CBDT FAQ Deep-Dive Series #8: Scientific Research and R&D Deduction Moves From Section 35 of the 1961 Act to Section 45 of the Income-tax Act 2025
This is the eighth chapter in our CBDT FAQ Deep-Dive Series tracking how the deduction architecture of the Income-tax Act 1961 carries over into the Income-tax Act 2025. This installment covers a provision that matters to every company running a laboratory, a product team or a clinical programme: the deduction for expenditure on scientific research. Under the 1961 Act it lived in Section 35. Under the Income-tax Act 2025, effective from April 1, 2026 for Tax Year 2026-27, it moves to Section 45. If you are searching for where Section 35 scientific research deduction goes in the Income-tax Act 2025, the answer is Section 45, and this advisory maps the transition clause by clause.
Quick Summary: Section 35 to Section 45 Transition
- New home: Old Section 35 (expenditure on scientific research) of the Income-tax Act 1961 becomes Section 45 of the Income-tax Act 2025, titled “Expenditure on scientific research,” effective Tax Year 2026-27.
- Period-aware rule: For FY 2025-26 (Assessment Year 2026-27), the return you file in 2026 still runs on Section 35 of the 1961 Act, preserved by the Section 536 saving clause. Section 45 of the 2025 Act governs FY 2026-27 onwards.
- Weighted deductions are gone: The old 150% and 200% super-deductions are not carried into Section 45. The deduction is now a plain 100% of qualifying expenditure, consistent with the rationalisation that began under the Finance Act 2020.
- Same building blocks: Section 45 retains in-house R&D deductions for approved companies, deductions for sums paid to approved research associations, universities, IITs and national laboratories, the three-year pre-commencement rule, and the no-double-deduction safeguard.
- Action point: For the FY 2025-26 tax audit due by September 30, 2026, claim under the 1961 Act and Form 3CD. Re-base your R&D claim policy to Section 45 for the year starting April 1, 2026.
Why Section 35 Moves to Section 45 in the Income-tax Act 2025
The Income-tax Act 2025 renumbers and consolidates the business-deduction provisions of the old Act. In the new sequence, depreciation sits at Section 33 (covered in FAQ Deep-Dive #6), and scientific research expenditure now sits at Section 45. This matters because a casual reader who types “Section 35” into a search of the new Act will land on something completely different: in the Income-tax Act 2025, Section 35 is titled “Amounts not deductible in certain circumstances,” a disallowance provision in the old Section 40 family. Citing the wrong section is exactly the kind of error that period-aware drafting is meant to prevent.
Verified mapping (retrieved June 23, 2026): Income-tax Act 2025 Section 45 = “Expenditure on scientific research,” corroborated across the eztax Income-tax Act 2025 section database, the Jamku Act 2025 text and AUBSP. The 1961 Section 35 continues to apply to FY 2025-26 and earlier years.
The Structure of Section 45 of the Income-tax Act 2025
Section 45 runs across multiple sub-sections. The core building blocks an R&D-active business needs to know are below.
| Sub-section | What it covers |
|---|---|
| Section 45(1) | Deduction for revenue expenditure and capital expenditure (other than on acquisition of land) incurred on scientific research related to the business of the assessee. |
| Section 45(2) | The three-year pre-commencement rule (salaries to research staff and cost of materials in the three years before the business starts are deemed incurred in the year of commencement) and in-house R&D facility deductions for approved companies. |
| Section 45(3) | Deduction for sums paid to approved research associations, universities, colleges, registered Indian companies with R&D as their main object, national laboratories, IITs and specified persons, where the sum is directed to be used for scientific research. |
| Section 45(6) | No double deduction: where an asset represents expenditure already claimed, the deduction cannot be claimed again under another head. |
| Section 45(7) | Depreciation provisions apply to capital expenditure treatment where relevant. |
The Big Change: Weighted Deductions Do Not Survive
The headline shift is not the section number; it is the rate. Under the historic Section 35 regime, taxpayers could claim weighted deductions well above cost: 150% or even 200% for in-house R&D under Section 35(2AB) and for contributions to certain approved institutions. The Finance Act 2020 began winding these super-deductions down to 100%. The Income-tax Act 2025 completes that journey. Section 45 contains no weighted-deduction multiplier. Qualifying scientific research expenditure is deductible at 100%, full stop.
For a pharma, biotech, manufacturing or deep-tech company that historically modelled an effective tax saving on a 150% or 200% basis, this is a real number to reset in the financial model. The deduction still exists and remains valuable, but the enhanced multiplier is no longer part of the calculation under the 2025 Act.
