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Rule 35Published

Rule 35: Scientific-research company approval

Rule 35 sets the authority, application procedure and continuing conditions for a company’s approval under section 45(3)(b). The company must conduct research through its own employees using its own assets.

Official notified Income-tax Rules, 2026

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Bare law

Rule 35 - Prescribed authority, procedure, form, manner and conditions for approval by a company for deduction for expenditure on scientific research under section 45(3)(b)

(1) For the purposes section 45(3)(b), the prescribed authority shall be the Chief Commissioner of Income-tax having jurisdiction over the applicant.

(2) The procedure, form and manner in respect of approval under section 45(3)(b) shall be as under:— (a) An application for approval under section 45(3)(b) by a company shall be made in Form No. 17 to the Commissioner of Income-tax having jurisdiction over the applicant, at any time during the financial year immediately preceding the tax year from which the approval is sought. (b) where approval is sought— (i) from the tax year 2026-2027; (ii) from the tax year in which the applicant is incorporated, application for approval may be made at any time during the said tax year. (c) The person who is authorised to verify the return of income under section 265, as applicable to the applicant shall verify Form No. 17. (d) The applicant shall send a copy of the application to the prescribed authority, accompanied by the acknowledgement receipt as evidence of having furnished the application as per sub-rule (2)(a). (e) Every order for approval under section 45(3)(b) shall be issued, or an order rejecting the application shall be passed, within a period of twelve months from the end of the quarter in which the application was received in the Office of the Chief Commissioner of Income-tax. (f) If any defect is noticed in the application in Form No. 17, or if any relevant document is not attached thereto, the Commissioner of Income-tax shall serve a deficiency letter on the applicant before the expiry of one month from the end of the month in which application is received in his office. (g) The applicant shall remove the deficiency within a maximum period of one month from the end of the month in which the deficiency letter is served and if the applicant fails to remove the deficiency within the period so allowed, the Commissioner of Income-tax shall send his recommendation for treating the application as invalid to the Chief Commissioner of Income-tax. (h) The Chief Commissioner of Income-tax may, after examining the re-commendations referred to in clause (g), pass an order that the application is invalid. (i) If the application form is complete in all respects, the Commissioner of Income-tax may, make such inquiry as he may consider necessary regarding the genuineness of the activity of the company and send his recommendation to the Chief Commissioner of Income-tax, for grant of approval or rejection of the application, before the expiry of the period of three months from the end of the quarter in which the application was received in his office. (j) The Chief Commissioner of Income-tax may, before granting approval under section 45(3)(b), call for such documents or information from the applicant as he considers necessary and may get any inquiry made for verification of the genuineness of the activity of the applicant. (k) The Chief Commissioner of Income-tax may, under section 45(3)(b), pass an order granting approval to the company, or for reasons to be recorded in writing, reject the application. (l) The Chief Commissioner of Income-tax, as referred in sub-rule (1), may withdraw the approval granted under section 45(3)(b), if he is satisfied that the company has ceased to carry on its activities or its activities are not genuine or are not being carried on in accordance with all or any of the conditions under this rule. (m) No order treating the application as invalid or rejecting the application or withdrawing the approval shall be passed without giving a reasonable opportunity of being heard. (n) A copy of the order invalidating or rejecting the application or withdrawing the approval shall be communicated to the applicant, the Assessing Officer and the Commissioner of Income-tax. (o) Any order passed by the Chief Commissioner of Income-tax under this rule shall, at any one time, have effect for such tax year or years, not exceeding five tax years, as may be specified in the order. (p) The applicant, may, at least three months before the expiry of the effective period of the order issued under sub-rule (2)(e), make an application to the Commissioner of Income-tax having jurisdiction over the applicant for passing a fresh order.

