Draft Income-tax Rule 29 sets out the prescribed authority and approval framework for claiming deductions on scientific research expenditure under Sections 45(1)(a)(ii) and 45(2). For Section 45(1)(b) read with Section 45(1)(a)(ii), the Prescribed Authority is the Principal Chief Commissioner of Income-tax (Exemptions) in concurrence with the Secretary, Department of Scientific and Industrial Research (DSIR), Government of India. For Section 45(2), the Secretary, DSIR is the prescribed authority. A company is eligible for deduction only after entering into an agreement with the prescribed authority for cooperation in an in-house research and development facility and complying with conditions relating to maintenance of books, audit, and reporting. Applications must be made in Form No. 11, and approvals are granted in Form No. 14 within two months, subject to an opportunity of hearing in case of rejection. Approved facilities must not relate purely to activities such as market research or commercial production. The authority must electronically submit reports in Form No. 12, quantifying eligible expenditure, within prescribed timelines. Companies must maintain separate audited books for each approved facility, furnish audit reports in Form No. 13, attach audited accounts with returns, disclose R&D expenditure in financial statements, and ensure assets are used only for approved purposes. The rule establishes a structured, time-bound, and compliance-driven system for research-linked tax incentives.
Extract of Rule No. 29 of Draft Income-tax Rules, 2026
Rule 29
Prescribed authority and process of approval for expenditure on scientific research under section 45(1)(a)(ii) and 45(2) of the Act.
(1) For the purposes of section 45(1)(b) r.w.s. 45(1)(a)(ii) of the Act, the Prescribed Authority shall be Pr. Chief Commissioner of Income tax (Exemptions) in concurrence with the Secretary, Department of Scientific and Industrial Research, Government of India.
(2) For the purposes of section 45(2) of the Act,––
(a) the prescribed authority shall be Secretary, Department of Scientific and Industrial Research, Government of India;
(b) no company shall be entitled for deduction under said section, unless it enters into an agreement with the prescribed authority for co-operation in research and development facility and fulfils such conditions with regard to maintenance of books of account and audit thereof and furnishing of reports in the manner prescribed in this rule.
(c) the application for obtaining approval shall be made by a company in Form No. 11;
(d) the prescribed authority shall,––
(i) if he is satisfied that the conditions mentioned in section 45(2) of the Act and prescribed in this sub-rule are fulfilled, pass an order in writing, approving the facility within two months from the end of the month in which application is received, in Form No. 14;
(ii) where an application is rejected, a reasonable opportunity of being heard shall be granted to the company; and
(iii) furnish a copy of such order to the Chief Commissioner of Income-tax having jurisdiction over such company.
(e) approval of expenditure incurred on in-house research and development facility by a company shall be subject to the following conditions, namely:—
(i) the facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of similar nature;
(ii) the prescribed authority shall furnish electronically its report––
(A) in relation to the approval of in-house research and development facility in part A of Form No. 12;
(B) quantifying the expenditure incurred on in-house research and development facility by the company during the tax year and eligible for deduction under section 45(2) in part B of Form No. 12;
(iii) the report in Form No. 12 referred to in sub-clause (ii) shall be furnished electronically by the prescribed authority to the Chief Commissioner of Income tax having jurisdiction over such company within one hundred and twenty days,—
(A) of the grant of the approval, in a case referred to in sub-clause (ii)(A);
(B) of the submission of the audit report, in a case referred to in sub clause (ii)(B);
(iv) the company shall maintain separate books of account for each approved facility which shall be audited annually;
(v) a report of audit in Form No. 13 shall be furnished electronically to the Secretary, Department of Scientific and Industrial Research on or before the due Draft Income-tax Rules, 2026 36 date specified in section 263(1)(c) of the Act for furnishing the return of income, for each succeeding tax year;
(vi) the company shall attach copy of such audited annual account with the return of income to be filed under section 263(1)(a) of the Act for each tax year;
(vii) the company shall ensure that the capital and revenue expenditure on inhouse research and development facility is reflected in the schedules/notes to accounts in the audited financial statement of the company prepared for the purposes of its annual report and for the purposes of computation of income tax;
(viii) assets acquired by the approved facility shall be utilised only for the approved purpose and shall not be disposed of without the approval of the Secretary, Department of Scientific and Industrial Research.
(3) For the purposes of this rule, “audited” means the audit of accounts by an accountant, as defined in section 515(3)(b) of the Act.
