Section 45 of the Income-tax Act, 2025 — Deduction for Expenditure on Scientific Research

In plain language

What Section 45 is about

Section 45 of the Income-tax Act, 2025 lets a business claim a deduction for money it spends on scientific research connected to its business. It is the successor to Section 35 of the old Income-tax Act, 1961, and it applies from 1 April 2026 (Tax Year 2026-27 onwards). The idea is simple: the government wants Indian businesses to invest in research and development (R&D), so it allows the R&D spend to be written off against taxable business profits.

The section covers two broad situations — (a) research the business does itself (in-house), and (b) money the business donates or pays to outside institutions (universities, research associations, national laboratories, IITs and approved companies) that carry out research.

Who it applies to

• Any assessee carrying on a business — a proprietor, firm, LLP or company — can claim in-house research spend under sub-section (1).
• Companies engaged in the business of bio-technology or manufacturing (other than items listed in Schedule XIII, e.g. tobacco, alcohol) can claim in-house R&D-facility spend under sub-section (2)(c), subject to approval by the prescribed authority (DSIR).
• Any taxpayer — even one with no business, in most cases — can claim a donation-style deduction under sub-section (3) for sums paid to approved research bodies.

What you can deduct

• Revenue expenditure on scientific research related to your business — 100% deductible in the year incurred (salaries of researchers, consumables, chemicals, testing costs, etc.).
• Capital expenditure on scientific research — 100% deductible in the year incurred. This is a big benefit: unlike normal plant and machinery which is depreciated slowly, R&D capital assets (except land) are written off fully in one year.
• No deduction for land — the cost of land, whether bought on its own or as part of a building/property, is specifically excluded.
• Payments to outside research bodies under sub-section (3) — 100% of the amount paid.

The important rate change — 100%, not 150% or 200%

Older versions of Section 35 gave weighted deductions — you could deduct 150% or even 200% of your R&D spend. Those super-deductions were phased down by the Finance Act, 2020 and became a flat 100% from Assessment Year 2021-22. The Income-tax Act, 2025 continues this flat 100% regime — there are no weighted (150%/175%/200%) deductions any longer. So under Section 45 you deduct what you actually spend, nothing extra.

The 3-year pre-commencement rule

If you incur research spend before your business starts, it is not lost. Under sub-section (2), salary of research employees, cost of materials, and capital expenditure incurred within the three years immediately before commencement are pooled and deemed to be incurred in the year the business actually commences — then deducted in that first year. Pre-commencement salary/materials need certification by the prescribed authority.

How it interacts with other sections

• No double deduction — if a capital asset's cost is deducted under Section 45, you cannot also claim depreciation on it under Section 33.
• An amount paid to an approved research body under sub-section (3) cannot be claimed again under any other provision.
• Approval withdrawal protection — if the recipient institution's approval is withdrawn after you paid, your deduction is not disturbed.
• Sale of research asset — if a capital R&D asset written off under Section 45 is later sold without being used in the business, the proceeds (up to the deduction claimed) are taxed as business income.

Practical implications

Keep clean documentation: DSIR approval of the in-house facility (Form 3CK application, Form 3CL report), and for payments to national laboratories/IITs the recipient issues Form 9 as a receipt (programme approved via Form 8). Also note the new-regime angle — many taxpayers now default to the concessional tax regime, and several older weighted incentives are unavailable under it; but the plain 100% write-off of genuine business R&D remains a normal business deduction.