Section 35 of ITA, 1961 : Section 35: Expenditure On Scientific Research

Explanation using Example

Imagine a pharmaceutical company, Pharma Innovations Ltd., that spends 2 million rupees on scientific research in the financial year 2022-23. The research is directly related to their business and is aimed at developing a new drug. The expenditure is not on capital assets like buildings or machinery, but on salaries for research scientists and the purchase of laboratory supplies.

According to Section 35 of the Income-tax Act, 1961, Pharma Innovations Ltd. can claim a deduction for this expenditure when calculating their taxable income. If they also paid 500,000 rupees to an approved research association for a project on developing vaccine technology, they could claim one and one half times that amount, which is 750,000 rupees, as a deduction under the same section.

However, if Pharma Innovations Ltd. had purchased a new laboratory building for 10 million rupees for the research, they would not be able to claim this as a deduction under Section 35(1)(iv) since the acquisition of land is not admissible for deductions after February 29, 1984.

These deductions under Section 35 can significantly reduce the taxable income of Pharma Innovations Ltd., thereby encouraging investment in scientific research that is relevant to their business.