Period-Aware Compliance: Which Act Applies to Your Filing
This is where practitioners trip up, so it is worth stating plainly. The Income-tax Act 2025 is in force from April 1, 2026 (Tax Year 2026-27 onwards). The Income-tax Act 1961 continues to govern FY 2025-26 and earlier years and all pending assessments, preserved by the Section 536 saving clause.
- FY 2025-26 (AY 2026-27), filed in 2026: Claim your scientific research deduction under Section 35 of the 1961 Act. Report it in Form 3CD as part of the tax audit due by September 30, 2026.
- FY 2026-27 onwards: Claim under Section 45 of the Income-tax Act 2025, applying the 100% deduction framework and the approval and documentation conditions.
Do not cite Section 45 on an FY 2025-26 return, and do not cite Section 35 of the 1961 Act as your live provision for FY 2026-27. The provision is the same in substance; the citation must match the year.
Practitioner Checklist for Scientific Research Deductions
- Confirm the year the claim relates to, then cite Section 35 (1961 Act) for FY 2025-26 or Section 45 (2025 Act) for FY 2026-27.
- Verify approvals. In-house R&D claims and payments to research institutions hinge on prescribed-authority approval. An expired or missing approval can sink the deduction regardless of the section number.
- Reset weighted-deduction assumptions. If any model, ESOP-funded R&D plan or board projection still assumes 150% or 200%, correct it to 100%.
- Document the pre-commencement spend. For new businesses, capture salaries and materials in the three years before commencement so the deduction can be claimed in the year the business starts.
- Guard against double deduction. Where capital expenditure on a research asset is claimed, do not also claim depreciation on the same asset in a way that duplicates relief.
- Tie the claim to Form 3CD for the FY 2025-26 audit and keep the working papers ready for the September 30, 2026 deadline.
Frequently Asked Questions
Which section of the Income-tax Act 2025 replaces Section 35 of the 1961 Act?
Section 45 of the Income-tax Act 2025, titled “Expenditure on scientific research,” is the successor to Section 35 of the Income-tax Act 1961. It applies from Tax Year 2026-27 (FY 2026-27 onwards).
Are the 150% and 200% weighted deductions for R&D still available?
No. Section 45 of the Income-tax Act 2025 does not carry the weighted-deduction multipliers. Scientific research expenditure is deductible at 100%. The weighted deductions had already been rationalised to 100% following the Finance Act 2020.
Can I still deduct payments to IITs and national laboratories?
Yes. Section 45(3) of the Income-tax Act 2025 continues to allow deductions for sums paid to approved research associations, universities, national laboratories, IITs, registered Indian companies engaged in R&D and specified persons, provided the sum is directed to be used for scientific research and the approval conditions are met.
What about my FY 2025-26 tax audit, which I am filing in 2026?
For FY 2025-26 (AY 2026-27), the 1961 Act applies. Claim under Section 35 of the 1961 Act and report it in Form 3CD as part of the tax audit due by September 30, 2026. Section 45 of the 2025 Act governs the year beginning April 1, 2026.
Is Section 35 of the Income-tax Act 2025 the same as old Section 35?
No, and this is a common trap. In the Income-tax Act 2025, Section 35 is “Amounts not deductible in certain circumstances,” a disallowance provision. Scientific research expenditure moved to Section 45. Always match the section number to the correct Act and year.
Where This Sits in the Series
This deep-dive continues our mapping of the 1961-to-2025 transition. See also FAQ Deep-Dive #7 on Section 43B and the 43B(h) MSME disallowance, FAQ Deep-Dive #4 on the capital gains transition, and the practical FY 2025-26 tax audit sprint under Section 44AB.
Running an R&D-heavy business through the 2025 Act transition?
Getting the section citation, approval status and 100% deduction base right is the difference between a clean claim and a disallowance. Get Expert Guidance from Tax Update India on a quick call to align your scientific research deductions to the correct year and provision.
Disclaimer: This article is for general information only. The 1961-to-2025 section mapping (old Section 35 to Section 45 of the Income-tax Act 2025) was verified against structured sources of the Income-tax Act 2025 text on June 23, 2026; the exact sub-clause numbering and the conditions prescribed by rules should be confirmed against the final notified Act and the Income-tax Rules 2026 before filing. The Income-tax Act 2025 is effective from April 1, 2026; the Income-tax Act 1961 continues to apply to FY 2025-26 and earlier years under the Section 536 saving clause. This is not legal or tax advice. Please consult a qualified professional for advice specific to your situation.
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