Section 35(2AA) of the Income Tax Act, 1961, allows a deduction of 150% of the sum paid to a National Laboratory for scientific research undertaken under a programme approved by the prescribed authority.

The following are the requirements for claiming deduction under section 35(2AA) of Income Tax Act:

• The sum must be paid to a National Laboratory.
• The sum must be paid with a specific direction that it shall be used for scientific research undertaken under a programme approved by the prescribed authority.
• The programme must be approved by the prescribed authority.
• The deduction cannot be claimed under any other provision of the Income Tax Act.

The prescribed authority for approving programmes 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.

The application for approval must be made in Form 3CG. The application must be accompanied by the following documents:

• A copy of the programme of scientific research.
• A justification for the need for the research.
• A budget for the research.
• A copy of the certificate of registration of the National Laboratory with the Department of Scientific and Industrial Research.

Example

• A company in Karnataka contributes Rs. 10 lakhs to the Indian Institute of Science, Bangalore, for a research project on renewable energy.
• A pharmaceutical company in Gujarat contributes Rs. 5 lakhs to the National Chemical Laboratory, Pune, for a research project on developing new drugs for cancer.
• A steel company in Tamil Nadu contributes Rs. 3 lakhs to the National Metallurgical Laboratory, Jamshedpur, for a research project on improving the efficiency of steel production.
• A software company in Maharashtra contributes Rs. 2 lakhs to the Indian Institute of Technology, Bombay, for a research project on artificial intelligence.
• A bio-tech company in Delhi contributes Rs. 1 lakh to the National Centre for Biological Sciences, Bangalore, for a research project on developing new vaccines.

Case study

In this case, the NCI is a national laboratory and the research on the new cancer drug has been approved by the prescribed authority. Therefore, ABC Limited is eligible for a deduction of 150% of the ₹10 million contribution, which is ₹15 million.

The deduction will be available in the assessment year in which the contribution is made. The company will need to file Form 3CG with the Income Tax Department to claim the deduction.

FAQ Questions

• What is section 2AA of the Income Tax Act, 1961?

Section 2AA of the Income Tax Act, 1961 allows a deduction of 100% of the amount contributed to a national laboratory for scientific research.

• What are the national laboratories that qualify for deduction under section 2AA of Income Tax Act?

The following national laboratories qualify for deduction under section 2AA of Income Tax Act:

* Bhabha Atomic Research Centre (BARC)

* Indian Institute of Science (IISc)

* Indian Space Research Organisation (ISRO)

* National Chemical Laboratory (NCL)

* National Institute of Science Education and Research (NISER)

* Tata Institute of Fundamental Research (TIFR)

• What are the conditions for claiming deduction under section 2AA of Income Tax Act?

The following conditions must be met in order to claim deduction under section 2AA of Income Tax Act:

* The contribution must be made in cash.

* The contribution must be made to a national laboratory that is listed in the notification issued by the Central Government.

* The contribution must be made for the purpose of scientific research.

• How do I claim deduction under section 2AA of Income Tax Act?

To claim deduction under section 2AA of Income Tax Act, you must submit a copy of the receipt of the contribution to your income tax return. The receipt must be in the name of the national laboratory and must clearly state that the contribution is for the purpose of scientific research.