Applicability of Section 35(2AB) of the Act on expenditure incurred on scientific research carried outside the in-house R&D facility approved by the prescribed authority


In the pharmaceutical Sector, discovery is a lengthy, risky and expensive proposition. In this business environment, necessitated by the current business needs, companies have to incur expenditure towards scientific research outside their Research & Development (R&D) facility for e.g. expenditure incurred outside the approved R&D facility towards clinical trials (including those carried out in approved hospitals and institutions by non-manufacturing firms), bioequivalence studies conducted in overseas CROs and regulatory and patent approvals, overseas trials, preparations of dossiers, consulting/ legal fees for filings in USA for new chemicals entities (NCE) and abbreviated new drug applications (ANDA) as approved by the Department of Scientific and Industrial Research (DSIR) which are directly related to the R&D, etc.


It is suggested that the existing provisions should be specifically clarified to allow weighted deduction in respect of expenditure incurred outside the R&D facility which are sometimes necessitated by the industry’s business needs. Additionally, it could also be provided that where the risk of doing research is assumed by a company, the entire cost of R&D activities (whether outsourced or undertaken in-house) is eligible for weighted deduction in the hands of company undertaking the risk.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)
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