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Arjuna (Fictional Character): Krishna, ISRO succeeded in Mars mission by launching the largest rocket GSLV Mark III in space after lot of efforts and spending crores of rupees on research and development. Similarly if businessmen carry out such R&D, etc. activity, then is there any provision of Income Tax which benefits him?

Krishna (Fictional Character): Arjuna, hats off to the Indian scientists. Today due to all the research activities, the world has developed. Therefore government also encourages research in business. Industrialists give more emphasis on research and thereby invent and manufacture new goods. In many industries like pharmaceutical, automobile, engineering, electrical, etc. new research projects are always being initiated. In this a lot of money is expended or invested. If research project succeeds then after selling product profit can be earned, otherwise loss has to be faced. Companies like Apple, TCS, Google, etc. are succeeding because of research. Under Income tax act, additional deduction for such expenses is given. Two types of expenses such as Scientific Research and Research and Development are covered. Additional deduction is also available as per conditions mentioned there in.

Research & Development

Arjuna: Krishna, How and on which research expenses can a taxpayer take benefit?

Krishna: Arjuna, the Income Tax Act gives benefit for Expenditure incurred for carrying research in own business. Earlier there are various percentage of deduction depending upon purpose of research or the organisation to which we contributed such percentages are 150%, 175% or 200%. But after the recent amendments, all the research expenditure irrespective of the purpose or the organisation to which we contributed are bring on the Par i.e. 100% deduction for any research expenses incurred by the assessee. All businessmen can take the benefit of this. But due to unawareness many do not take benefit of this. This revised percentage of deduction i.e. at par 100% will be applicable from FY 2020-21

Arjuna: Krishna, what are the various research expenses can be covered under this section 35 for the benefit of 100% deduction?

Krishna:Arjuna, 100% deduction is available on the expenses incurred in following ways:

1. If contribution paid to research association having object of under taking scientific research or university, college or other institutes to be used for scientific research

2. If contribution paid to research association having object of under taking scientific research or university, college or other institutes to be used for social science or statistical research

3. If contribution paid to National Laboratory or a University or an Indian Institute of Technology

4. Payment made to a Company to be used for Scientific Research

Arjuna: Krishna, what about in house research done by companies, will they will also get the deduction of 100%?

Krishna: Arjuna, as per section 35 (2AB) of Income Tax Act where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed 100% deduction of that research expenses. In this from of tax planning one can save tax and encouragement for developing, innovation, research is also initiated. Thus it’s useful for developing business also. For e.g. Indian companies like Reliance, Telco, Maruti, Wockhart benefit from this and continue the research work and save taxes by following the laws.

Arjuna: Krishna, What should one learn from the research and income tax provision?

Krishna: Arjuna, research is a continuous process. In India for encouraging research in industries there are various schemes. Western countries like America always encourage research, therefore business flourishes there and in this there is major contribution of Indian Scientists. If they get opportunity in India then Indian Industries will also flourish. New products are developed by research. In practical life, due to new products, festival shopping becomes more joyful. As in Christmas gifts are given. New thoughts, ideas, inventions, research are the need of life. Therefore it can be said that real wealth is hidden in research.

Dear taxguru lovers your comments please.

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Republished with Amendments

Author Bio

1. Central Council Member of ICAI. 2. Vice-Chairman of WIRC of ICAI for the period 2015-2021. 3. Youngest Chairman of Aurangabad Branch of WIRC of ICAI in 2002. 4. Author of Popular Tax articles series based on Krishna and Arjuna conversation i.e “KARNEETI” published in Lokmat on every View Full Profile

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  1. L K Omray says:

    I have attended international conference on my scientific research related work. can I get tax benefit under section 35 or any other.
    Please advice me.

  2. Archana Atre says:

    I have one querry while doing audit of Pvt company. Company has paid contribution to approved R&D centre. While claiming the deduction company has claimed basic amount plus Krishi kalyan cess and Swachha bharat cess. Does company can claim same amount for R & D weighted deduction?

  3. K L Arora says:

    I am an individual taxpayer and would like to donate some money to some approved institution doing scientific research. At the same time l would also like to avail of the maximum tax deduction allowable.
    Could you please intimate names of some such institutions qualifying for 150/200% deduction?

  4. Debasis Chattopadhyay says:

    Respected Sir,
    I am working as Scientist- C in The Central Silk Technological Research Institute, Central Silk Board, Government of India and my present place of posting is at Bilaspur, Chhattisgarh. I have got permission for pursuing my PhD Curriculum as Part Time Basis under the University of Calcutta and I had completed Registration during April, 2012.My Employer has provided permission for this Doctoral Curriculum without any sponsorship or financial assistances. Also very limited facilities are present in our Laboratory. So I have to do the Experimental Assessments from renowned Laboratories or Research Centers by payment the required charges. I have spend last year i.e. 2015- 16 for Rs. 40, 000/- as Testing Charges for my PhD Experimental Works for which the correspondence organizations have provided me the Receipts. My question is that whether I can get Tax Exemption for this expenditures because I am spending from my monthly salary. I request your good selves to kindly provide me Suggestions for the same.

  5. jaisai says:

    Sir Am pursuing my Phd @ VIT University and am conducting various laboratory experiments for which i have procured materials and equipments. Also my organisation which is away from VIT,pays me 4900 as research grant every month.Can i avail tax excemption now for what i have procured?

  6. dilip kumar says:

    Dear sir,

    Our organisation is having 80IB exemption till 31-03-2014, from 2015-16 financial year there is no 80IB exemption. now we want to apply deduction under sec 35 of income tax act. our org is R & D Centre and only a service provider but not the manufacturing unit. pl advice org is eligible for Sec 35 of the Act.

  7. Ramesh M says:

    Please tell how much weighted deduction is available in respect of payment to National Laboratory for the AY 2015-16 while computing the business income

  8. sujit purkayastha says:

    I want to know , whether the valuation fees paid to Regd. valuer by finacial institute like Bank etc for loan purpose by Bank is liable for paying Income-tax. As, valuation of property in favor of Bank for loan purpose is to serve the Nation for financial gain of the Bank and also as National gain. In this context is there any % discount under any clause of Income-tax Deptt.
    Kindly suggest by sending to e-mail .

  9. Sandeep says:

    Please clarify the meaning of “specified institutions’ and “approved organizations”. “approved research organization”. “said project is approved”. Who can approve ? Who can guide us in setting up a research organization for renewable energy ?

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April 2024