(3) Approval to a company under section 45(3)(b) shall be subject to the following conditions:— (a) the sum paid to the company shall be used for scientific research; (b) the applicant company shall carry on scientific research through its own employees using its own assets; (c) a company approved under section 45(3)(b), shall maintain separate books of account in respect of the sums received by it for scientific research, reflect therein the amount used for carrying on research, get such books of account audited by an accountant as defined under section 515(3)(b), and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under section 263(1)(c). (d) the company shall maintain a separate statement of donations received and the amount used for research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to in clause (c); (e) subsequent to approval, the company shall, every year, by the due date of furnishing the return of income under section 263(1)(c), furnish a statement to the Commissioner of Income-tax having jurisdiction over the case containing the following information:— (i) a detailed note on the research work undertaken by it during the tax year; (ii) a summary of research articles published in national or international journals during the tax year; (iii) any patents or other similar rights applied for or registered during the tax year; (iv) programme of research projects to be undertaken during the forthcoming year and the financial allocation for such subjects; and (f) if it is found by the Commissioner of Income-tax that the company,— (i) is not maintaining separate books of account for research activities; or (ii) has failed to furnish its audit report; or (iii) has not furnished its statement of the sums received and the sums used for research, or a statement referred to in clause (e); or (iv) has ceased to carry on its research activities, or its activities are not genuine; or (v) is not fulfilling the conditions subject to which approval was granted tso it, he may after making appropriate enquiries, furnish a report on the circumstances referred to in sub-clauses (i) to (v) to the jurisdictional Chief Commissioner of Income-tax within six months from the date of furnishing the return of income under section 263(1).

Rule breakdown

Apply through the correct offices

The jurisdictional Chief Commissioner is the prescribed authority. The Form No. 17 application goes to the jurisdictional Commissioner, with a copy and acknowledgment to the prescribed authority. The authorised section 265 return verifier verifies the form.

The general application period is the financial year preceding the desired tax year. The stated same-year exceptions concern tax year 2026–2027 and the tax year of incorporation.

Track deficiencies and the office-specific clocks

The Commissioner must serve a deficiency letter within one month from the end of the month of receipt. The applicant has a maximum of one month from the end of the month of service to remedy it.

For a complete application, the recommendation is due within three months from quarter-end of receipt in the Commissioner’s office. The approval or rejection order has a 12-month period from quarter-end of receipt in the Chief Commissioner’s office.

Decision, hearing and duration

The Chief Commissioner can inquire, approve, reject with written reasons or withdraw approval on the stated grounds. A reasonable hearing opportunity is required before invalidation, rejection or withdrawal.

An order covers the specified years, no more than five tax years at one time. The company may apply for a fresh order at least three months before the existing period expires.

Conduct research with the company’s own resources

Sums paid to the company must be used for scientific research, conducted through its own employees using its own assets. Keep payroll, project and asset records supporting that condition.

Funding another organisation’s work should not be described as automatically satisfying this own-employees and own-assets condition.

Separate accounts, certified statements and annual information

Maintain separate books for research receipts and use, have them audited and send the signed, verified report to the jurisdictional Commissioner by the return due date specified in the rule. A certified donations-and-use statement accompanies it.

The annual research information separately includes the work note, journal articles, rights applied for or registered, and forthcoming projects and financial allocation. The notified section 263 references remain in the bare-law quotation; check current filing instructions when implementing the timetable.

Failure reporting and record retention

Following appropriate inquiry, the Commissioner may report listed failures to the Chief Commissioner within six months from furnishing the return. The triggers include missing accounts, audit or statements and non-genuine or ceased research and breached conditions.

Retain the application, approval, annual research evidence and reports as one review file. Initial approval is not a substitute for meeting continuing conditions.

Key takeaways

Two offices

The Commissioner receives the application; the Chief Commissioner is the prescribed authority.

Own employees and assets

The company’s scientific research must meet the stated own-resource condition.

Ongoing reporting

Separate audited books and annual fund-use and research statements are required.

Practical checklist

  • Track receipts separately for the Commissioner and Chief Commissioner offices.
  • Retain employee, asset and project evidence.
  • Prepare all annual reports and track approval expiry.

Avoid

  • Do not treat the application as automatic approval.
  • Do not omit separate research accounts or own-resource conditions.

FAQs

Who is the prescribed authority?

The Chief Commissioner of Income-tax having jurisdiction over the applicant.

Can an order cover more than five tax years at once?

No. The rule limits its effective period to no more than five tax years at any one time.

Does the own-research condition mention assets?

Yes. It requires the company’s own employees using its own assets.

Glossary

Prescribed authority
The jurisdictional Chief Commissioner for this company approval route.
Own-resource condition
The requirement to conduct research through the company’s own employees using its own assets.

Official sources