Section 35(1)(iii) of Income Tax Act: Deduction for Scientific Research Contributions

India’s Income Tax Act has been designed not just as a revenue collection tool but also as an instrument of economic and social development. A prime example of this is Section 35(1)(iii) of Income Tax Act, which encourages taxpayers to invest in scientific research. Instead of keeping money idle or spending it elsewhere, the law rewards taxpayers who contribute to approved scientific research institutions by offering tax deductions.

This section has played a vital role in fostering research culture in India while ensuring taxpayers receive benefits in the form of reduced taxable income. Let’s dive deeper into the scope, meaning, and practical applications of Section 35(1)(iii).

What is Section 35(1)(iii) of Income Tax Act?

Section 35(1)(iii) specifically deals with contributions made to approved scientific research institutions, universities, or associations.

• The Income Tax Act allows for deductions while computing taxes for expenses relating to scientific research.
• This provision provides for deductions on expenditures related to scientific research, ensuring that the financial burden of innovation is shared between the private sector & the government."
• In simple words, if you donate or contribute to recognized research bodies, you can reduce your taxable income by claiming a deduction under this section.

Objective of Section 35(1)(iii)

The Indian government introduced this provision with a twofold purpose:

1. Promote scientific research – By encouraging private contributions to research institutions.
2. Offer tax benefits – So that taxpayers also feel motivated to support the cause.

Thus, the provisions to cover deductible expenditures on scientific research act as a win-win situation for both science & society.

Eligible Institutions under Section 35(1)(iii)

Not every donation qualifies. Contributions must be made to:

• Recognized universities conducting scientific research.
• Approved scientific research associations.
• Institutions notified by the Central Government under this section.

These institutions must have prior approval from the government for taxpayers to claim deductions.

Also Read: A Shield for Charitable & Religious Income

Tax Benefits under Section 35(1)(iii)

• Earlier, taxpayers enjoyed weighted deduction benefits (like 175% or 125% of contribution amount).
• However, after amendments in recent years, only 100% deduction of the actual amount contributed is allowed.
• This means, if you donate ₹1,00,000 to an approved research institution, you can deduct ₹1,00,000 from your taxable income.

Key Features of Section 35(1)(iii)

1. Provides for deductions on expenditures related to scientific research.
2. Contributions must be made only to government-approved institutions."
3. Deduction is allowed for both business assessees & non-business assessees.
4. Encourages public-private partnership in innovation and research.

Example of Deduction under Section 35(1)(iii)

Suppose Mr. Ramesh, a businessman, has a taxable income of ₹15,00,000. During the financial year, he donates ₹2,00,000 to a government-approved scientific research institution.

• His taxable income will be reduced to ₹13,00,000 after claiming the deduction.
• This not only saves him tax but also contributes towards the growth of scientific knowledge.

Significance of Section 35(1)(iii) for Businesses

Businesses often use this provision strategically:

• Corporate Social Responsibility (CSR) activities align well with Section 35(1)(iii) donations.
• Companies receive goodwill, recognition, & tax benefits.
• It helps in brand positioning as research-friendly and socially responsible.

Section 35(1)(iii) vs Section 80G

Many confuse donations under Section 80G with Section 35(1)(iii). Here’s the difference:

• Section 80G covers donations to charities, NGOs, and social causes.
• Section 35(1)(iii) is specific to scientific research institutions.

Thus, businesses and individuals keen on promoting research should opt for Section 35(1)(iii).

Also Read: Tax Deduction on Donations to Approved Scientific Institutions

Restrictions and Compliance Requirements

1. Contributions must be made only to approved institutions.
2. Donors should maintain receipts & certificates of donation.
3. Institutions must comply with rules prescribed by the Income Tax Department.
4. Misuse of donations or fictitious institutions can lead to denial of deduction.

Judicial Interpretations

Courts have consistently emphasized that the purpose of donation must be scientific research. If the intent is anything else, the deduction may be disallowed.

For instance, if an assessee tries to claim deduction for contributions to a body that does not conduct genuine scientific research, the tax authorities have the right to reject the claim.

Impact of Amendments on Section 35(1)(iii)

Earlier, the section offered superior tax savings with weighted deductions. However, with reforms simplifying the tax structure, the benefit has been standardized to 100% deduction."

While the extent of benefit has reduced, the essence of encouraging research funding remains intact.

Benefits to the Economy

• Promotes research and development across sectors like agriculture, medicine, engineering, and social sciences.
• Encourages private participation in innovation.
• Strengthens collaboration between academia & industry.
• Creates a knowledge-driven economy in line with global standards.

Challenges in Implementation

1. Lack of awareness among taxpayers about this provision.
2. Cases of misuse by fake or unrecognized institutions.
3. Reduced tax benefit (due to withdrawal of weighted deduction) may discourage some donors.

Also Read: 100% Deduction on Capital Expenditure for Specified Businesses

Future Scope

With India aiming to become a hub of research & innovation, provisions like Section 35(1)(iii) will continue to play an important role. Policymakers may revisit weighted deductions in high-priority areas like healthcare or renewable energy research.

Key Takeaways

• Section 35(1)(iii) of Income Tax Act allows for deductions while computing taxes for expenses relating to scientific research.
• It provides for deductions on expenditures related to scientific research made to approved institutions.
• The law includes provisions to cover deductible expenditures on scientific research.
• Currently, a 100% deduction is allowed for contributions.
• Plays a vital role in promoting research culture in India while offering tax benefits.

Conclusion

Section 35(1)(iii) of Income Tax Act stands as a bridge between scientific advancement and taxpayer incentives. It ensures that individuals and companies contributing to scientific research not only support innovation but also save on taxes.

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