Chapter IV - Computation of Total Income
Section 45
Section 45: deduction for expenditure on scientific research
Section 45 allows businesses to deduct expenditure on scientific research connected to their business, gives companies an incentive for in-house research facilities in specified sectors, and allows a deduction for donations made to approved research bodies, universities and national laboratories for scientific or social-science research.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1)(a) A deduction shall be allowed for any expenditure, being in the nature of–– (i) capital expenditure, but not on acquisition of land which is acquired as such or as part of any property; or (ii) revenue expenditure, incurred on scientific research related to the business of the assessee subject to provisions of this section. (b) A deduction shall also be allowed under this sub-section in respect of the aggregate of expenditure (not being in the nature of capital expenditure), related to business, incurred on— (i) salary to an employee engaged in such scientific research; or (ii) purchase of materials used in such scientific research, where such expenditure is incurred within three years immediately preceding the commencement of business, to the extent certified by the prescribed authority as incurred on such research and such expenditure shall be deemed to have been incurred in the tax year in which the business is commenced. (c) For the purposes of this sub-section, the aggregate of capital expenditure incurred within three years immediately preceding the commencement of business shall be deemed to have been incurred in the tax year in which the business is commenced. (2)(i) A deduction shall be allowed in respect of any expenditure on scientific research incurred (not being expenditure in the nature of cost of any land or building) by a company engaged in the business of— (A) bio-technology; or (B) manufacture or production of any article or thing, which is not specified in Schedule XIII, on in-house research and development facility as approved by the prescribed authority, subject to the conditions and manner, as may be prescribed. (ii) No deduction shall be allowed under this sub-section to a company approved under sub-section (3)(b)(ii). (iii) No deduction shall be allowed in respect of the expenditure mentioned in clause (i) under any other provision of this Act. (iv) The expenditure under clause (i) shall be allowed subject to such conditions and on furnishing of documents in such form and manner, as may be prescribed. (v) For the purposes of this sub-section, “expenditure on scientific research”, in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central Act or State Act or Provincial Act and filing an application for a patent under the Patents Act, 1970.
(3) A deduction shall be allowed for any sum, paid to— (a)(i) a research association having the object of undertaking scientific research or to a University, college or institution to be used for scientific research; or (ii) a research association having the object of undertaking research in social science or statistical research or to a University, college or institution to be used for research in social science or statistical research; (b) a company which is–– (i) registered in India having the main object of scientific research and development; and (ii) approved by such authority, for the purposes of this clause in such manner and subject to such conditions, as may be prescribed; (c)(i) a national laboratory; or (ii) a University; or (iii) an Indian Institute of Technology; or (iv) a specified person, with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority.
(4) For the purposes of sub-section (3),–– (a) the expenditure shall be allowed subject to such conditions and on furnishing of documents in such form and manner, as may be prescribed; and (b) in respect of clause (a) of the said sub-section, only such association, University, college or other institution shall be eligible for deduction, which for the time being is approved in the manner and subject to such conditions, as may be prescribed, and is specified by the Central Government, by notification.
(5) The deduction for any sum under sub-section (3) shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee, the approval granted to such entities or the programme undertaken by entities as mentioned in sub-section (3)(c), has been withdrawn.
(6) Where a deduction is allowed for any tax year under this section in respect of expenditure, represented wholly or partly by an asset, no deduction shall be allowed under section 33(3) for the same or any other tax year in respect of that asset.
(7) The provisions of section 33(11) in respect of depreciation shall apply in relation to deductions allowable for capital expenditure under sub-section (1).
(8) No deduction in respect of the sum mentioned in sub-section (3)(c) shall be allowed under any other provision of this Act.
(9) If any question arises under this section as to whether, and if so, to what extent any activity constitutes or constituted scientific research, or any asset is or was being used, for scientific research, the Board shall refer the question to— (a) the Central Government, when such question relates to any activity under sub-section (3)(a), and its decision shall be final; (b) the prescribed authority, when such question relates to any other activity other than the activity specified in clause (a), whose decision shall be final.
(10) When an amalgamating company, in a scheme of amalgamation, sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing capital expenditure on scientific research, the provisions of this section shall apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the asset.
(11) For the purposes of this section,— (a) “National Laboratory” means a scientific laboratory functioning at the national level under the aegis of the Indian Council of Agricultural Research, the Indian Council of Medical Research, the Council of Scientific and Industrial Research, the Defence Research and Development Organisation, the Department of Electronics, the Department of Bio-Technology or the Department of Atomic Energy and which is approved as a National Laboratory by such authority and in such manner, as may be prescribed; (b) “salary” has the meaning assigned to it in section 16 read with section 18 subject to the following modifications: (i) in section 16, clauses (e) and (j) shall be omitted; (ii) in section 18, the references to “assessee” shall be construed as references to “employee of former employee” and the reference to “his employer or former employer” and “an employer or a former employer” shall be construed as reference to “the assessee”; (c) “specified person” means such person approved by the prescribed authority; and (d) “land”, for the purpose of sub-section (1)(a)(i), includes any interest in land.
Introduction
Scientific-research deductions depend on who performed the work, how the amount was spent and whether the research relates to the business. Capital, in-house and payments-to-institution routes have distinct requirements.
Key takeaways
Business scientific research
Qualifying revenue expenditure on scientific research related to the business may be deducted under this section.
Capital and pre-commencement spend
The section also covers qualifying capital expenditure, excluding land acquisition, and certain certified pre-commencement payroll and material costs within its stated window.
