Special Deductions Under Sections 35 To 35E

Section	Nature of expenditure	Quantum of deduction	Qualifying Assessee	Other provisions
35(1)(i)	Scientific Research : Any expenditure other than capital expenditure incurred for scientific research related to assessee’s business	The amount actually expended	All assessee	Where any expenditure is laid out or spent before the commencement of business on payment of salaries to an employee engaged in such scientific research or on purchase of material used in such research, the aggregate of such expenses so expended within three preceding previous years shall, to the extent certified by prescribed authority (Refer Rule 6) be deemed to have been expended in the year in which actual business is commenced.
35(1)(ii)	Scientific Research : Payment to a notified/approved research association/university/college or other institution to be used for such scientific research.	175% of the sum paid. (W.e.f. A.Y. 2011-12 ) 125% of the sum paid. (Upto A.Y. 2010-11)	All assessee	Such association, university, college, or other institution is approved according to the prescribed guidelines and is notified in the Official Gazette by Central Government(refer Rules 5C, 5D and 5E) Note : (Deduction under this section shall not be denied for such payments made on the ground that subsequent to such payment, approval granted to such association, university, college, etc. has been withdrawn).
35(1)(iia)	Scientific Research : Payment to a approved company registered in India, with the object of scientific research and development	125% of the sum paid	All assessee	The company should be approved by prescribed authority and fulfils prescribed conditions (Refer Rule 5F)
35(1)(iii)	Statistical or social Science Research : Payment made to a research association having its object of undertaking research in social science or statistical research or to any university, college, or other institution to be used for research in social science or statistical research	125% of the sum paid	All assessee	Such association, university, college, or other institution is notified in the official gazette by central Govt. and is approved according to the prescribed guidelines (Refer Rules 5C, 5D and 5E) (Deduction under this section shall not be denied for such payments made on the ground that subsequent to such payment, approval granted to such university, college, etc. has been withdrawn.)
35(1)(iv)	Scientific Research : Expenditure of capital nature on scientific research (other than expenditure on acquisition of land or interest therein) related to the business carried on by the assessee	Expenditure so incurred	All assessee	where any capital expenditure is incurred prior to commencement of the business, the aggregate of such expenses so incurred within three years immediately preceding the commencement of the business shall be deemed to have been incurred in the year in which the business is commenced. No depreciation shall be allowed on such assets.
35(2AA)	Scientific Research : Payment to a National Laboratory/university or an Indian Institute of Technology or a specified person	200% of such sum paid for A.Y. 2012-13 onwards. 175% of the sum paid for A.Y. 2011-12 125% of the sum paid upto A. Y. 2010-11.	All assessee	The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under a programme approved by the head of National laboratory, university, or IIT and in case of specified person, the principal scientific advisor to the Govt. of India. Where deduction is allowed under this section no other deduction would be allowed under any other provisions of the Act. (Deduction under this section shall not be denied for such payments made on the ground that subsequent to such payment, approval granted to such Laboratory, university, etc. has been withdrawn or such laboratory, university having withdrawn the programme undertaken.)
35(2AB)	Scientific Research : Any expenditure incurred by a company, on scientific research (not being in nature of cost of land and building) on in-house scientific research and development facilities as approved by the prescribed authorities(Refer Rule 6).	200% of such expenses incurred from A.Y. 2011-12 150% of such expenses upto A. Y. 2010-11.	Company, engaged in any business of biotechnology or of manufacture or production of any article or thing, other than those specified in the list of Eleventh Schedule.	No other deduction in respect of such expenses would further be allowed, (No deduction is allowed under this section for companies mentioned in section 35(1)(iia)) Company should enter into an agreement with the prescribed authority for co operation in such research and development and audit of accounts maintained for such facilities. Expenses under this clause would be allowed only up to 31-3-2017. Expenditure on scientific research in relation to Drug and Pharmaceuticals shall include expenses incurred on clinical trials, obtaining approvals from authorities and for filing an application for patent. In case of amalgamation of the company the provisions of this section would apply to amalgamated company as they would have applied to amalgamating company
35ABB	License to operate telecom services: Capital expenses incurred for obtaining right to operate telecommunication services either before or after the commencement of such business to operate such services and for which payment has been actually made to obtain a license	In case where the amount is paid prior to commencement of business, the deduction would be allowed in equal installments beginning from the previous year in which the business commences and ending in the year in which the license expires. In other case the amount will be allowed in equal installments from the previous year in which such expenditure is incurred till the previous year in which the license expires.	