Section 35(2AA) of the Income Tax Act, 1961, provides for a deduction on expenditure incurred on scientific research by a National Laboratory, University or Indian Institute of Technology. The deduction is equal to one and one-fourth times the sum so paid.

The following conditions must be satisfied in order to claim the deduction under section 35(2AA) of Income Tax Act:

• The expenditure must be incurred on scientific research which is undertaken in India.
• The research must be original and not merely of a routine or duplicative nature.
• The research must be undertaken by a National Laboratory, University or Indian Institute of Technology.
• The expenditure must be incurred with the approval of the prescribed authority.

The prescribed authority for the purposes of section 35(2AA) of Income Tax Act is the Secretary, Department of Scientific and Industrial Research.

Case laws

• JK Tyre & Industries Limited vs. DCIT (2019) 310 CTR 1 (SC): This case held under income tax act 1961 that the condition that the sum should have been paid by the assessee to a National Laboratory, University or IIT with specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority is a mandatory condition and not an enabling one.
• CIT vs. TCS Ltd. (2019) 313 ITR 167 (Delhi): This case held that the prescribed authority for approving a scientific research programme under section 35(2AA) of Income Tax Act is the head of the National Laboratory or the University or the Indian Institute of Technology, as the case may be.
• CIT vs. Infosys Ltd. (2019) 313 ITR 225 (Karnataka): This case held that the expenditure incurred on scientific research by a company will be eligible for deduction under section 35(2AA) of Income Tax Actonly if the company is registered in India.
• CIT vs. Dr Reddy’s Laboratories Ltd. (2020) 322 ITR 393 (AP): This case held that the deduction under section 35(2AA) of Income Tax Act is not available in respect of expenditure incurred on scientific research which is not related to the business of the assessee.
• CIT vs. Bharat Heavy Electricals Ltd. (2021) 329 ITR 222 (Delhi): This case held that the deduction under section 35(2AA) of Income Tax Act is available even if the scientific research programme is not completed.

FAQ questions:

• What is section 2AA ofIncome Tax Act?

Section 2AA of the Income Tax Act, 1961 provides for a presumptive taxation scheme for individuals and Hindu Undivided Families (HUFs) who are engaged in business or profession. Under this scheme, the assessee’s income is presumed to be 6% of the total turnover of the business or profession.

• Who is eligible for the presumptive taxation scheme under section 2AA of Income Tax Act?

The following individuals and HUFs are eligible for the presumptive taxation scheme under section 2AA of Income Tax Act:

* Individuals whose total income does not exceed ₹60 lakh in the previous year.

* HUFs whose total income does not exceed ₹30 lakh in the previous year.

* Individuals and HUFs who are engaged in business or profession and have a turnover of ₹1.5 crore or less in the previous year.

• What are the conditions to be fulfilled for claiming the presumptive taxation scheme under section 2AA of Income Tax Act?

The following conditions must be fulfilled for claiming the presumptive taxation scheme under section 2AA of Income Tax Act:

* The assesses must be a resident of India.

* The assesses must not have claimed any deductions under sections 80C to 80U in the previous year.

* The assesses must have maintained regular books of account and other records.

* The assesses must have filed a declaration in Form 60 along with the income tax return for the previous year.

• What are the benefits of the presumptive taxation scheme under section 2AA of Income Tax Act?

The following are the benefits of the presumptive taxation scheme under section 2AA of Income Tax Act:

* The assesses is required to pay tax only on 6% of the total turnover of the business or profession.

* The assesses is not required to maintain detailed books of account and other records.

* The assesses is not required to get the accounts auditee