Research & Development (R&D) and innovation drive business growth—but they also require investment. India’s tax system offers several powerful incentives to support these efforts. Here’s a detailed guide to help you claim these benefits effectively.
1. Section 35 – Deduction for Scientific Research
✅ What It Covers
- 100% deduction for in-house R&D expenditure (both capital and revenue).
- Payments to recognized public research institutions (like IITs, IISc, CSIR labs).
- Capital assets used solely for scientific research (excluding land and buildings).
🎯 Who Is Eligible
- Indian companies engaged in manufacturing or biotechnology.
- Must have a DSIR-approved in-house R&D centre.
🛠️ How to Claim
- Apply for DSIR recognition using Form 3CK or 3CM.
- Maintain separate audited accounts for R&D costs.
- File annual progress reports and accounts with DSIR by October 31.
- Submit your Income Tax Return, claiming the deduction under Section 35.
- Keep detailed records: invoices, equipment lists, salaries, DSIR approvals.
2. Section 35(2AB) – Weighted Deduction for In-House R&D
📌 What It Offers
Provides a weighted deduction—historically up to 150%, now structured as 100%—for expenses in approved R&D facilities.
▶️ Eligibility
- Only for DSIR-recognized in-house R&D centres engaged in biotech, manufacturing, or relevant scientific research.
📝 How to Claim
- Submit Form 3CK to DSIR for approval.
- Each year, file Form 3CL (reporting expenditure) and 3CLA (auditor certification).
- Maintain separate audited R&D accounts; ensure compliance with DSIR guidelines.
3. Section 80-IAC – Tax Holiday for Startups
🎁 What It Offers
Up to 100% tax exemption on profits for any three consecutive years within the first 10 years of incorporation for eligible startups.
✅ Eligibility
- DPIIT-recognized Private Limited Companies or LLPs, formed from April 1, 2016.
- Turnover less than ₹100 crore.
- Demonstrated innovation, scalability, and potential for job or wealth creation.
- Not formed by splitting or reconstructing an existing entity.
🧰 How to Claim
- Obtain DPIIT recognition via Startup India portal.
- Apply for tax exemption under Section 80‑IAC.
- Submit required documents: DPIIT certificate, incorporation papers, turnover proof, pitch deck/video, and CA-certified financials.
- Once approved, claim exemption in ITR for three consecutive years.
📋 Required Documents at a Glance
| Scheme | Essential Documents |
|---|---|
| Section 35 | Form 3CK/3CM, DSIR certificate, audited R&D accounts, invoices, DSIR reports |
| Section 35(2AB) | DSIR forms 3CK, 3CL, 3CLA, auditor-certified accounts |
| Section 80-IAC | DPIIT recognition, incorporation docs, turnover proof, pitch deck & video, CA-certified accounts |
✅ Best Practices
- Apply early for DSIR or DPIIT recognition.
- Maintain R&D-specific accounting separate from regular business transactions.
- Ensure compliance with DSIR and DPIIT guidelines each year.
- Engage a Chartered Accountant to assist with form filings and audit reports.
- Track deadlines, such as October 31 for R&D filings and ITR submission dates.
🙌 Final Takeaways
- Section 35 offers broad deductions for R&D investments—make sure you’re DSIR-recognized.
- Section 35(2AB) provides enhanced deductions for in-house R&D facilities.
- Section 80-IAC gives eligible startups a tax holiday, making it easier to focus on innovation early on.
By understanding and implementing these schemes, Indian businesses—from established companies to rising startups—can significantly reduce their tax burden and reinvest savings into future innovations.
