Sec 35(2AB) of Income Tax Act

Hey Rahul! Great question about Section 35(2AB) and claiming deduction for building expenses under Section 35(1)(iv). Let me clarify:

What is Section 35(2AB)?

• Section 35(2AB) provides weighted deduction (150%) for expenditure incurred on in-house research and development (R&D) by certain companies engaged in biotechnology or manufacture of drugs, pharmaceuticals, or certain notified industries.

• This includes revenue expenditure and capital expenditure related to R&D.

What about Building expenses under Section 35(1)(iv)?

• Section 35(1)(iv) allows deduction for capital expenditure on the construction of a building used for scientific research (like a lab or R&D facility), other than expenditure on the site.

• This is a 100% deduction but only for capital expenditure (building construction).

Can a company opt for both?

• If the company opts for deduction under Section 35(2AB), then:

  • The entire R&D expenditure, including capital expenditure on buildings used for R&D, is to be claimed under 35(2AB).

  • You cannot claim a separate deduction under 35(1)(iv) for the building.

  • The capital expenditure on buildings becomes part of the 150% weighted deduction under 35(2AB).

Key Point:

• You cannot “double dip” by claiming capital expenditure on buildings partly under 35(1)(iv) and partly under 35(2AB).

• Choosing Section 35(2AB) means all qualifying R&D expenses (revenue and capital) get weighted deduction, but you lose the separate 35(1)(iv) deduction.

Summary Table: