R&D tax deduction (Section 35) for Indian startups

If your startup spends real money on research and development — and most product and deep-tech companies do — Section 35 of the Income-tax Act lets you deduct that spend. It's one of the more overlooked tax benefits, partly because the rules changed and founders aren't sure what still applies. Here's the current picture.

This is part of our guide to startup tax benefits in India 2026.

What Section 35 covers

Section 35 provides deductions for expenditure on scientific research related to your business. Broadly, that includes revenue expenditure (salaries of research staff, materials, consumables used in R&D) and capital expenditure on research assets, subject to conditions. There are also routes for deductions on contributions made to approved research institutions.

The practical point: money you're already spending to build and improve your product may be deductible, reducing taxable profit in the years you have it.

The 35(2AB) change founders ask about

For years, Section 35(2AB) offered a generous weighted deduction — companies with approved in-house R&D facilities could claim more than 100% of eligible spend. That weighted benefit was scaled back to a standard 100% deduction in recent years. So if you read older articles promising "150% deduction," that enhanced rate no longer applies in the way it once did. What remains is a straightforward deduction of eligible R&D expenditure — still worthwhile, just not weighted.

Who benefits most

Section 35 matters most to companies actually incurring structured R&D: hardware, biotech, manufacturing, and software with genuine research components. The key is being able to identify and document R&D expenditure cleanly — separating it from general operating costs. Companies that track R&D spend properly get the deduction; companies that lump everything into "salaries and expenses" tend to miss it.

Estimate what your spend could yield with the R&D deduction calculator.

How to claim it

Maintain clear records that distinguish R&D expenditure from ordinary business expense. For capital R&D assets and any approved-facility routes, keep the supporting approvals and documentation. Then claim the deduction in your income-tax return for the relevant year. As with most tax positions, the deduction can be examined, so documentation quality is what protects it.

Stack it with the rest

R&D deductions pair naturally with the Section 80-IAC tax holiday and your grant stack — a deep-tech startup might be claiming a prototype grant, an R&D deduction, and an 80-IAC holiday in overlapping years. The trick is making sure none of it falls through the cracks. BenefitStack's free report identifies every tax deduction and grant you qualify for and tells you what to document — no success fee on what you save.