What weighting do I put on my client's in-house R&D spend, and from which assessment year did each rate change?
For s.35(2AB) the weighting was two hundred per cent, fell to one hundred and fifty per cent from AY 2018-19, and falls to a hundred per cent — that is, no weighting at all — for expenditure incurred in a previous year relevant to an assessment year beginning on or after 1 April 2021. The current text reads "a deduction of a sum equal to one and one-half times of the expenditure so incurred", cut down by a proviso which for AY 2021-22 onwards makes the deduction "equal to the expenditure so incurred". Section 35(2AA), for sums paid to a National Laboratory, University, Indian Institute of Technology or specified person for approved research, follows the same shape: one and one-half times the sum paid, reduced by a second proviso to the sum so paid for an assessment year beginning on or after 1 April 2021.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2018-04-01, reported as Section 35 of the Income-tax Act, 1961, as amended up to 2025. It bears on section 35, section 35(2AB), section 35(2AA), section 35(2)(iv), section 35(3), section 32 of the Income Tax Act 1961, in Deductions & Disallowances matters.
Almost every published note and every older Tribunal order on s.35(2AB) states a weighting that is wrong for a current year, and a computation carrying two hundred per cent into AY 2018-19 or one hundred and fifty per cent into AY 2021-22 is an overclaim that invites both a disallowance and a s.270A penalty. Two consequences follow for how disputes are run. First, on a Form 3CL quantification dispute, the money at stake for revenue expenditure from AY 2021-22 onwards is not the weighting but only whether the expenditure is allowed at all, and if it is refused under s.35(2AB) it can be claimed at the same hundred per cent under s.35(1)(i) or s.37(1) — which is why the fight has largely moved to the fallback. Second, the gate has not moved: the approval of the in-house facility by the prescribed authority is still required, and s.35(2AB)(3) still bars a company from the deduction unless it enters into an agreement with the prescribed authority for co-operation in the facility and fulfils the prescribed conditions on maintenance and audit of accounts and furnishing of reports. Rule 6(7A), as amended by the Income Tax (Tenth Amendment) Rules, 2016 with effect from 1 July 2016, requires the prescribed authority to report in Part A of Form 3CL on approval of the facility and in Part B on the quantification of the eligible expenditure.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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This is a statement of the statutory position, not a case. Section 35(2AB)(1) reads: "Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred", followed by a proviso: "where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred." Section 35(2AA) allows a deduction of one and one-half times the sum paid to a National Laboratory, University, Indian Institute of Technology or specified person with a specific direction that it be used for scientific research under a programme approved by the prescribed authority, with clause (b) barring any deduction in respect of that sum under any other provision of the Act, and a second proviso providing that where the sum is paid in a previous year relevant to an assessment year beginning on or after 1 April 2021 the deduction shall be equal to the sum so paid. Section 35(2AB)(3) provides that no company shall be entitled to the deduction unless it enters into an agreement with the prescribed authority for co-operation in the research and development facility and fulfils the prescribed conditions on maintenance and audit of accounts and furnishing of reports; sub-section (2AB)(4) requires the prescribed authority to submit its report on approval of the facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in the prescribed form and time.
Statutory position. The weighted deduction under s.35(2AB) stood at two hundred per cent of the expenditure incurred on the approved in-house research and development facility, fell to one hundred and fifty per cent, and is reduced by the proviso to the expenditure so incurred — a hundred per cent — for expenditure incurred in a previous year relevant to an assessment year beginning on or after 1 April 2021. Section 35(2AA) follows the same pattern for sums paid to a National Laboratory, University, Indian Institute of Technology or specified person for research under an approved programme. The approval requirements in s.35(2AB)(1) and (3) are unaffected by the reduction in the weighting.
Not a decided case. The drafting technique is the same in both sub-sections: the operative words were substituted to reduce the multiple, and a proviso added at the same time takes the multiple to one for assessment years beginning on or after 1 April 2021. Because the reduction is worked by a proviso keyed to the assessment year to which the previous year relates, the correct rate is fixed by the year of the expenditure and not by the year of approval or of the DSIR's report.
where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred.
