Scientific Research Expenditure Deduction under the Income Tax Act 2025 (Section 45): Who Can Claim and How
Section 45 of the Income-tax Act, 2025 allows a deduction for money spent on scientific research related to your business, and for sums paid to approved research bodies. It works in three routes: your own research (capital or revenue), an approved in-house R&D facility run by a company, and payments to approved associations, universities, companies, national laboratories and IITs. The section text allows the amount spent or paid; it does not add a multiplier on top. Rules 29 to 35 of the Income-tax Rules, 2026 set the approvals, forms and audits.
This guide takes each route in turn, with worked figures for tax year 2026-27. Every condition below comes from the Act as amended by the Finance Act, 2026 and the Rules, with the section or rule number beside it.
What does section 45 allow, in one view?
What counts as "scientific research"?
Section 66(27) defines scientific research as any activity for the extension of knowledge in the fields of natural or applied science, including agriculture, animal husbandry and fisheries. Expenditure on it includes spending on the research itself and on the facilities for carrying it out. It does not include spending to acquire rights in, or arising out of, scientific research.
Research "related to a business" also covers research that may lead to or help an extension of that business, and research of a medical nature with a special relation to the welfare of the workers employed in it.
Can I deduct my own research costs? Section 45(1)
Yes, if the research relates to your business. Section 45(1)(a) allows both capital and revenue expenditure. The one carve-out is capital expenditure on acquiring land, whether the land is bought as such or as part of a property. Section 45(11)(d) says "land" includes any interest in land.
Capital expenditure (a machine, a lab fit-out other than land) is deducted under this section. Section 45(7) applies the carry-forward rule of section 33(11) to it, covered below.
What if the research was done before the business started? Section 45(1)(b) and (c)
Two pre-commencement rules apply to spending in the three years immediately before the business begins:
- Salary and materials (revenue in nature, related to the business): allowed to the extent certified by the prescribed authority as incurred on research, and deemed incurred in the tax year the business starts.
- Capital expenditure: deemed incurred in the tax year the business starts.
For the certification, rule 29(1) names the Principal Chief Commissioner of Income-tax (Exemptions), acting in concurrence with the Secretary, Department of Scientific and Industrial Research. "Salary" for this purpose follows sections 16 and 18 with the changes in section 45(11)(b).
What is the in-house R&D deduction for companies? Section 45(2)
A company engaged in biotechnology, or in making or producing any article or thing not listed in Schedule XIII, can claim spending on an in-house research and development facility approved by the prescribed authority. Cost of land or buildings is excluded. For drugs and pharmaceuticals, the expenditure includes clinical drug trials, regulatory approvals under a Central, State or Provincial Act, and a patent application under the Patents Act, 1970 (section 45(2)(v)).
Schedule XIII lists items such as alcoholic spirits, tobacco products, cosmetics, toothpaste and soap, confectionery, projectors, photographic goods and steel furniture. A company making only those cannot use this route.
Approval steps under rule 29(2)
| Step | What happens | Form and time |
|---|---|---|
| 1. Agreement application | Company applies to the Secretary, DSIR for an agreement on the R&D facility | Form No. 11 |
| 2. Approval order | Order approving the facility, copy to the jurisdictional Chief Commissioner | Form No. 14, within four months from the end of the month of receipt |
| 3. Report on facility and spend | Part A: approval. Part B: expenditure for the tax year that qualifies under section 45(2) | Form No. 12, within 120 days of approval or of the audit report |
| 4. Separate books and audit | Separate books for each approved facility, audited every year | Audit report in Form No. 13 to the Secretary, DSIR by the return due date under section 263(1)(c) |
| 5. With the return | Attach the audited annual account to the return of income | Rule 29(2)(e)(vi) |
The facility must not be purely market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or similar. Assets bought for the facility must be used only for the approved purpose and cannot be disposed of without the DSIR Secretary's approval (rule 29(2)(e)(viii)). A company approved under section 45(3)(b) cannot use this route (section 45(2)(ii)).
What if I pay a university, institute or research company? Section 45(3)
You can claim any sum paid to:
- 45(3)(a): a research association, university, college or institution for scientific research, or for social science or statistical research;
- 45(3)(b): a company registered in India whose main object is scientific research and development, and which is approved;
- 45(3)(c): a national laboratory, a university, an IIT or a "specified person", with a specific direction that the sum be used for research under an approved programme.
| Payee | Approval | Key forms and limits |
|---|---|---|
| Association, university, college, institution: 45(3)(a) | Must be approved and also specified by the Central Government by notification, 45(4)(b); rules 32 to 34 | Form No. 17 application; notification effective for up to five tax years |
| Research company: 45(3)(b) | Chief Commissioner of Income-tax, rule 35 | Form No. 17; order within 12 months from the end of the quarter of receipt; effective up to five tax years |
| National laboratory, university, IIT, specified person: 45(3)(c) | Programme approved by the head of the lab, university or IIT; for a specified person, the Principal Scientific Adviser; rule 30 | Sponsor applies in Form No. 7; order in Form No. 8 within two months from the end of the month of receipt, effective up to five tax years; payee issues a receipt in Form No. 9 |
For routes (a) and (b), the payee must file a statement in Form No. 15 and give you a certificate in Form No. 16, both on or before 31 May after the tax year in which the donation is received (rule 31). Ask for the certificate before you claim.
