Expenditure on Scientific Research Section 35, section 35(2AB), Section 41(3)

If any person has done any scientific Expenditure revenue or capital relating to business, such expenditure is allowed to be debited without any restriction.

Revenue Expenditure:- Any Revenue expenditure incurred scientific research relating to business, such whole expenditure is allowed to be debited to profit & loss.

Capital Expenditure:- Any Capital expenditure Incurred for scientific Research other than purchase of land shall be allowed shall be allowed 100% deduction However construction on Land is allowed as expenditure. Capital Expenditure incurred during the immediate three years before the commencement of business is allowed as deduction in the year the business is started. Depriciation is not allowed as deduction under section 32(1)(ii).

Scientific Research  Expenditure before commencement of Business

If any expenditure is incurred before commencement of business but within 3 years prior to commencement, capital expenditre is allowed without any limit in the year of commencement of business but revenue expenditure is allowed only to the extent permitted by prescribed authority. Similarly payment of salary except perquisite(facilities) are allowed only to the extent permitted by the prescribed authority.

Donation/Contribution to reseach Association

Any donation given to the Notified Research Association deduction shall be allowed to all assessee in the following manner given below:

  1. As per section 35(1)(ii)/35(2AA):- If an Assessee has donated certain amount in scientific research association like National Laboratory, Indian Institute of Technology or approved university, college etc such amount of deduction shall be allowed equal to 1.50 times of donation and will be debited to profit and loss accounts.  However from F.y 2021-22 it is equal to to the amount of deduction.
  2. As per section 35(1)(iia):-  If donation is given to Indian company approved by prescribed authority for the purpose of scientific research  deduction allowed shall be equal to the donation.
  3. As per section 35(1)(iii):- Deduction allowed shall be equal to the donation if donation is given to any approved institution for the purpose of research in social science or statistical research.

Further there is no condition that the research should be related to the business or profession of the assessee.

Deduction allowed under section 35

Special provision with regard to companies Section 35(2AB):- If company  in research and is approved by the prescribed authority and company is engaged in the business of bio-technology or in manufacturing of any product except the goods mentioned in eleventh schedule of Income Tax Act, In such case the assessee shal be allowed to debit 1.50 times of the amount of expenditure incurred on scientific research but expenditure for building shall be allowed to the extent of 100% and not 1.50 time, However expenditure incurred on land shall not be allowed  as deduction, any amount incurred on scientific research before commencement of business, expentiture allowed as deduction will be equal to the amount spent on scientific research.

Sale of assets used for scientific research

If any capital assets purchased for scientific research by any entity and debited to profit and loss account and such capital assets is sold in that case amount received or consideration amount of capital assets shall be considered to be the income of business and profession to the extend of amount debited when purchased,  If assessee has closed down his business or profession at that time, still it is income under the head business/profession.

Transfer of asset to the normal business.

If any assets was used for scientific research and subsequently it was transferred to the normal business, in such cases, it will be entered in the respective block of assets and its w.d.v shall be taken to be nil.

Tax treatment on sale of Plant and Machinery Section 41(3)

Any capital aasets which has been used for scientific research is sold, without having been used for other purposes in that case sale proceeds shall be considered to be income under the head business or profession but only to the extent amount amount was debited to profit and loss account hence there will income under the head business/profession.

 

 

 

 

 

 

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