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Startup ecosystem · Tax

R&D deduction: Sec 35 for tech and deep-tech startups

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  1. Facts

    Sec 35(1)(i): Expenditure on scientific research for the business, 100% deduction in the year of expenditure. Includes salaries of R&D staff, consumables used in R&D.

  2. Provisions and law

    • IT Act 1961, Sec 35(1)(i), 35(2AB) (now 45)

  3. Analysis

    Sec 45, Income-tax Act 2025 (old Sec 35(2AB)): For companies with DSIR-approved in-house R&D facility, 100% weighted deduction on R&D expenditure (reduced from 150% in Finance Act 2024, but still valuable). Requires DSIR recognition of the R&D facility. Combined with Sec 140 (old Sec 80-IAC), R&D deductions can bring effective tax rate to near zero for a deep-tech startup in its profitable years.

  4. Conclusion

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