Section 35 EXPENDITURE ON SCIENTIFIC RESEARCH

PART 1: Scientific Research NOT Carried on by the Assessee - Deductibility of Donations

➢                  Note 1: The person to whom donation is given can utilize the donation for the prescribed research. There is no condition that such research should be related to the business of the assessee.

➢                  Note 2: Where the assessee is not carrying any business/profession, such donations are allowed as deduction u/s 80GGA to the extent of 100% of the amount of donation.

PART 2: Scientific Research Carried on by Assessee – Deduction of Expenses Provisions Generally Applicable

Where any assessee carries out any research of scientific nature related to the business carried on by him, expenses are deductible in the following manner:

Case (a) - Expenditure incurred BEFORE the commencement of business:

•      Capital Expenditure:

❑             Capital expenditure (other than expenditure on acquisition of land) incurred during three years immediately preceding the date of commencement of business shall be allowed as an expense in the year in which the business commences.

Example: If an assessee commences his business on 15.12.2017, entire 100% capital expenditure incurred during the period from 15.12.2014 to 14.12.2017 shall be allowed as an expense during PY 2017-18.

❑             Such capital expenditure can be incurred on acquisition of P&M, construction of building, acquisition of vehicles, etc for the purpose of scientific research.

❑             Where any assessee has purchased any land & building, expenditure is allowed only for the building portion and not for the land portion.

•      Revenue Expenditure:

❑             Following revenue expenditure incurred during three years immediately preceding the date of commencement of business shall be allowed as an expense in the year in which the business commences:

➢         Salary paid to employees engaged in scientific research (excluding perquisites)

➢         Purchase of materials used in scientific research

❑             Pre-commencement revenue expenditure is allowed only to the extent it has been certified by the prescribed authority.

❑             Example: An assessee commences his business on 15.12.2018, revenue expenditure incurred during the period from 15.12.2015 to 14.12.2018 was Rs 10 lakhs but the prescribed authority certified only Rs 8 lakhs. In this case, Rs 8 lakhs shall be allowed as an expense during PY 2018-19. Any expenditure incurred prior to 15.12.2015 shall not be allowed as deduction.

Case (b) - Expenditure incurred AFTER the commencement of business:

•             Capital Expenditure:

❑             100% of the capital expenditure incurred by an assessee on scientific research in ir relation to his business is allowed as an expense in the year in which the capital expenditure is incurred by the assessee.

❑             Capital expenditure incurred on acquisition of land is not allowable as deduction Where any assessee has purchased any land & building, expenditure is allowed only for the building portion and not for the land portion.

•             Revenue Expenditure:

Entire revenue expenditure incurred by an assessee on scientific research in relation to his business is allowed as an expense in the year in which such expenditure is incurred. (Certification from prescribed authority not required)

Special Provision for Some Companies [Section 35(2AB)]