All assessee	The deduction is allowable on the payment actually made for obtaining the license, irrespective of the previous year for which the liability for such expenditure was incurred as per the method of accounting regularly followed. Where the deduction is allowed under this clause no depreciation would be allowed. Where the license is transferred and if the amount realized in so far as it relates to capital sum, is less than the amount remaining to be allowed then, the amount remaining to be allowed as reduced by proceeds received would be allowed as deduction in the year in which the same is transferred. Whereas if the amount so realized on transfer of whole or part of the license is more than the amount remaining to be allowed then the difference between amount received on transfer and the amount remaining to be allowed would be chargeable to tax in the year of such transfer as business income whether or not such business is in continuance and no further deduction shall be allowed in the year of transfer or in succeeding years. Where a part of the license is transferred and the amount realized is not more than the amount remaining to be allowed then the difference between the amount remaining to be allowed and the amount received on transfer shall be divided by the number of unexpired years from the previous year in which such transfer takes place and would be allowed in equal installments accordingly. In case of amalgamation or demerger of the company the provisions of this section would apply to amalgamated or resulting company as they would have applied to amalgamating or demerged company
35AC	Payment for eligible projects or schemes : Payment to public sector company or a local authority or to an approved association/institution for carrying out any notified eligible project or scheme. (Payment under this Section would include in case of a Company the payment made as above or expenses incurred directly on eligible projects or scheme)	The amount actually paid or incurred directly as the case may be.	All assessee	The association/institution should be approved by the National Committee for Promotion of Social and Economic Welfare or public upliftment and the assessee furnishes along with the return of income certificate either from such institution or from accountants (defined in section 288 of the Act), in the prescribed form (Refer Rule 11-O). Where any deduction is allowed under this section no further deduction would be allowed under any other provisions of the Act. (Deduction under this section shall not be denied for such payments made on the ground that subsequent to such payment, approval granted to such Public Sector Company or Local Authority, etc. has been withdrawn or such Public Sector Company or Local Authority having withdrawn the eligible projects or Scheme undertaken.) However in such case such approved institution or the company claiming deduction for direct payment to such project, as the case may be shall be liable to pay the tax at maximum marginal rate for the payment so received by them in the respective previous year.
35AD	Expenditure on specified business : Expenditure of capital nature (other than expenditure incurred on acquisition of any land, goodwill or financial instruments) incurred, wholly and exclusively, for the purposes of any specified business carried on by the assessee as follows : Setting up and commencing the below mentioned businesses on or after 01/04/2009 (except in case of natural gas mentioned in point 3 for which the relevant date is 01/04/2007) : Cold chain facilities (Cold chain facilities would mean a chain of facilities for storage or transportation of agricultural and forest produce, meat and meat products, poultry, marine and dairy products, products of horticulture, floriculture and apiculture, and processed food items under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce.) Warehousing facility for agriculture produce Laying and operating cross country natural gas, crude or petroleum oil pipeline network for distribution and includes storages facilities being integral part of such network provided such business is approved by the petroleum and natural gas regulatory board and is notified by the Central Government in the Official Gazette commences operations after 01.04.2007 in case of natural gas and after 01.04.2009 in other cases (Deductions available from A.Y. 2010-11) Setting up and commencing the below mentioned businesses on or after 01/04/2010 Operating anywhere in India a hotel of two star and above as classified by Central Government Operating anywhere in India a hospital with at least one hundred beds for patients Developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by Central Government or a State Government and as notified by board in accordance with guidelines prescribed Setting up and commencing the business or incurring the expenditure on or after 01/04/2011 Developing and building a housing project under a scheme for affordable Housing framed by Central Government or a State Government and as notified by board in accordance with guidelines prescribed Capital Expenditure incurred in a new plant or in new installed capacity in existing plant for production of fertilizers Setting up and commencing the below mentioned businesses on or after 01/04/2012 Inland container depot or container freight station notified or approved under Customs Act 1962 (52 of 1962) Bee keeping and production of honey and bee wax Warehousing facility for storage of sugar Setting up and commencing the below mentioned businesses on or after 01/04/2014 Laying and operating a slurry pipeline for the transportation of iron ore Setting and operating a semi – conductor wafer fabrication manufacturing unit and which is notified by the Board	The whole of the amount of expenses incurred during the previous year And Expenditure incurred prior to the commencement of operation would be allowed as deduction during year in which such business commence its operation if such expenses are incurred wholly and exclusively for the purpose of specified business and such amount is capitalized in the books of account on the date of such commencement of operation Further In case of Business of laying pipeline for natural gas, where the business has commenced on or after 1-4-2007 but ending before 31-3-2009 the amount of expenses incurred in any previous year shall be allowed as further deduction in the assessment year beginning on 1-4-2010 provided the assessee has not been allowed deduction of such expenses in any earlier previous year. From AY 2013-14 deduction in following cases where the business commences its operation on or after 01.04.2012 shall be allowed at 150% of such expenses incurred a. Setting up and operating a cold chain facility. b. setting up warehousing facilities for storage of agricultural produce c. Building and operating hospitals of 100 or more beds for patients d. developing and building affordable housing projects as notified e. production of fertilizer	All Assessees Except: i. In case of laying and operating cross country natural gas, crude or petroleum oil pipeline network for distribution and includes integral storage facilities, The Company registered under the Companies Act, 1956 or a consortium of such companies or an authority or a Board or a corporation established under any Central or State Act.	