In-house research related to the assessee's own business
Section 45(1)(a) allows a deduction for both capital expenditure (excluding cost of land) and revenue expenditure incurred on scientific research related to the assessee's business.
Section 45(1)(b) additionally allows, for pre-business expenditure (salary to research employees or purchase of research materials) incurred within the three years before commencing business, a deduction to the extent certified by the prescribed authority - deemed incurred in the year the business commences. Similarly, capital expenditure incurred within that same three-year window is deemed incurred in the year the business commences.
Special deduction for in-house R&D facilities (biotech/manufacturing companies)
Section 45(2) allows a company engaged in bio-technology, or in manufacture/production of an article or thing not specified in Schedule XIII, to deduct expenditure (excluding cost of land or building) on an in-house research and development facility approved by the prescribed authority, subject to prescribed conditions. This deduction is not available to a company already approved under Section 45(3)(b)(ii), and no deduction for the same expenditure is allowed under any other provision.
For drugs and pharmaceuticals, "expenditure on scientific research" under this sub-section is defined to include expenditure on clinical drug trials, obtaining regulatory approvals, and filing a patent application under the Patents Act, 1970.
Deduction for sums paid to research bodies
Section 45(3) allows a deduction for sums paid to:
- A research association undertaking scientific research, or a university/college/institution, to be used for scientific research.
- A research association undertaking research in social science or statistical research, or a university/college/institution, to be used for such research.
- A company registered in India with the main object of scientific research and development, and approved by the prescribed authority.
- A national laboratory, university, Indian Institute of Technology, or specified person, with a specific direction that the sum be used for scientific research under a programme approved by the prescribed authority.
Conditions and clarifications
Approval and documentation requirements are prescribed for these deductions (Section 45(4)).
The deduction under Section 45(3) is not denied merely because the recipient's approval, or the approved programme, is later withdrawn (Section 45(5)).
Where a deduction has already been allowed under this section for expenditure represented by an asset, no further depreciation deduction is allowed under Section 33(3) for that same asset (Section 45(6)); the depreciation-related carry-forward rule in Section 33(11) applies to capital expenditure deductions under this section (Section 45(7)).
No deduction for sums paid under Section 45(3)(c) (to national laboratories, universities, IITs, specified persons) is allowed under any other provision of the Act (Section 45(8)).
On amalgamation, the provisions continue to apply to the amalgamated Indian company as they would have applied to the amalgamating company, where a scientific-research asset is transferred (Section 45(10)).
Step-by-step flow for applying Section 45
- 1
Who carries out the research?
- The assessee itself: Go to the next step.
- A research body to which the assessee pays: Check Section 45(3) for the approved categories of recipients.
- 2
Is it related to the assessee's business?
- No: Not deductible under Section 45(1).
- Yes: Go to the next step.
- 3
Is it capital expenditure on land?
- Yes: Not deductible.
- No: Revenue or capital research expenditure is deductible under Section 45(1)(a).
- 4
Was it incurred in the three years before the business commenced?
Salary and materials need certification by the prescribed authority; such pre-commencement amounts and capital expenditure are deemed incurred in the year of commencement.
- 5
Is the assessee a bio-technology or manufacturing company with an approved in-house R&D facility?
Section 45(2) has its own conditions, excludes cost of land or building, and bars a second deduction for the same expenditure.
Practical checklist
Do
- Separate revenue research costs, eligible capital research costs and payments to approved outside bodies.
- Keep research purpose, approval and asset records for the applicable clause.
- Exclude land acquisition and check any pre-commencement look-back condition.
Avoid
- Do not claim the same research spend twice under multiple limbs.
- Do not assume ordinary product development qualifies for an enhanced facility allowance without its approval requirements.
Illustrative example
Worked example: pre-commencement research costs
Hypothetical facts (illustration only, not a real taxpayer): A company spent ₹12 lakh on salaries of research staff and ₹8 lakh on materials for scientific research related to its planned business in the two years before it commenced business. It also bought a plot of land for its lab.
Within three years
Both items were incurred within three years immediately preceding commencement, so Section 45(1)(b) can apply.
Certification
The deduction is limited to the amount certified by the prescribed authority as incurred on such research.
Land
The plot is excluded, since capital expenditure on acquisition of land does not qualify.
Outcome
- The certified salary and material costs are deemed incurred in the tax year the business commences and deducted then.
- The land cost is not deductible under Section 45.
Glossary
- Scientific research
- Research expenditure whose deduction is addressed by the specific conditions of Section 45.
- In-house R&D facility
- An internal research facility for which a separate approved-company deduction may apply.
Frequently asked questions
Can I deduct pre-business scientific research expenditure?
Yes - Section 45(1)(b) allows a deduction (to the extent certified by the prescribed authority) for research-employee salary or research material costs incurred within the three years before commencing business, and Section 45(1)(c) similarly covers capital expenditure incurred in that pre-business window; both are deemed incurred in the year the business commences.
Which companies get the special in-house R&D deduction under Section 45(2)?
Companies engaged in bio-technology, or in manufacture/production of an article or thing not specified in Schedule XIII, for expenditure (excluding land/building cost) on an in-house research and development facility approved by the prescribed authority.
Is a deduction for donations to a research institution lost if its approval is later cancelled?
No - Section 45(5) specifically provides that the deduction for a sum paid under Section 45(3) is not denied merely because the recipient's approval, or the research programme, is subsequently withdrawn after the payment was made.
Need help applying this provision to your situation?
Plan your R&D and scientific research deductions with our tax teamLast updated 10 October 2026