- Keep good records of research costs—materials, salaries, bills, etc.
- Get approval from DSIR or CBDT for R&D facilities or institutions.
- Audit and reporting are a must if you’re claiming the deductions.
Challenges and Limitations of Section 35
- Cannot claim for land and buildings.
- There’s lots of paperwork and rules—can be tough for small businesses.
- Many startups don’t even know about these benefits.
Section 35 vs. Other R&D Incentives
- Section 80-IB: Gives tax benefits for setting up units in certain areas—not specifically research-focused.
- State-level schemes: Some states offer bonuses or subsidies for innovation.
- Global comparison: Countries like the US or UK often have even better R&D tax credits, sometimes refundable—India is catching up.
Case Studies and Practical Examples
Example: A tech company buys lab equipment
Suppose a company buys research equipment worth ₹10 lakh. It can deduct ₹10 lakh fully in that year, reducing its taxable income.
Example: Disallowance due to non-compliance
A company didn’t maintain proper audit records or get approval. The deduction got rejected, and they had to pay more tax.
Lessons learned:
Always get approval, keep solid records, and know what counts as an eligible expense.
Conclusion:
- Section 35 gives big tax relief for Indian businesses doing scientific research.
- You can claim everything you spend on revenue and equipment (but not land), up to 100%.
- Recent updates removed earlier extra incentives, but the basic benefits remain strong.
- Stay compliant with the rules, keep records, and make sure you’re getting what you deserve.
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