Rule 35 of the Draft Income-tax Rules, 2026 specifies the prescribed authority, procedure, guidelines, and conditions for approval of a company under Section 45(3)(b) of the Act. The Chief Commissioner of Income-tax having jurisdiction over the applicant is designated as the prescribed authority. Applications must be filed in Form No. 17 during the financial year immediately preceding the tax year from which approval is sought, with a special relaxation for tax year 2026–27. The form must be verified by the authorised signatory under section 265, and a copy must be submitted to the prescribed authority with acknowledgment.
The approval or rejection must be decided within twelve months from the end of the quarter in which the application is received. In case of defects, a deficiency letter must be issued within one month, and the applicant must rectify it within one month, failing which the application may be treated as invalid. If complete, the Commissioner may conduct inquiries and forward recommendations within three months. Approval may be granted, rejected with recorded reasons, or later withdrawn if activities cease, lack genuineness, or violate prescribed conditions. No adverse order can be passed without providing an opportunity of being heard, and approval may be valid for up to five tax years.
Approved companies must use sums exclusively for scientific research conducted through their own employees and assets. They must maintain separate audited books, submit certified donation statements, and annually furnish detailed research reports, including publications, patents, and future research plans. Non-compliance may be reported to the Chief Commissioner within six months for appropriate action.
Extract of Rule No. 35 of Draft Income-tax Rules, 2026
Rule 35
Prescribed authority, guidelines, form, manner and conditions for approval under section 45(3)(b) of the Act.
(1) For the purposes section 45(3)(b) of the Act, the prescribed authority shall be the Chief Commissioner of Income-tax having jurisdiction over the applicant.
(2) Guidelines, form and manner in respect of approval under section 45(3)(b) of the Act shall be as under:—
(a) An application for approval under section 45(3)(b) of the Act by a company shall be made in Form No. 17, to the Commissioner of Income-tax having jurisdiction over the applicant, at any time during the financial year immediately preceding the tax year from which the approval is sought so however, that any application for tax year 2026-27 may be made at any time during the said tax year.
(b) Form No. 17 shall be verified by the person who is authorised to verify the return of income under section 265, as applicable to the applicant.
(c) The applicant shall send a copy of the application to the prescribed authority, accompanied by the acknowledgement receipt as evidence of having furnished the application as per sub-rule (2)(a). (d) Every order for approval under section 45(3)(b) of the Act shall be issued or an order rejecting the application shall be passed within a period of twelve months from the end of the quarter in which the application was received in the Office of the Chief Commissioner of Income-tax.
(e) If any defect is noticed in the application in Form No. 17 or if any relevant document is not attached thereto, the Commissioner of Income-tax shall serve a deficiency letter on the applicant before the expiry of one month from the end of the month in which application is received in his office.
(f) The applicant shall remove the deficiency within a maximum period of one month from the end of the month in which the deficiency letter is served and if the applicant fails to remove the deficiency within the period so allowed, the Commissioner of Income-tax shall send his recommendation for treating the application as invalid to the Chief Commissioner of Income-tax.
(g) The Chief Commissioner of Income-tax may, after examining the recommendations referred to in clause (f), pass an order that the application is invalid.
(h) If the application form is complete in all respects, the Commissioner of Income-tax may, make such inquiry as he may consider necessary regarding the genuineness of the activity of the company and send his recommendation to the Chief Commissioner of Income-tax, for grant of approval or rejection of the application before the expiry of the period of three months from the end of the quarter in which the application was received in his office.
(i)The Chief Commissioner of Income-tax may before granting approval under section 45(3)(b) of the Act call for such documents or information from the applicant as he considers necessary and may get any inquiry made for verification of the genuineness of the activity of the applicant.
(j) The Chief Commissioner of Income-tax may, under section 45(3)(b) of the Act, pass an order granting approval to the company or for reasons to be recorded in writing reject the application.
(k) The Chief Commissioner of Income-tax, as referred in sub-rule (1), may withdraw the approval granted under section 45(3)(b) of the Act if he is satisfied that the company Draft Income-tax Rules, 2026 43 has ceased to carry on its activities or its activities are not genuine or are not being carried on in accordance with all or any of the conditions under this rule.
(l) No order treating the application as invalid or rejecting the application or withdrawing the approval shall be passed without giving a reasonable opportunity of being heard.
(m) A copy of the order invalidating or rejecting the application or withdrawing the approval shall be communicated to the applicant, the Assessing Officer and the Commissioner of Income-tax.
(n) Any order passed by the Chief Commissioner of Income-tax under this rule shall, at any one time, have effect for such tax year or years, not exceeding five tax years as may be specified in the order.
(o) The applicant, may, at least three months before the expiry of the effective period of the order issued under sub-rule (2)(d), make an application to the Commissioner of Income-tax having jurisdiction over the applicant for fresh order.
(3) Approval to a company under section 45(3)(b) of the Act shall be subject to the following conditions, namely:—
(a) The sum paid to the company shall be used for scientific research.
(b) The applicant company shall carry on scientific research through its own employees using its own assets.
(c) A company approved under section 45(3)(b) of the Act shall maintain separate books of account in respect of the sums received by it for scientific research, reflect therein the amount used for carrying on research, get such books of account audited by an accountant, and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under section 263(1)(c) of the Act.
(d) For the purpose of clause (c), “accountant” shall have the same meaning as assigned to it in section 515(3)(b) of the Act.
(e) The company shall maintain a separate statement of donations received and the amount used for research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to in clause (c). (f) Subsequent to approval, the company shall, every year, by the due date of furnishing the return of income under section 263(1)(c) of the Act, furnish a statement to the Commissioner of Income-tax having jurisdiction over the case containing the following information, namely :—
(i) a detailed note on the research work undertaken by it during the tax year;
(ii) a summary of research articles published in national or international journals during the tax year;
(iii) any patents or other similar rights applied for or registered during the tax year;
(iv) programme of research projects to be undertaken during the forthcoming year and the financial allocation for such subjects.
(g) If it is found by the Commissioner of Income-tax that the company,—
(i) is not maintaining separate books of account for research activities; or
(ii) has failed to furnish its audit report; or Draft Income-tax Rules, 2026 44
(iii) has not furnished its statement of the sums received and the sums used for research, or a statement referred to in clause (f); or (iv) has ceased to carry on its research activities, or its activities are not genuine; or
(v) is not fulfilling the conditions subject to which approval was granted to it,
he may after making appropriate enquiries, furnish a report on the circumstances referred to in sub-clauses (i) to (v) to the jurisdictional Chief Commissioner of Income tax within six months from the date of furnishing the return of income under section 263(1) of the Act.