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Handle my notice → Ask a CA on WhatsAppFor s.35(2AB) the weighting was two hundred per cent, fell to one hundred and fifty per cent from AY 2018-19, and falls to a hundred per cent — that is, no weighting at all — for expenditure incurred in a previous year relevant to an assessment year beginning on or after 1 April 2021. The current text reads "a deduction of a sum equal to one and one-half times of the expenditure so incurred", cut down by a proviso which for AY 2021-22 onwards makes the deduction "equal to the expenditure so incurred". Section 35(2AA), for sums paid to a National Laboratory, University, Indian Institute of Technology or specified person for approved research, follows the same shape: one and one-half times the sum paid, reduced by a second proviso to the sum so paid for an assessment year beginning on or after 1 April 2021. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 35, section 35(2AB), section 35(2AA), section 35(2)(iv), section 35(3), section 32 of the Income Tax Act 1961. It is reported as Section 35 of the Income-tax Act, 1961, as amended up to 2025. Almost every published note and every older Tribunal order on s.35(2AB) states a weighting that is wrong for a current year, and a computation carrying two hundred per cent into AY 2018-19 or one hundred and fifty per cent into AY 2021-22 is an overclaim that invites both a disallowance and a s.270A penalty. Two consequences follow for how disputes are run. First, on a Form 3CL quantification dispute, the money at stake for revenue expenditure from AY 2021-22 onwards is not the weighting but only whether the expenditure is allowed at all, and if it is refused under s.35(2AB) it can be claimed at the same hundred per cent under s.35(1)(i) or s.37(1) — which is why the fight has largely moved to the fallback. Second, the gate has not moved: the approval of the in-house facility by the prescribed authority is still required, and s.35(2AB)(3) still bars a company from the deduction unless it enters into an agreement with the prescribed authority for co-operation in the facility and fulfils the prescribed conditions on maintenance and audit of accounts and furnishing of reports. Rule 6(7A), as amended by the Income Tax (Tenth Amendment) Rules, 2016 with effect from 1 July 2016, requires the prescribed authority to report in Part A of Form 3CL on approval of the facility and in Part B on the quantification of the eligible expenditure. If it applies to you, the first step is this: Write the assessment year at the top of every s.35(2AB) computation and pick the weighting from it: two hundred per cent up to AY 2017-18, one hundred and fifty per cent for AY 2018-19 to AY 2020-21, and a hundred per cent from AY 2021-22.
This is a statement of the statutory position, not a case. Section 35(2AB)(1) reads: "Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred", followed by a proviso: "where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred." Section 35(2AA) allows a deduction of one and one-half times the sum paid to a National Laboratory, University, Indian Institute of Technology or specified person with a specific direction that it be used for scientific research under a programme approved by the prescribed authority, with clause (b) barring any deduction in respect of that sum under any other provision of the Act, and a second proviso providing that where the sum is paid in a previous year relevant to an assessment year beginning on or after 1 April 2021 the deduction shall be equal to the sum so paid. Section 35(2AB)(3) provides that no company shall be entitled to the deduction unless it enters into an agreement with the prescribed authority for co-operation in the research and development facility and fulfils the prescribed conditions on maintenance and audit of accounts and furnishing of reports; sub-section (2AB)(4) requires the prescribed authority to submit its report on approval of the facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in the prescribed form and time. The matter was decided on 2018-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position. The weighted deduction under s.35(2AB) stood at two hundred per cent of the expenditure incurred on the approved in-house research and development facility, fell to one hundred and fifty per cent, and is reduced by the proviso to the expenditure so incurred — a hundred per cent — for expenditure incurred in a previous year relevant to an assessment year beginning on or after 1 April 2021. Section 35(2AA) follows the same pattern for sums paid to a National Laboratory, University, Indian Institute of Technology or specified person for research under an approved programme. The approval requirements in s.35(2AB)(1) and (3) are unaffected by the reduction in the weighting.
Not a decided case. The drafting technique is the same in both sub-sections: the operative words were substituted to reduce the multiple, and a proviso added at the same time takes the multiple to one for assessment years beginning on or after 1 April 2021. Because the reduction is worked by a proviso keyed to the assessment year to which the previous year relates, the correct rate is fixed by the year of the expenditure and not by the year of approval or of the DSIR's report. In the words reproduced by the source cited on this page: "where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred."