If approval or the programme is withdrawn after you paid, the deduction is not denied for that reason alone (section 45(5)). Section 45(8) bars a second claim for the 45(3)(c) sums under any other provision.
What happens on a merger, and who settles disputes? Section 45(9) and (10)
If an amalgamating company sells or transfers an asset representing capital research expenditure to an Indian amalgamated company, section 45 applies to the amalgamated company as it would have applied to the amalgamating one had the transfer not happened (section 45(10)).
If a question arises on whether an activity is scientific research, or whether an asset is used for it, the Board refers it to the Central Government for 45(3)(a) activities, and to the prescribed authority for everything else. That decision is final (section 45(9)). A "National Laboratory" in 45(3)(c) is one under bodies such as ICAR, ICMR, CSIR, DRDO, DBT or the Department of Atomic Energy, approved as such under the Rules (section 45(11)(a)).
How much is deducted? Worked examples for tax year 2026-27
Example 1: manufacturer with an approved in-house facility
Assumptions: Nirmaan Auto Components Pvt Ltd makes auto parts (not a Schedule XIII item). Its in-house R&D facility is approved under rule 29(2). Business profit before any R&D deduction is Rs 2,00,00,000. Spending on the facility in 2026-27:
| Item | Amount (Rs) | Allowed under 45(2)? |
|---|---|---|
| Scientists' salaries | 28,00,000 | Yes |
| Materials consumed in research | 12,00,000 | Yes |
| Test equipment bought for the facility | 60,00,000 | Yes |
| Building constructed for the facility | 25,00,000 | No: cost of land or building is excluded |
| Deduction | 1,00,00,000 | 28 + 12 + 60 lakh |
Business profit after this deduction: Rs 2,00,00,000 − Rs 1,00,00,000 = Rs 1,00,00,000. The amount actually eligible is the figure quantified by the prescribed authority in Part B of Form No. 12, so it can differ from the books.
Example 2: research before the business starts
Assumptions: Kisan Dry Foods Pvt Ltd researched a solar drying process for 18 months and started production on 1 July 2026 (tax year 2026-27). Before that it spent Rs 3,00,000 on salaries and Rs 2,00,000 on materials, and bought Rs 10,00,000 of equipment. The prescribed authority certifies Rs 4,20,000 of the salary and materials as incurred on research.
- Salary and materials: only the certified Rs 4,20,000 qualifies, deemed incurred in 2026-27. The uncertified Rs 80,000 (Rs 5,00,000 − Rs 4,20,000) does not.
- Capital expenditure of Rs 10,00,000 is deemed incurred in 2026-27 (section 45(1)(c)).
- Deduction in 2026-27: Rs 4,20,000 + Rs 10,00,000 = Rs 14,20,000.
Example 3: profits too low to absorb the capital deduction
Assumptions: a company's research capital expenditure deduction under section 45(1) is Rs 10,00,000 in 2026-27. Business profit before it is Rs 6,00,000 (not a loss). Profit before the deduction in 2027-28 is Rs 9,00,000, with a further Rs 2,00,000 of capital research deduction due that year.
| 2026-27 | 2027-28 | |
|---|---|---|
| Profit before the deduction | Rs 6,00,000 | Rs 9,00,000 |
| Deduction due | Rs 10,00,000 | Rs 2,00,000 + Rs 4,00,000 brought forward = Rs 6,00,000 |
| Allowed | Rs 6,00,000 (limited to profit) | Rs 6,00,000 |
| Carried to next year | Rs 4,00,000 | Nil |
| Profit after | Nil | Rs 3,00,000 |
This follows section 33(11)(a) and (b), applied by section 45(7). If profit before the deduction had been a loss, section 33(11)(a)(ii) allows nothing that year and the amount rolls forward under clause (b). The section 33(11) wording covers the capital-expenditure deduction, so test revenue-research claims against your own facts.
Example 4: selling a research asset
Assumptions: a company claimed Rs 10,00,000 for a research machine under section 45(1)(a)(i). It later sells the machine, never used for another purpose, for Rs 12,00,000.
- Sale proceeds plus total deductions allowed: Rs 12,00,000 + Rs 10,00,000 = Rs 22,00,000.
- This exceeds the capital expenditure of Rs 10,00,000 by Rs 12,00,000.
- Taxable: the lower of the excess (Rs 12,00,000) and the deduction made (Rs 10,00,000) = Rs 10,00,000, as business profit in the year of sale (section 38(1)(c)).
