R&D Tax Deduction Calculator — Section 35 (India)
Calculate the tax deduction your startup can claim on R&D expenditure under Section 35 of the Income Tax Act — in-house research and contributions to approved institutions.
Weighted deduction under Section 35(2AB) requires DSIR approval (Form 3CK) and annual audit via Form 3CLA. Section 35(2AA) 200% deduction applies only to contributions to notified national laboratories, not in-house R&D. Consult a CA before claiming. FY 2024-25 figures.
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Frequently asked questions
What is Section 35 of the Income Tax Act and how does it benefit startups?
Section 35 allows businesses to claim a deduction on scientific research expenditure. For in-house R&D approved by DSIR (Department of Scientific & Industrial Research): 100% deduction on capital and revenue expenditure. For contributions to approved research institutions (national labs, IITs, universities): 100% deduction (Budget 2023 reduced from 150%). For contributions to approved companies under Section 35(1)(iia): 100% deduction. All R&D must be related to the business.
What is DSIR approval and how does a startup get it?
DSIR (Department of Scientific & Industrial Research) recognition for in-house R&D allows claiming Section 35(2AB) deduction on capital and revenue R&D spend. Application via SIRO (Scientific & Industrial Research Organisation) recognition — submit Form DSIR-1 with details of R&D facility, personnel, and budget. DSIR sends an inspection team. Approval is valid for 3 years and renewable. Recommended for startups spending ₹25L+ annually on product R&D.
What R&D expenses qualify for Section 35 deduction?
Qualifying expenses: salaries of R&D personnel, consumables and raw materials used in R&D, R&D equipment and machinery (capital expenditure), depreciation on R&D assets, software licenses for R&D, third-party R&D contracts with approved institutions, patent filing costs related to R&D. Non-qualifying: market research, sales-related product testing, advertising, routine quality control, administration costs not directly related to R&D.
How does Section 35 interact with Section 80IAC for DPIIT-recognised startups?
Both can be claimed simultaneously. Section 35 is a deduction from gross income (reduces taxable income before computing the deduction base). Section 80IAC then provides 100% deduction on the net profit after all deductions including Section 35. So if a startup spends ₹50L on R&D under Section 35 and earns ₹1Cr profit, taxable income = ₹50L, and then Section 80IAC further zeroes it out. The effect is compounding — R&D deduction reduces the 80IAC base needed.
What is the deduction rate for R&D contributions to IITs and national labs?
Budget 2023 reduced the weighted deduction from 150% to 100% for contributions to approved institutions (IITs, NITs, national labs, CSIR labs, etc.) under Section 35(1)(ii) and 35(1)(iii), effective from AY 2021-22 onwards. The 150% weighted deduction is now only available for in-house DSIR-approved R&D under Section 35(2AB). Contributions are still 100% deductible (i.e., the full amount donated can be deducted from income).