Expenditure on Research carried on by the Assessee [Section 35(1)/(2)]

Contribution made to Outsiders

Revenue Expenditure [Section 35(1)(i)]

• Allowable only if research relates to the business.

• Revenue research cost being Salary to Employee(s) or Cost of purchase of Raw materials, incurred 3 years immediately prior to the commencement of business is allowable as deduction in the year in which such business was commenced.

Contribution made to an approved Scientific Research Association/ University/ College/ Institution in either of the following case,  a weighted deduction of 125% of the contribution paid is available [Section 35(1)(ii)/(iii)]

• Such association has, as its object, undertaking of scientific research related or unrelated to the business of the assessee

• The payment is made to an approved university, college or institution for the purpose of scientific research that is related or unrelated to the business of the assessee.

• The payment is made to an approved university, college or institution for the purpose of research for social sciences that is related or unrelated to the business of the assessee

Capital Expenditure [Section 35(2)(ia)]

• If Research expenditure incurred relates to business then even if relevant asset is not used for research purposes in the PY, deduction is allowable.

• Capital research cost incurred 3 years immediately prior to the commencement of business is allowable in the year in which such business was commenced.

• However Capital expenditure towards acquisition of land is not allowable as deduction.

• No Deduction by way of depreciation is allowable on a Capital asset used for scientific research.

Contribution made to an approved Scientific Research Company, a weighted deduction of 125% of the contribution paid is available subject to following conditions [Section 35(1)(iia)] Amendment AY 2009-10:

• The Taxpayer may be any Person  as defined under the Income Tax Act, 1961.
   

• The Payee Company is registered in India;
   

• The scientific research may/ may not be related to the business of the company;
   

• The Payee Company has as its main object Scientific research and development;
   

• The Payee Company is, for the purposes of this clause, for the time being approved by the prescribed authority in the prescribed manner;
   

• The Payee Company fulfils such other conditions as may be prescribed.

It is to be noted that if the Payee company claims deduction under this Section then it will not be allowed any further weighted deduction under Section 35(2AB) w.r.t expenditure incurred after 31^st March, 08 ). However deduction under Section 35(1)/ (2) would continue to be allowed being Revenue/ Capital expenditure incurred.

In-House Research Expenditure [Section 35(2AB)]

• Weighted deduction available in respect of In-house research & development expenditure to the extent of 150%, except in the case of expenditure incurred on Land & Building.  
   

• However expenditure on Building can be instead claimed under Section 35(2)(ia) to the extent of 100%.
   

• The Taxpayer is a Company & is engaged in the business of Bio Technology / in the manufacture/ production of any drugs, electronic equipments, computers, telecommunication equipments, chemicals or any other article as notified by the board [CBDT].

• Deduction under this section is allowable only up to March 31^st, 2012.

Contribution made to Notified Institutions, wherein weighted deduction is available to the extent of 125% of such payment made [Section 35(2AA)]

• The Notified institutions are:

1. National Laboratory.

2. University.

3. Indian Institute of Technology.

4. Specified persons as approved by the prescribed authority.

• The above payment is made under a specific direction that it should be used by aforesaid persons for undertaking scientific research programs approved by the prescribed authority