A S BANKA ADVISORS

If your company runs a laboratory, a product team or a clinical programme, one line in the new tax law changes how you model your R&D spend. The deduction for expenditure on scientific research has a new address, and for a lot of businesses it also has a smaller number attached to it. Here is what actually changed, and what you should reset before the year turns.

The same deduction, a new section number

Under the Income-tax Act 1961, the deduction for scientific research expenditure lived in Section 35. Under the Income-tax Act 2025, which is in force from April 1, 2026 for Tax Year 2026-27, the same deduction moves to Section 45, titled “Expenditure on scientific research.” The substance is largely preserved: revenue and capital expenditure on in-house research still qualifies, the three-year pre-commencement rule for salaries and materials before your business starts is retained, payments to approved research associations, universities, IITs and national laboratories still count, and the no-double-deduction safeguard stays. If you were searching for where Section 35 went in the new Act, the answer is Section 45.

The real change is the rate, not the number

The headline is not the renumbering. It is the multiplier. Under the historic Section 35 regime, in-house R&D and certain approved contributions once carried weighted deductions of 150% or even 200% of cost. Those super-deductions were progressively wound down to 100% over recent years, and the Income-tax Act 2025 finishes the job. Section 45 contains no weighted-deduction multiplier. Qualifying scientific research expenditure is deductible at a plain 100%, full stop.

For a pharma, biotech, manufacturing or deep-tech company that built its tax model on a 150% or 200% assumption, this is a real number to re-base. The deduction still exists and remains valuable, but the enhanced multiplier is no longer part of the calculation. If your financial model still shows an effective saving keyed to the old weighted rate, it is overstating your benefit.

Which Act applies to the return in front of you

This is where the mistakes happen. The two Acts run side by side for a while, and the citation has to match the year:

• FY 2025-26 (AY 2026-27), filed in 2026: Claim your scientific research deduction under Section 35 of the 1961 Act, and report it in Form 3CD as part of the tax audit due by September 30, 2026. The 1961 Act is preserved for this year by the Section 536 saving clause.
• FY 2026-27 onwards: Claim under Section 45 of the Income-tax Act 2025, applying the 100% framework and the same approval and documentation conditions.

Do not cite Section 45 on an FY 2025-26 return, and do not cite Section 35 of the 1961 Act as your live provision for FY 2026-27.

Watch the Section 35 trap in the new Act

There is a specific booby trap here. If a colleague types “Section 35” into a search of the Income-tax Act 2025, they land on the wrong provision entirely. In the 2025 Act, Section 35 is titled “Amounts not deductible in certain circumstances,” a disallowance rule from the old Section 40 family dealing with TDS and levy non-compliance. It has nothing to do with research. For the record, depreciation also moved, to Section 33 of the 2025 Act. Citing the wrong section on a live filing is exactly the kind of avoidable error that careful, period-aware drafting is meant to prevent.

What to do before April 1, 2026

1. Confirm the year each claim relates to, then cite Section 35 (1961 Act) for FY 2025-26 or Section 45 (2025 Act) from FY 2026-27.
2. For the FY 2025-26 tax audit due September 30, 2026, claim under the 1961 Act and Form 3CD.
3. Re-base every R&D financial model off the 150% or 200% assumption to a plain 100% deduction from April 1, 2026.
4. Refresh approvals and documentation for in-house facilities and for payments to approved institutions.
5. Update internal citation templates and client memos to the Section 45 numbering.

The provision is the same in substance. The rate math and the citation are what change. Fix both before the year turns and the transition is a non-event; miss either and you have overstated a benefit or cited a disallowance clause on a research claim.

Download the full carousel PDF for the Section 35 to Section 45 map, sub-section breakdown and the action checklist.

Not sure whether your R&D claim policy is keyed to the right year and the right rate? Talk to an Expert. CA Adityavikram Banka, Founder, A S Banka Advisors Private Limited. Book a quick call: https://calendly.com/asbanka-info/30min