Rule 29 — Prescribed authority and process of approval for expenditure on scientific research under section 45(1)(a)(ii) and (2). Made under s.45 of the Income-tax Act, 2025.
Rule 29 gives effect to Section 45 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) names the prescribed authority for clause (b) read with clause (a)(ii) of section 45(1): the Principal Chief Commissioner of Income-tax (Exemptions), acting in concurrence with the Secretary, Department of Scientific and Industrial Research, Government of India. Two officers, one decision.
Sub-rule (2) deals with section 45(2), the in-house research and development facility, and does much more. Clause (a) names a different prescribed authority for that section: the Secretary, Department of Scientific and Industrial Research. Clause (b) bars any company from the deduction unless it enters into an agreement with the prescribed authority for co-operation in research and development facility and fulfils the conditions in this rule on maintenance of books of account, audit and reports. Clause (c) requires the application for that agreement to be made in Form No. 11.
Clause (d) governs the prescribed authority's own conduct. If satisfied that the conditions in section 45(2) and in this sub-rule are fulfilled, he must pass an order in writing in Form No. 14 approving the facility within four months from the end of the month in which the application is received; where an application is rejected, a reasonable opportunity of being heard must be granted to the company first; and a copy of the order goes to the Chief Commissioner of Income-tax having jurisdiction over the company.
Clause (e) sets eight conditions on approval of the expenditure. The facility must not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a similar nature. The prescribed authority must furnish its report electronically in two parts — Part A of Form No. 12 for the approval of the facility, Part B of Form No. 12 quantifying the expenditure incurred during the tax year and eligible for deduction under section 45(2) — and must send Form No. 12 to the Chief Commissioner having jurisdiction within one hundred and twenty days of the grant of approval in the Part A case and within one hundred and twenty days of the submission of the audit report in the Part B case. The company must keep separate books of account for each approved facility, audited annually; furnish the audit report in Form No. 13 electronically to the Secretary, Department of Scientific and Industrial Research on or before the due date specified in section 263(1)(c) for each succeeding tax year; attach a copy of the audited annual account with the return filed under section 263(1)(a); ensure that capital and revenue expenditure on the facility is reflected in the schedules or notes to accounts of the audited financial statement prepared for the annual report and for computation of income-tax; and use assets acquired by the approved facility only for the approved purpose, disposing of none without the approval of the Secretary, Department of Scientific and Industrial Research.
Sub-rule (3) defines "audited" for this rule as audit of accounts by an accountant as defined in section 515(3)(b).
Section 45 allows deduction for scientific research expenditure but cannot itself judge whether a laboratory is doing research or repackaging routine business activity. The rule hands that judgment to the department of government that can make it, and buys the Assessing Officer an audited, quantified figure rather than a claim. The two-authority structure in sub-rule (1) and the separate authority in sub-rule (2)(a) keep the scientific question and the tax question with the people qualified to answer each.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Time to pass the order approving the facility in Form No. 14 | Four months | From the end of the month in which the application is received, where the prescribed authority is satisfied the conditions in section 45(2) and sub-rule (2) are fulfilled | Sub-rule (2)(d)(i) |
| Time for the prescribed authority to furnish Part A of Form No. 12 to the Chief Commissioner | One hundred and twenty days | Of the grant of the approval | Sub-rule (2)(e)(iii)(A) |
| Time for the prescribed authority to furnish Part B of Form No. 12 to the Chief Commissioner | One hundred and twenty days | Of the submission of the audit report | Sub-rule (2)(e)(iii)(B) |
| Due date for the company's audit report in Form No. 13 | The due date specified in section 263(1)(c) for furnishing the return of income | Furnished electronically to the Secretary, Department of Scientific and Industrial Research, for each succeeding tax year | Sub-rule (2)(e)(v) |
The deduction under section 45(2) is conditional on the agreement, not merely on the spending: clause (b) says no company shall be entitled to the deduction unless it enters into the agreement and fulfils the book-keeping, audit and reporting conditions, so a company that spends first and applies later has a gap it cannot close by evidence of expenditure. The quantum is not the company's own figure either — Part B of Form No. 12 is where the prescribed authority quantifies the expenditure eligible for deduction, and that report goes to the Chief Commissioner. The four-month clock in clause (d)(i) runs from the end of the month of receipt, not from the date of receipt. Note also the negative test in clause (e)(i): the facility must not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes or routine data collection, so a quality laboratory dressed as research fails at the first condition. Finally, the asset restriction in clause (e)(viii) survives approval — disposal of a facility asset needs the Secretary's approval, whatever the company's own asset policy says.
A company applies in Form No. 11 on 12 June for approval of its in-house research and development facility. The four months in sub-rule (2)(d)(i) run from the end of June, so the order in Form No. 14 is due by 31 October. Approval granted on 20 October obliges the prescribed authority to furnish Part A of Form No. 12 to the jurisdictional Chief Commissioner within one hundred and twenty days of that grant. For each succeeding tax year the company must have the facility's separate books audited by an accountant under section 515(3)(b) and file Form No. 13 by the section 263(1)(c) due date; if it sells a spectrometer bought by the facility without the Secretary's approval, clause (e)(viii) is breached whether or not the research itself continued.
A company meets it when it applies in Form No. 11 for the research agreement, and every year afterwards when it files Form No. 13 and attaches the audited annual account to its return. In an assessment it surfaces as the Part B Form No. 12 figure against which the section 45(2) claim in the return is tested.
no company shall be entitled for deduction under said section, unless it enters into an agreement with the prescribed authority for co-operation in research and development facility
pass an order in writing in Form No. 14, approving the facility within four months from the end of the month in which application is received
the assets acquired by the approved facility shall be utilised only for the approved purpose and shall not be disposed of without the approval of the Secretary, Department of Scientific and Industrial Research