Section 35(4) of Income Tax Act: Complete Guide on Deduction for Scientific Research

Scientific research and innovation form the backbone of economic growth. To encourage businesses & institutions to invest in research and development (R&D), the Indian government provides multiple tax benefits under the Income Tax Act. Among these, Section 35(4) of Income Tax Act is particularly important as it provides clarity on how deductions for scientific research are to be claimed.

While several subsections of Section 35 deal with different aspects of research-related deductions, Section 35(4) plays a unique role by laying down conditions for claiming such deductions. It specifically deals with avoiding double deduction of the same expense when claimed under multiple provisions.

This article explains the meaning, scope, provisions, eligibility, and practical implications of Section 35(4) in detail.

What is Section 35(4) of Income Tax Act?

Section 35(4) of Income Tax Act was introduced to ensure transparency & fairness in the taxation system. While the law provides generous deductions for scientific research, it also ensures that no taxpayer claims the same deduction more than once under different provisions.

In simple words, if a taxpayer has already claimed deduction of expenses incurred on scientific research under one part of Section 35, the same cannot be claimed again under another section.

This ensures that taxpayers receive genuine benefits for their investments in R&D while preventing misuse of the law.

Key Features of Section 35(4)

1. Avoidance of Double Deduction
   • If an assessee has already claimed a deduction for an expense under Section 35(1), (2), or (2AB), then the same cannot be claimed again under another provision.
2. Applicable to All Types of Scientific Research Expenditure
   • Whether it is expenditure of a capital nature on scientific research or revenue expenditure, Section 35(4) ensures that double benefits are not availed.""
3. Ensures Fairness in Tax System
   • While encouraging research, the government also maintains a balance so that tax revenue is not unduly affected by repeated claims.

Also Read: Tax Deduction on Donations to Approved Scientific Institutions

Connection with Other Subsections of Section 35

Section 35 is a comprehensive provision covering different aspects of research expenditure:

• Section 35(1)(i): Revenue expenditure on scientific research.
• Section 35(1)(iv): Capital expenditure on scientific research.
• Section 35(2AB): Weighted deduction for expenditure on in-house R&D facilities approved by DSIR (Department of Scientific & Industrial Research).

Section 35(4) acts as a safeguard to ensure that if a taxpayer has already claimed deductions for scientific research and development activities, they do not get another tax break for the same under a different head."

Example to Understand Section 35(4)

Let’s assume a company invests ₹50 lakh in building an in-house research laboratory.

• Under Section 35(1)(iv), it can claim this as capital expenditure on scientific research.
• However, if the same expenditure qualifies under Section 35(2AB) for weighted deduction, the taxpayer must choose one benefit.
• Section 35(4) ensures that the same ₹50 lakh is not deducted twice under both provisions.

This makes the law fair, transparent, and aligned with international taxation practices.

Why is Section 35(4) Important?

1. Encourages Scientific Research
   • While deductions are available, this section ensures they are genuine & not misused.
2. Protects Government Revenue
   • Prevents artificial reduction of taxable income through double deductions.
3. Clarifies Treatment of Research Expenses
   • Helps taxpayers plan their claims better, knowing they cannot overlap.

Also Read: 100% Deduction on Donations for Scientific Research and Rural Development

Expenditure Eligible Under Section 35

While Section 35(4) is more of a restriction clause, it works in harmony with other subsections that allow deductions:

1. Revenue Expenditure
   • Salaries of research staff, consumables, raw material, etc.
2. Capital Expenditure
   • Cost of building R&D centers, purchase of scientific equipment, laboratories.
3. Contributions to Approved Institutions
   • Donations to research associations, universities, and approved scientific bodies.
4. In-house R&D
   • Companies engaged in manufacturing may claim deductions for approved in-house facilities.

How Section 35(4) Impacts Businesses

• Companies investing heavily in R&D need to carefully evaluate which subsection gives them the maximum benefit."
• They must maintain proper records of expenses to ensure compliance.
• Tax professionals must cross-check deductions claimed in earlier years to avoid violations.

Advantages of Section 35(4)

• Prevents misuse of tax provisions.
• Creates clarity in how deductions for scientific research & development are treated.
• Helps genuine businesses benefit without giving room to unfair tax practices.
• Strengthens trust between taxpayers & authorities by providing a clear rule.

Challenges in Application

• Many companies are not aware of this restriction & mistakenly claim deductions under multiple sections.
• Complexity of scientific research incentives under the Income Tax Act sometimes confuses taxpayers."
• Requires expert guidance for compliance, as mistakes may lead to penalties or disallowance of claims.

Also Read: Unlock Tax Deductions for Scientific Research in India

Conclusion

Section 35(4) of Income Tax Act plays an important role in ensuring transparency while offering deductions for research. While the Income Tax Act allows for deductions while computing taxes for expenses relating to scientific research, this subsection ensures there is no double deduction. It provides for a deduction of expenses incurred on scientific research and development activities, whether revenue or capital in nature, but only once.

By maintaining this balance, the law not only encourages businesses to invest in scientific research & development but also protects government revenue. For companies, it is a reminder to carefully structure claims and keep documentation accurate.

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