The specified business should not be set up by splitting up, or the reconstruction, of the business already in existence or it is not set up by the transfer of machinery or plants previously used for any purpose. (However any machinery or plant used out of India if imported into India shall not be considered as machinery or plant used for any purpose as above, provided such plant and machinery was not at any time prior to such installation used in India or no deduction on account of depreciation in respect of such machinery or plant had been allowed or was allowable to any person for any period prior to the date of installation of machinery or plant by the assessee.) (Also where the value of plant and machinery or any part thereof previously used for any purpose is transferred to such specified business and the total value of such plant and machinery or part so transferred does not exceed 20% of the value of the total machinery or plant used in such business, then, the deduction under this section would not be denied) Assessee’s books of accounts should be audited. In case of business of laying of pipe line for natural gas and crude and petroleum oil, the eligible assessee should make available such percentage of its total pipe line capacity as specified by petroleum and natural gas regulatory Board for use on common carrier basis for any person other than such assessee or its associated persons and that it should also fulfill any other conditions as may be prescribed. For the purpose of this clause associated person means The one who participates directly or indirectly or through one or more intermediaries in the management or control or capital of the assessee The one who holds directly or indirectly shares carrying not less than 26% of the voting power in the capital of the assessee The one who appoints more than half of the Board of directors or members of the governing board or one or more executive directors or executive members of the governing board of the assessee. The one who guarantees not less than 10% of the total borrowings of the assessee. Where the assessee builds a hotel of two stars and above category as classified by Central Government, while continue to own the hotel transfers the operation to another person deduction would still be allowed to such assessee. No further deduction would be allowed where the deduction is claimed under this provisions either under Chapter VI-A under the heading C or w.e.f. 1-4-2011 under any other section in any previous year or under this section for any other previous year. Further, w.e.f. A.Y. 2015-16, the assessee would not be allowed deduction u/s 10AA also. Provisions contained in 80A(6) and sub-sections (7) and (10) of section 80-IA shall so far as may be, apply to this provision in respect of goods or services or assets held for the purpose of such business. W.e.f. A.Y. 2015-16 any asset on which deduction is claimed and allowed under this section shall be used only for the specified business for a period of 8 years beginning with the P.Y. in which it was acquired / constructed. If such asset is used for any other purpose during the above mentioned period, except of being demolished, destroyed, discarded or transferred, then the deduction allowed under this section as reduced by the amount of depreciation which would have been allowed as per the provisions of Section 32 will be deemed to be income of the assessee under the head “Profits & Gains of Business & Profession” in the year in which the asset is so used. However, this provision shall not apply to a company which has become a sick industrial company during the above mentioned period. Note : Any sum received or receivable in cash or kind on account of any capital asset being demolished, destroyed, discarded or transferred, where deduction under this clause has been allowed for the full expenditure incurred, the sum so received shall be chargeable to tax under the head business income (Section 28(vii)).
35CCA	Payment for carrying out Rural Development program: Payment to an association or institution having objects of undertaking rural development program for carrying out rural development as approved by prescribed authority having objects of training the persons for implementing rural development program Payment to rural development fund set up and notified by Central Government Or Payment to National Urban Poverty Eradication Fund setup and notified by Central Government	Expenditure so incurred	All Assessee	Payment to association or Institution undertaking the program of rural development or training of persons as the case may be shall not be allowed unless certificate from such institution is furnished stating that the program of rural development was approved before 01.03.1983 by approved authority and such programs involves work of construction of any building or structure for use as dispensary, school, training or welfare centre or laying of road or construction or boring of a well or installation of any plant and machinery, where such work has commenced before 01.03.1983 (Deduction under this section shall not be denied for such payments made on the ground that subsequent to such payment, approval granted to such association or institution has been withdrawn)
35CCC	Expenditure for agricultural extension project: Expenditure incurred on notified agricultural extension projects	150% of expenditure incurred	All assessee	The agricultural extension project should be notified by the Board as per the guidelines issued. Where any deduction is allowed under this section no further deduction would be allowed under any other provisions of the Act. (Refer Rule 6AAD & 6AAE)
35CCD	Expenditure on skill development project: Any expenditure incurred (other than cost of any land and building) on notified projects of skill development according to the guidelines issued in this regard.	150% of expenditure incurred	Company	The skill development project should be notified by the Board as per the guidelines issued. Where any deduction is allowed under this section no further deduction would be allowed under any other provisions of the Act. (Refer Rule 6AAF & 6AAG & 6AAH)
