Section 35
R&D Expenditure

Section 35 BUSINESS-related SCIENTIFIC RESEARCH expenditure ko 100% DEDUCTIBLE banata hai. KEY: (1) IN-HOUSE R&D: 100% deduction on research expenses related to business. (2) APPROVED RESEARCH BODIES donation: 100% (previously 175% weighted, reduced over time). (3) APPROVED UNIVERSITIES/COLLEGES research: 100%. (4) Pharma + biotech + IT + manufacturing common users.

EXAMPLE: Pharma company ₹500cr R&D budget = ₹500cr deduction → ₹125cr tax saving at 25.17%. Critical for innovation-focused industries.

HISTORICAL WEIGHTED DEDUCTIONS: (1) Pre-2017: 200% deduction on in-house R&D for biotech/pharma. (2) 2017-2020: 150%. (3) Post-2020: 100% (Finance Act 2020). Government reduced incentive over time + shifted to direct grants + PLI schemes.

Currently: most R&D 100% deduction. STRATEGIC: Reduced incentive but still significant.

Combined with PLI + 80-IAC (startup) + accelerated depreciation = comprehensive R&D tax benefits.

Section 35 (in-house R&D + business expense) vs 80GGA (DONATIONS to research bodies). DIFFERENT but COMPLEMENTARY.

Section 35 for company's own research. 80GGA for charitable donations to outside research. STRATEGIC: Pharma company can claim both: (a) Own R&D under Section 35. (b) Donations to IIT/IISc research under 80GGA.

Combined optimization. Both available in new regime (unique among R&D + donations).

Section 35 documentation: (1) R&D approval from DSIR (Department of Scientific and Industrial Research) for in-house centres. (2) Books of accounts for R&D expenses separated. (3) Form 3CL annual statement of R&D activities. (4) CA certification of R&D expenses. (5) Audit + scrutiny by IT Department periodically. MAINTAIN for 8 years (assessment window).

ELIGIBLE EXPENSES: (1) Salaries of R&D staff. (2) Equipment + consumables for research. (3) Trial production (limited). (4) Patent + IPR filing costs. (5) Outsourced research costs. NOT ELIGIBLE: (1) Routine operations. (2) Capital expenditure on R&D buildings (separate Section 35(2)). (3) Acquisition of technology (separate Section 35AB). (4) Quality control routine testing.