Real-life situations
Ravi sponsors a programme at an IIT. Ravi's chemicals company wants a new catalyst studied. The IIT's head approves the programme in Form No. 8, valid up to five tax years. Ravi pays Rs 15,00,000 with a written direction that it be used for that programme, and collects the Form No. 9 receipt. Because the payment meets section 45(3)(c) and rule 30, it is a deductible sum. The deduction is the sum paid; the section adds no multiplier.
Meena donates to a university research fund. Meena runs a consulting practice and gives Rs 1,00,000 by bank transfer to a university approved and notified under section 45(3)(a) and (4)(b). The university must send her Form No. 16 by 31 May after the tax year (rule 31(4)). Because she has business income, the separate donation deduction in section 135 is closed to her (section 135(2)(a)), so she looks to section 45(3) and the Form 16 is her proof.
An approval lapses. A company paid a research company in March 2027, then learned the payee's approval was withdrawn in 2028. Section 45(5) says the deduction is not denied merely for that reason, which protects a donor who acted in good faith when the approval stood.
Quick reference
| Item | Rule | Where |
|---|---|---|
| Capital expenditure on land | Excluded | 45(1)(a)(i) |
| Pre-commencement window | Three years before business starts | 45(1)(b), (c) |
| In-house R&D approval order | Form No. 14, four months from end of the month of application | Rule 29(2)(d) |
| Programme approval (45(3)(c)) | Form No. 8, two months; up to five tax years | Rule 30(4) |
| Donee statement and donor certificate | Forms 15 and 16 by 31 May | Rule 31(4) |
| Approval validity (45(3)(a), (b)) | Up to five tax years per order | Rules 32(7), 35(2)(o) |
Common mistakes
- Claiming the cost of land or a building under 45(2). Section 45(2)(i) excludes land and buildings; section 45(1)(a)(i) excludes land.
- Claiming without approval. The 45(2) facility, the 45(3)(a) body, the 45(3)(b) company and the 45(3)(c) programme each need approval first.
- Paying without a direction. A 45(3)(c) sum must be paid with a specific direction that it be used for the approved programme.
- Also claiming depreciation. Section 45(6) bars depreciation under section 33(3) on an asset already deducted under section 45.
- Treating routine testing as research. Market research, quality control, testing and commercial production are excluded from approval (rules 29 and 30).
- Forgetting the audit and annual filings. Approved facilities and programmes need separate audited accounts every year.
Where this is in the Act
- Section 45(1): own research; 45(1)(b), (c): pre-commencement; 45(2): in-house R&D; 45(3) to (5): payments to approved bodies
- Section 45(6), (7): no depreciation, carry-forward under section 33(11); 45(9): disputes on what is research; 45(10): amalgamation; 45(11): definitions
- Section 66(27): "scientific research"; section 38(1)(c): sale of a research asset; Schedule XIII: excluded articles
- Section 135: donation deduction for non-business income. See our donation deduction guide.
- Rules 29 to 35: authorities, forms, audits and approval timelines
How do CA firms keep track of these approvals?
The hard part for a client is the paperwork trail: approval orders, Forms 12 and 13, Form 16 certificates and the annual audit dates, each with its own deadline. Finexo's practice management software lets a CA firm track those due dates and documents per client. It does not file the forms or decide eligibility for you.
This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.
Frequently Asked Questions
Which section allows a deduction for scientific research under the Income-tax Act, 2025?
Section 45. Sub-section (1) covers a business's own research, (2) covers an approved in-house R&D facility of a company, and (3) covers sums paid to approved research bodies and programmes.
Is land cost allowed as scientific research expenditure?
No. Section 45(1)(a)(i) excludes capital expenditure on acquiring land, and section 45(2)(i) excludes the cost of land or building for the in-house R&D route. Land includes any interest in land (section 45(11)(d)).
Can I claim research spent before my business starts?
Yes, within the three years immediately before commencement. Salary and materials are allowed to the extent certified by the prescribed authority, and capital expenditure is deemed incurred in the year the business starts (section 45(1)(b) and (c)).
What forms are needed for an in-house R&D facility?
Form No. 11 to apply, Form No. 14 for the approval order, Form No. 12 for the authority's report and Form No. 13 for the audit report, under rule 29(2).
What happens if the institution's approval is withdrawn after I pay?
Section 45(5) says the deduction is not denied merely because approval of the payee, or of the programme, was withdrawn after you paid.
Can I claim depreciation on a research asset already deducted under section 45?
No. Where a deduction is allowed under section 45 for expenditure represented by an asset, section 45(6) bars depreciation on that asset under section 33(3).
If a company merges, who gets the research asset deduction benefits?
Where an amalgamating company transfers an asset representing capital research expenditure to an Indian amalgamated company, section 45 applies to the amalgamated company as if the transfer had not occurred (section 45(10)).