35D	Amortisation of expenses: Specified expenditure incurred either before the commencement of business or after the commencement of business in connection with the extension of undertaking or setting up of new unit. Specified expenditure means: Expenditure in connection with preparation of feasibility report Preparation of project report Conducting market or any survey necessary for business Engineering services relating to business Legal Charges for drafting agreement, for any purpose relating to setting up or conducting of business Such other expenditure as specified. Expenditure referred to in a-d should be incurred by the assessee himself or by a concern approved by the Board. In case of company, following expenses shall also be allowed: Legal charges for drafting MOA and AOA. Printing of MOA and AOA. Fees for registration of company as per Companies Act. In case of public subscription of shares and debentures, underwriting commission, brokerage, drafting, typing, printing and advertising of prospectus.	One-fifth of such expenditure for a period of five years beginning with the year in which the business is commenced or extension of the undertaking is completed as the case may be.	Indian Companies or any person resident in India	The deduction is restricted to 5% of the cost of the project or where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company. For this purpose, capital employed would mean aggregate of issued share capital, debentures and long term borrowings as of the last day of the previous year in which the business is commenced. In case of non corporate assessee or a co-operative society, the deduction would not be allowed unless the accounts of the assessee are audited for the year/s in which such expenditures are incurred and a report in prescribed form is furnished along with the return of income for the first year in which such deduction is claimed. (Rule 6AB and Form 3AE) In case of amalgamation or demerger of the company the deduction would be allowed to amalgamated or resulting company and in such case no further deduction would be allowed to amalgamating or demerged company. Where any deduction is allowed under this section no further deduction would be allowed under any other provisions of Act.
35DD	Amortisation of Expenses for amalgamation and demerger: Expenditure incurred wholly and exclusively for the purpose of amalgamation or demerger of an undertaking	One-fifth of such expenditure for a period of five successive years beginning with the previous year in which such amalgamation or demerger takes place.	Indian Company	No deduction would be allowed in respect of such expenses under any other provisions of the Act
35DDA	Amortisation of expenses on VRS: Expenditure incurred by way of payment to an employee under any scheme in connection with his voluntary retirement	One-fifth of such expenditure for a period of five years beginning with the year in which such expenditure is actually paid.	All Assessees	The expenditure should be incurred in accordance with any scheme of voluntary retirement. In case of amalgamation or demerger of the company the deduction would be allowed to the amalgamated or resulting company as if the deduction were allowed to amalgamating or demerged company as the case may be. Whereas in case of partnership firm or proprietary concern is succeeded by the company in reorganization of business the deduction would be allowed to such succeeded company provided conditions laid down in provisions of section 47(xiii) or section 47(xiv) as applicable are adhered to. And no further deduction would be allowed to the partnership firm or proprietary concern as the case may be. Whereas in case of a private limited company or unlisted public company under reorganization of business is succeeded by a limited liability partnership fulfilling the conditions laid down in proviso to clause (xiiib) of section 47, then the deduction shall be allowed to the successor limited liability partnership and no further deduction would be allowed to private limited company or unlisted public company as the case may be. (applicable from A.Y. 2011-12) Once the deduction under this section is allowed the same shall not be allowed under any other provisions of the Act.
35E	Expenditure on Prospecting of Certain Minerals: Expenditure in respect of operations relating to prospecting for or extracting or production of any mineral or group of associated minerals or for development of mine or other natural deposit of such mineral or group of associated minerals.	One-tenth of such expenditure for a period of ten years beginning from the year in which commercial production starts Or the expenditure as is sufficient to reduce the income to Nil as computed before allowing deduction under this clause whichever is lesser (subject however portion of expenditure not allowed in any previous year shall be carried forward and added to the installment of succeeding previous year up to last year of such deduction)	Indian company or any other person resident in India.	Such minerals/group of associated minerals should be specified in Part A/B of Seventh Schedule of the Income-tax Act, 1961. Deduction is allowed in respect of expenditure incurred in the year in which the production commences, or any expenses incurred in any four years preceding such year. For the purpose of this clause expenditure met by any other persons, authorities or sales or salvage or insurance claim received in respect of any property or rights brought into existence shall be excluded from such expenditure. Similarly expenditure incurred for acquisition of any sites, or deposits of minerals, or capital expenditure on acquisition of plant and machineries, building, furniture, etc. on which depreciation is allowable shall also be excluded from such expenditure In case of non corporate assessee or a co-operative society, the deduction would not be allowed unless the accounts of the assessee are audited and a report in prescribed form is furnished along with the return of income for the first year in which such deduction is claimed. (See Form 3AE, Rule 6AB.) In case of amalgamation or demerger of the company the deduction would be allowed to amalgamated or resulting company and in such case no further deduction would be allowed to amalgamating or demerged company. Once the deduction under this section is allowed the same shall not be allowed under any other provisions of the Ac