# Scientific Research Expenditure [Section 35]

Deduction is available for both in-house scientific research and outside contributions towards scientific research.

## (A) In-house Scientific Research by Assessee

### Expenditure Incurred Within 3 Years BEFORE Commencement of Business

Type	Deduction
Revenue expenditure (only Material & Salary)	100% deduction in the year of commencement of business
Capital expenditure (except Land)	100% deduction in the year of commencement of business

### Expenditure Incurred AFTER Commencement of Business

Type	Deduction
Revenue expenditure (except Land)	100% deduction in the year of expense
Capital expenditure (except Land)	100% deduction in the year of expense

## (B) Outside Contribution

Recipient	Deduction	Purpose
Indian Company engaged in R&D	100%	Scientific Research
Approved Association / Institute / College / University	100%	Scientific Research OR Social & Statistical Research
IIT / IISc / National Laboratory	100%	Scientific Research

## Other Important Points

1. Unabsorbed capital expenditure on scientific research can be carried forward and set-off in the same manner as unabsorbed depreciation (indefinitely; any head except salary).

2. If a scientific research asset is sold, then Lower of (Sale Amount OR Deduction already allowed) is taxable under PGBP in the year of sale.

3. No deduction for outside contributions if the assessee opts for Section 115BAC (new tax regime).

Worked example

### Example 1

Example — Pre-commencement expenditure:

Mr. X commences business on 1.4.2025. In the 3 years prior (2022-23, 2023-24, 2024-25), he incurred:

Material & Salary for in-house research: ₹ 5,00,000
Purchase of land for research lab: ₹ 20,00,000
Purchase of equipment for research: ₹ 8,00,000

Deduction in P.Y. 2025-26 (year of commencement):

Revenue (Material & Salary): ₹ 5,00,000 ✓
Land: NIL (land never qualifies)
Equipment (capital): ₹ 8,00,000 ✓
Total Deduction = ₹ 13,00,000

### Example 2

Example — Sale of research asset:

An R&D equipment purchased for ₹ 5,00,000 was given 100% deduction in P.Y. 2023-24 under Section 35. It is sold in P.Y. 2025-26 for ₹ 6,00,000.

Taxable under PGBP = Lower of (Sale ₹ 6,00,000 OR Deduction ₹ 5,00,000) = ₹ 5,00,000

Excess of ₹ 1,00,000 (sale over original cost) is taxable as Capital Gain separately.

⚠️ Common exam mistakes

Claiming deduction on land used for scientific research — land is EXPLICITLY excluded.
For pre-commencement period, claiming all revenue expenses — only MATERIAL & SALARY qualify, not other revenue expenses like rent, electricity, etc.
On sale of scientific research asset, taxing the full sale value — only LOWER of (Sale Value OR Deduction Allowed) is taxable under PGBP.
Claiming outside contribution deduction under the new tax regime (Section 115BAC) — not allowed.
Forgetting that unabsorbed capital expenditure on scientific research follows unabsorbed-depreciation rules (not unabsorbed-business-loss rules).

Bare-Act text Section 35 · Income Tax Act, 1961 · click to expand

Section 35(1) — In respect of expenditure on scientific research, the following deductions shall be allowed: (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business; (ii) an amount equal to one hundred per cent of any sum paid to a research association which has as its object the undertaking of scientific research, or to a university, college or other institution to be used for scientific research... Section 35(2)(ia) — In respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, an amount equal to such expenditure incurred in any previous year shall be deducted; Provided that no deduction shall be admissible in respect of expenditure incurred on the acquisition of any land.

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Scientific Research Expenditure under Section 35

Worked example

⚠️ Common exam mistakes