It was decided by the CBDT Circulars & Instructions on 2018-04-01 and is reported as Section 35 of the Income-tax Act, 1961, as amended up to 2025. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 35, section 35(2AB), section 35(2AA), section 35(2)(iv), section 35(3), section 32, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position. The weighted deduction under s.35(2AB) stood at two hundred per cent of the expenditure incurred on the approved in-house research and development facility, fell to one hundred and fifty per cent, and is reduced by the proviso to the expenditure so incurred — a hundred per cent — for expenditure incurred in a previous year relevant to an assessment year beginning on or after 1 April 2021. Section 35(2AA) follows the same pattern for sums paid to a National Laboratory, University, Indian Institute of Technology or specified person for research under an approved programme. The approval requirements in s.35(2AB)(1) and (3) are unaffected by the reduction in the weighting. It arises in Deductions & Disallowances matters, on section 35, section 35(2AB), section 35(2AA), section 35(2)(iv), section 35(3), section 32 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check any authority you are about to cite for the weighting it applies, and say in the submission that the case is about the rate then in force; it is not authority for a current rate. Confirm the facility approval (Form 3CM) and the s.35(2AB)(3) agreement with the prescribed authority are in place — the reduction of the weighting has not relaxed the approval gate. Remember s.35(2AB)(1) excludes expenditure in the nature of the cost of any land or building from the deduction, and that the deduction is only for a company engaged in bio-technology or in any business of manufacture or production of an article or thing not specified in the Eleventh Schedule. For a payment to a National Laboratory, University, IIT or specified person, apply s.35(2AA) on the same timeline, and note s.35(2AA)(b) — no deduction in respect of that sum is allowed under any other provision of the Act.
Still good law. The current words are the words printed in two texts of section 35 which agree with each other. No later amendment has been checked for and none is asserted. Both steps in the weighting are established from the amendment footnotes carried by the section — Act No. 28 of 2016, w.e.f. 1-4-2018 for the reduction to one and one-half times, and the proviso keyed to 1 April 2021 for the reduction to the expenditure incurred. Any authority stating the two-hundred per cent weighting for AY 2018-19 or later is superseded by amendment on that point, and any authority stating a weighting at all for AY 2021-22 or later is superseded in the same way. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
What is established here and what is not. The current words of s.35(2AB)(1) and s.35(2AA), and the provisos reducing both to a hundred per cent from AY 2021-22, come from two texts of section 35 that agree word for word. The step down from two hundred to one hundred and fifty per cent is proved from the amendment footnotes carried by two earlier texts of the section. Both still print "two" in both sub-sections and carry, against "two" in s.35(2AB)(1) and against "two" in s.35(2AA), the footnote "Words 'one and one-half' shall be sub. for 'two' by Act No. 28 of 2016 (w.e.f. 1-4-2018)"; one of them still prints the prospective markers in the body text. Act No. 28 of 2016 is the Finance Act 2016, and w.e.f. 1 April 2018 means from AY 2018-19. A corresponding footnote on the same text omits clause (5) of s.35(2AB) from the same date. The reduction to a hundred per cent from AY 2021-22 is worked by a proviso keyed to "the assessment year beginning on or after the 1st day of April, 2021", which is already present in the earliest of those texts and in every later one. Independently consistent with all of this: the Delhi Tribunal in Anand NVH Products records at paragraph 8 an undisputed two-hundred per cent claim for AY 2017-18. Be careful with older copies of section 35. Some print the pre-2010 rates and some contain no sub-section (2AB) at all, and a copy that shows "two" without the prospective footnote will mislead you on any year from AY 2018-19. Sub-section (2AB)(5) is shown as omitted in the current text. And decided_on is the commencement date of the 200-to-150 substitution, 1 April 2018; it is not a decision date, and the second step commences 1 April 2021. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position. The weighted deduction under s.35(2AB) stood at two hundred per cent of the expenditure incurred on the approved in-house research and development facility, fell to one hundred and fifty per cent, and is reduced by the proviso to the expenditure so incurred — a hundred per cent — for expenditure incurred in a previous year relevant to an assessment year beginning on or after 1 April 2021. Section 35(2AA) follows the same pattern for sums paid to a National Laboratory, University, Indian Institute of Technology or specified person for research under an approved programme. The approval requirements in s.35(2AB)(1) and (3) are unaffected by the reduction in the weighting.
TaxSphere, “Statutory position — the s.35(2AB) and s.35(2AA) weighting: two hundred, then one hundred and fifty, then one hundred per cent”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-35-2ab-and-2aa-weighting-200-150-100/ (validity last checked 2026-09-08)
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The DSIR would not certify part of my client's research spend. Is there a provision that allows it without any approval at all?
The Assessing Officer has cut my client's s.35(2AB) claim down to the figure the DSIR put in Form 3CL for years before 2016. Is he entitled to?
The Assessing Officer has capitalised my client's product development spend and given it only depreciation. Can we still get it as scientific research expenditure, and can the alternative claim be raised for the first time before the Commissioner (Appeals)?
I wrote off the whole cost of a laboratory building and its equipment under the scientific research provision. Can I also take depreciation on the same assets in later years, and can the department deny it for years before 1980 using an amendment made in 1980?
