R&D Incentives (Sec 35 with DSIR Registration) — What to Get Right Before You Start
Every rupee a company spends on genuine scientific research is a rupee that can, if structured and documented correctly, reduce its tax outgo under Section 35 of the Income-tax Act — but only if the research facility is recognised by the Department of Scientific and Industrial Research (DSIR), the expenditure is properly classified between revenue and capital heads, and the annual reporting to DSIR is filed without gaps. PNPC Global has guided manufacturing, pharmaceutical, engineering, agri-tech, and deep-tech companies across India through DSIR recognition and the ongoing Section 35 compliance that keeps the benefit alive year after year. We do not just help you apply once — we stay with you through every renewal, every Form 3CL filing, and every assessment where the deduction is examined.
What You're Really Buying
R&D Incentives historically available under Section 35 of the Income-tax Act, 1961, read with DSIR (Department of Scientific and Industrial Research) recognition, form the statutory framework through which companies engaged in genuine scientific research connected to their business can claim income-tax deductions for that research expenditure. Section 35 had several limbs under the 1961 Act: Section 35(1)(i) allowed a deduction for revenue expenditure on scientific research related to the taxpayer's business; Section 35(1)(iv) read with Section 35(2) allowed a deduction for capital expenditure (other than on land) incurred on scientific research related to the business; and Section 35(2AB) provided for companies engaged in the business of manufacture or production of an article or thing (other than a small negative list of items specified in the Eleventh Schedule) to claim a deduction for expenditure incurred on an in-house research and development facility that has been recognised and approved by DSIR. The Income-tax Act, 1961 has since been replaced by the Income Tax Act, 2025 (effective 1 April 2026), which restates the scientific-research deduction framework and DSIR's role under renumbered provisions; the underlying policy — DSIR recognition of an in-house R&D facility as the gateway to an enhanced manufacturing R&D deduction — carries forward, and we always confirm the precise current section reference and transitional rule against the Act as in force for the assessment year being claimed, rather than assuming the 1961-Act numbering above still applies verbatim.
For the full scope, current process and what PNPC includes, see the dedicated R&D Incentives (Sec 35 with DSIR Registration) service page.
Signs This Applies to You
- Your company is engaged in manufacturing or production of an article or thing and maintains a dedicated in-house R&D facility — a physical lab, testing centre, or product development unit — with identifiable R&D-specific expenditure separate from routine production costs
- You are incurring meaningful annual expenditure on scientists, research equipment, prototype development, testing, or process improvement, and want to formally establish that this spending qualifies as scientific research under the Income-tax Act rather than being absorbed into general business expense
- You are a pharmaceutical, engineering, agri-tech, chemicals, electronics, auto-components, or deep-tech manufacturing company where product and process innovation is a genuine, ongoing part of your business — not a one-off project
- You plan to import R&D equipment and want to explore customs duty concession eligibility, which in many cases requires or is strengthened by DSIR recognition of the importing entity's R&D facility
Before You Assume You Need This
- Your company is purely a trading, services, or IT-services business with no manufacturing or production activity — Section 35(2AB)'s enhanced framework is specifically for manufacture/production companies; general Section 35(1) deductions may still apply for genuine scientific research expenditure, but the DSIR in-house facility route under 35(2AB) will not be available to you in the same way
- Your so-called 'R&D' spend is really routine quality control, standard product testing for statutory compliance, market research, or minor design tweaks with no genuine scientific or technical uncertainty being resolved — DSIR's recognition criteria and the tax authorities scrutinise this distinction closely, and misclassified expenditure creates real assessment risk
- You are looking for R&D grant funding or non-dilutive government financing rather than a tax deduction — that is a different service; talk to us about the relevant scheme separately, since DSIR recognition supports but does not itself disburse grant money
Questions We're Actually Asked
What exactly is DSIR and why does its recognition matter for tax purposes?
DSIR — the Department of Scientific and Industrial Research — is a Government of India body under the Ministry of Science and Technology. For income-tax purposes, DSIR recognises the in-house R&D units of companies engaged in manufacture or production, which is a statutory pre-condition for those companies to claim the enhanced deduction framework under Section 35(2AB) of the Income-tax Act. Without DSIR recognition of the specific facility, a company cannot access the 35(2AB) route, though it may still claim research expenditure under the more general Section 35(1) provisions if the research is genuinely connected to its business.
Is my company eligible for Section 35(2AB) if we are a services or IT company, not a manufacturer?
Section 35(2AB), in its structure, is directed at companies engaged in the business of manufacture or production of an article or thing (subject to a specific negative list under the Eleventh Schedule). Pure services businesses, including most IT services companies, generally do not fall within this specific route in the way a manufacturing or production company does. That does not mean a services company cannot claim any research deduction — genuine scientific research expenditure connected to the business may still be considered under the more general Section 35(1) provisions — but the DSIR in-house R&D facility recognition route under 35(2AB) is structured around manufacture and production activity.
What is the difference between DSIR recognition of an in-house R&D unit and DSIR recognition of a SIRO?
These are two distinct DSIR schemes. In-house R&D unit recognition, relevant to Section 35(2AB), is for companies engaged in manufacture or production that maintain their own dedicated research facility as part of their commercial operations. SIRO (Scientific and Industrial Research Organisation) recognition is a separate scheme aimed at research institutions, universities, and non-profit or dedicated R&D bodies whose primary purpose is conducting scientific research, often for external clients or in the public interest, and carries its own set of associated benefits including customs and GST concessions relevant to that category of organisation. A commercial manufacturing company seeking the Section 35(2AB) deduction should apply under the in-house R&D unit recognition scheme, not the SIRO scheme.
Getting This Right From the Start
Talk to a PNPC Chartered Accountant before you file with DSIR — not after a rejected application or a disallowed claim has already cost you a year. We assess your eligibility honestly, build the application DSIR actually expects to see, and stay with you for the annual filings that keep the benefit alive year after year.
PNPC Global has advised Chennai, Bangalore and Hyderabad businesses since 1986. Explore the full Loans & Insurance practice for related services, or go straight to the R&D Incentives (Sec 35 with DSIR Registration) page for specifics.
Rates, thresholds and filing dates are set by the relevant authority and revised periodically. Treat anything numeric here as "ask PNPC for the current figure," not as a quoted fact.