Section 35 of the Income Tax Act, 1961 deals with the provisions related to deduction of expenses incurred for scientific research. It provides for the deduction of expenses incurred on scientific research from the income of the assessee for the purpose of computation of income tax. In this blog, we will discuss the provisions of Section 35 of the Income Tax Act, 1961, in detail.
Introduction to Section 35:
Section 35 of the Income Tax Act, 1961 provides for the deduction of expenses incurred on scientific research for the purpose of computation of income tax. The section provides for two types of deduction, i.e., revenue expenditure and capital expenditure.
Types of Expenses:
As mentioned earlier, Section 35 provides for two types of deductions, i.e., revenue expenditure and capital expenditure. The revenue expenditure includes expenses incurred on salaries, wages, rent, repairs, maintenance, and other expenses that are incurred in the normal course of business. The capital expenditure includes expenses incurred on the acquisition of land, building, plant, machinery, and equipment used for scientific research.
Eligibility for Deduction:
To be eligible for the deduction under Section 35, the following conditions must be satisfied:
a. The scientific research must be carried out in India.
b. The research must be approved by the prescribed authority.
c. The expenditure must be incurred wholly and exclusively for scientific research.
Procedure for Approval:
To claim the deduction under Section 35, the research project must be approved by the prescribed authority. The approval can be obtained by submitting an application in Form 3CK to the prescribed authority. The application must contain details of the research project, the estimated cost of the project, and the benefits expected to be derived from the research.
Amount of Deduction:
The amount of deduction under Section 35 depends on the type of expenditure incurred. The revenue expenditure is fully deductible in the year in which it is incurred. The capital expenditure is deductible over a period of time in the form of depreciation.
Benefits of Section 35:
The deduction under Section 35 is a significant incentive for businesses to invest in scientific research and development activities. The benefits of Section 35 include the following:
a. Encourages Innovation: The deduction provided under Section 35 encourages businesses to undertake research and development activities, which in turn leads to the development of new and innovative products, services, and technologies.
b. Reduces Tax Liability: The deduction reduces the tax liability of the assessee by allowing a deduction for the expenses incurred on scientific research.
c. Promotes Economic Growth: Scientific research and development activities contribute significantly to the economic growth of a country by promoting innovation, improving productivity, and creating employment opportunities.
Scope of Scientific Research:
The term scientific research has a broad scope and covers a wide range of activities, including pure and applied research, experimental development, and other scientific activities. The research may be carried out in any field of science, including natural sciences, social sciences, engineering, and technology.
Prescribed Authority:
The prescribed authority for the purpose of Section 35 is the Department of Scientific and Industrial Research (DSIR), which is a part of the Ministry of Science and Technology, Government of India. The DSIR is responsible for the promotion and development of scientific and industrial research in India.
Documentation Requirements:
To claim the deduction under Section 35, the assessee must maintain proper documentation and records of the expenses incurred on scientific research. The records must include invoices, bills, vouchers, and other supporting documents.
Conclusion:
In conclusion, Section 35 of the Income Tax Act, 1961 is an important provision that encourages businesses to invest in scientific research and development activities. The deduction provided under this section reduces the tax liability of the assessee and promotes innovation, productivity, and economic growth. To claim the deduction, the research project must be carried out in India, approved by the prescribed authority, and the expenditure must be incurred wholly and exclusively for scientific research. Proper documentation and records must be maintained to support the claim for the deduction.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
What is Section 35 of the Income Tax Act, 1961?
Section 35 provides for the deduction of expenses incurred on scientific research for the purpose of computation of income tax.
What types of expenses are eligible for deduction under Section 35?
There are two types of expenses eligible for deduction under Section 35 – revenue expenditure and capital expenditure.
What is revenue expenditure under Section 35?
Revenue expenditure includes expenses incurred on salaries, wages, rent, repairs, maintenance, and other expenses that are incurred in the normal course of business.
What is capital expenditure under Section 35?
Capital expenditure includes expenses incurred on the acquisition of land, building, plant, machinery, and equipment used for scientific research.
What is the eligibility criteria for claiming deduction under Section 35?
To be eligible for the deduction under Section 35, the scientific research must be carried out in India, approved by the prescribed authority, and the expenditure must be incurred wholly and exclusively for scientific research.
What is the prescribed authority for Section 35?
The prescribed authority for the purpose of Section 35 is the Department of Scientific and Industrial Research (DSIR).
What is the procedure for obtaining approval under Section 35?
Approval can be obtained by submitting an application in Form 3CK to the prescribed authority. The application must contain details of the research project, the estimated cost of the project, and the benefits expected to be derived from the research.
How much deduction is allowed under Section 35?
The amount of deduction under Section 35 depends on the type of expenditure incurred. The revenue expenditure is fully deductible in the year in which it is incurred. The capital expenditure is deductible over a period of time in the form of depreciation.
Can foreign companies claim deduction under Section 35?
Foreign companies can claim deduction under Section 35 if they have a permanent establishment in India and the research is carried out in India.
Are there any restrictions on the deduction claimed under Section 35?
The deduction claimed under Section 35 cannot exceed the total income of the assessee. Any unclaimed deduction can be carried forward for up to 8 years.
