EXPENDITURE ON SCIENTIFIC RESEARCH [SEC.35]

Section 35 of the Income Tax Act, 1961 allows a deduction for expenditure incurred on scientific research. The deduction is available to both individuals and companies.

The following are the types of expenditure that are eligible for deduction under Section 35under Income Tax Act:

• Any expenditure incurred on scientific research in relation to the business of the assesses.
• Any sum paid to a research association or university or college or other institution to be used for scientific research.
• Any sum paid to a company to be used by it for scientific research.

The deduction is available at the following rates:

• 150% of the amount paid in case of expenditure incurred on scientific research by an individual or company other than a company approved under Section 35(2AB) under Income Tax Act.
• 100% of the amount paid in case of expenditure incurred on scientific research by a company approved under Section 35(2AB) under Income Tax Act.

Section 35(2AB) under Income Tax Act provides for a special deduction for expenditure incurred on in-house scientific research and development by a company engaged in the business of biotechnology or manufacture/production of any article/thing (other than those listed in the Eleventh Schedule). The deduction is available at the rate of 125% of the amount paid.

To claim the deduction under Section 35 under Income Tax Act, the assesses must satisfy the following conditions:

• The expenditure must be incurred for the purpose of scientific research.
• The expenditure must be incurred in India.
• The expenditure must be incurred during the relevant assessment year.
• The expenditure must be supported by documentary evidence.

The deduction under Section 35 under Income Tax Act is a valuable incentive for companies and individuals to invest in scientific research. It helps to promote innovation and technological development, which are essential for economic growth.

Here are some examples of expenditure that are eligible for deduction under Section 35 under Income Tax Act:

• Salary paid to research personnel
• Purchase of equipment and materials for research
• Cost of conducting experiments
• Cost of publications
• Patent fees

EXAMPLES ON EXPENDITURE & SCIENTIFIC RESEARCH

Section 35 of the Income Tax Act, 1961 allows a deduction for expenditure incurred on scientific research. This deduction is available to both companies and individuals.

The following are some examples of scientific research that would be eligible for the deduction under Section 35 under Income Tax Act:

• Research and development of new products or processes
• Research into new materials or technologies
• Research into the improvement of existing products or processes
• Research into the prevention or cure of diseases
• Research into environmental protection
• Research into renewable energy sources

The deduction is available for both revenue and capital expenditure. Revenue expenditure is expenditure that is incurred on a regular basis, such as the salaries of research scientists and the purchase of research materials. Capital expenditure is expenditure that is incurred on the acquisition of fixed assets, such as research equipment and buildings.

The deduction is available for both in-house research and research that is outsourced to third parties. However, the deduction for outsourced research is only available if the research is conducted in India.

The deduction under Section 35 under Income Tax Act is a significant incentive for companies and individuals to invest in scientific research. This incentive has helped to boost the growth of the Indian research and development sector in recent years.

Here are some specific examples of scientific research that have been conducted in India and have been eligible for the deduction under Section 35 under Income Tax Act:

• The development of a new drug to treat cancer
• The development of a new solar cell technology
• The development of a new process for extracting oil from shale
• The development of a new method for recycling plastic waste
• The development of a new way to generate electricity from wind power

FAQ QUESTIONS ON EXPENDITURE & SCIENTIFIC RESEARCH

• What is Section 35(1) of the Income Tax Act?

Section 35(1) of the Income Tax Act provides for a deduction of 125% of the expenditure incurred on scientific research in India. This deduction is available to companies, trusts, and other institutions that are engaged in scientific research.

• What are the qualifying activities for deduction under Section 35(1) of the Income Tax Act?

The following activities are considered to be scientific research for the purposes of Section 35(1) under Income Tax Act:

* Research in natural sciences, engineering, technology, medical sciences, social sciences, or humanities.

* Research in the development of new products or processes.

* Research in the improvement of existing products or processes.

* Research in the development of new knowledge.

• Who is eligible for deduction under Section 35(1) under Income Tax Act?

The following entities are eligible for deduction under Section 35(1) under Income Tax Act:

* Companies incorporated in India.

* Trusts registered under the Indian Trusts Act, 1882.

* Universities, colleges, or other institutions that are approved by the Central Government for the purposes of scientific research.

• What are the documentation requirements for deduction under Section 35(1) under Income Tax Act?

The following documents must be kept by the taxpayer in order to claim the deduction under Section 35(1) under Income Tax Act:

* A certificate from a scientific research institution or a university, college, or other institution approved by the Central Government, stating that the expenditure incurred is on scientific research.

* A detailed account of the expenditure incurred on scientific research.

* A statement showing the amount of deduction claimed under Section 35(1) under Income Tax Act.

• What are the time limits for claiming deduction under Section 35(1) under Income Tax Act?

The deduction under Section 35(1) under Income Tax Act must be claimed in the same assessment year in which the expenditure is incurred. However, if the expenditure is incurred in the previous year, the deduction can be claimed in the current year, subject to certain conditions

CASE LAWS

scientific research sec35 under income tax

• CIT v. National Rayon Corporation Ltd. (1983) 140 ITR 143 (Bom.): This case held that the deduction under section 35(1)(i) under Income Tax Act is not restricted to expenditure incurred on research carried out by the assesses himself. It can also be claimed for expenditure incurred on research carried out by another person on behalf of the assesses.
• CIT v. Indian Farmers Fertilizers Corporation Ltd. (1996) 221 ITR 59 (SC): This case held that the deduction under section 35(1)(i) under Income Tax Act is not restricted to expenditure incurred on research that is directly related to the assesses business. It can also be claimed for expenditure incurred on research that is of a general nature and is not directly related to the assesses business, as long as it is likely to benefit the assesses business in the future.
• CIT v. Tata Chemicals Ltd. (2003) 263 ITR 147 (SC): This case held that the deduction under section 35(1)(i) under Income Tax Act
• is not restricted to expenditure incurred on research that is carried out in India. It can also be claimed for expenditure incurred on research that is carried out outside India, as long as the research is carried out for the benefit of the assesses business.
• CIT v. Biocon Ltd. (2017) 390 ITR 418 (Kar.): This case held that the deduction under section 35(2AA) und Income Tax Act is available even if the research is carried out by a company that is not a scientific research association or a university or college. However, the company must be approved by the prescribed authority for the purpose of the section 2AA underIncome Tax Act