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Expenditure on Scientific Research - Section 35 - Income Tax - Ready Reckoner - Income TaxExtract Expenditure on Scientific Research - Section 35 The term scientific Research means any activities for the extension of knowledge in the fields of natural or applied sciences including agriculture, animal husbandry or fisheries. Besides, Scientific Research, donation for research in social sciences like human behaviour and marketing research work are also covered under this section. In respect of expenditure on research, the following deductions shall be allowed: Section 35(1)(i) Revenue Expenditure incurred before commencement of business Expenditure incurred on salary (excluding perquisite) and on purchase of material used in research within the 3 years immediately preceding the year of commencement of business, shall be allowed as a deduction in the year in which business is commenced. However, salary paid before the commencement of business shall not be allowed. Revenue Expenditure incurred after commencement of business 100% of revenue expenditure laid out or expended on scientific research related to the business carried on by the assessee. Section 35(1)(ii ) An amount equal to 100% of any sum paid to research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for research provided such association/ university/ college/ institution is approved by Central Government under section 35(1)(ii) . [Research is not related to business of Assessee] Note: The deduction for the sum paid section 35(1)(ii) shall not be denied if the approval of research institute has been withdrawn subsequent to the making of payment by the Assessee. Section 35(1)(iia) An amount equal to 100% of any sum paid to a company to be used by it for scientific research for the business of the assessee. Provided that such company Is registered in India Has as its main object the scientific research and development Is, for the purposes of this clause, for the time being approved by the prescribed authority in the prescribed manner. Section 35(1)(iii) An amount equal to 100% of any sum paid to a university, college or other approved institution to be used for research in social science or statistical research provided such university/ college/ institutions is approved by Central Government under Section 32(1)(iii) . [Research is not related to business of assessee] Note: The deduction for the sum paid Section 32(1)(iii) shall not be denied if the approval of research institute has been withdrawn subsequent to the making of payment by the Assessee. Section 35(1)(iv) 100% deduction of capital expenditure (excluding land) on scientific research related to business carried on by the assessee. Capital expenditure incurred on scientific research within 3 years immediately preceding the commencement of business shall be allowed as deduction in the year in which business is commenced. Notes: 1) No depreciation shall be allowed in respect of assets for which deduction has been claimed under section 35 . 2) It is not necessary that the assessee should carry out the research himself. If research is carried out by some other person for the business of the assessee, payment made to such other person will be treated as expenditure on research. 3) The set off and carry forward of unabsorbed research capital expenditure is in the same manner as that of depreciation. 4) If land and building is purchased through a composite agreement, then the cost of land and building shall be bifurcated on the basis of their FMV. Cost of the land is not allowable as deduction and cost of building shall be allowed as deduction u/s 35(1)(iv) . Section 35(2AA) Higher deduction on payment made to approved specified persons for Scientific Research. Deduction 100% of sum paid to National Laboratory, University, IIT or specified person approved by prescribed authority with a specific direction that it shall be used for scientific research under an approved research programme. [Research is related to business of assessee] Such institution shall issue a receipt of payment for carrying out such approved programme in Form 3 C J . If deduction is allowed under this section, then no deduction for such sum shall be allowed under any other provisions of this Act Note: Deduction shall not be denied if the approval granted to National Laboratory, or research program is withdrawn after payment has been made by the assessee. Section 35(2AB) Higher deduction to companies which are engaged in business of manufacture or production of specified articles for conducting In House Scientific Research. Deduction 100% of the expenditure (excluding cost of land or building) on scientific research on an approved in-house research development facility. Revenue as well Capital Expenditure. Eligible Assessee: Companies engaged in the business of bio-technology or in any business of manufacture or production of any other article or thing other than those specified in Eleventh Schedule. Notes: Research and development facility should be approved by prescribed authority 1. Deduction allowed only if company has entered into an agreement with prescribed authority 1 for cooperation in such research development facility and for audit of accounts maintained for such facility or fulfills such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. Deduction shall also be allowed for expenditure incurred on clinical drug trials obtaining approvals from regulatory authority and for filing an application for a patent under the Patent Act in case of a company doing scientific research in drugs and pharmaceuticals. Cost of land is not allowed as deduction. Cost of building shall be allowed under section 35(1)(iv) @ 100%. Revenue and capital expenditure allowable under section 35(2AB) @ 100%. Amendment made by Finance Act, 2022 W.e.f. AY 2021-22, section 35(1A) to provide that the deduction claimed by the donor with respect to the donation given to any research association, university, college or other institutions referred to in section 35(1) (ii) or (iii) or the company referred to in section 35(1)(iia) shall be disallowed unless such research association, university, college, or the other institution or company files the statement of donations. ---------------------------------------------------------------------------------------------- Other Relevant Information Prescribed authority is secretary, Department of Scientific Industrial Research, Government of India. Deduction u/s 35(1)(ii)/(iii) is not available, if the option is exercised for the alternatives tax regime by an Individual/HUF [Section 115BAC ], a domestic company [Section 115BA / 115BAA / 115BAB ] or a resident co-operative society [Section 115BAD ]. Form 3CL to be fill for intimation of approval of scientific research expenses, Form 3CM is approved scientific research expenses within a time period for In-House research. Outsourcing Facility on scientific research - It was held in the case M/S. Micro Labs Limited Versus ACIT, LTU, Bangalore 2023 (1) TMI 712 - ITAT Bangalore that outsourcing facility taken for scientific research is allowed for In-house research provided that same has been as approved by Form 3CL , in the given case such expense incurred before 1st July 2016 when requirement of filling Form 3CL was not there does not amount to ineligibility or weighted deduction. However for In-house research, expenses should be certify by Form 3CL .
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