Frequently Asked Questions

To qualify, a company must be registered in India under the Companies Act. It must possess a dedicated R&D lab physically separate from manufacturing, a qualified research team, and defined R&D objectives. While companies generally need to complete three financial years of operation, DPIIT-registered deep-tech startups are now exempt from this three-year operational history requirement.

The R&D laboratory must have a clearly defined boundary separating it from the manufacturing floor, quality control (QC) labs, and administrative areas. It must have dedicated, restricted access points (e.g. biometric locks) to verify security and ensure standard factory traffic does not cross the research area.

No. Manpower dedicated to routine quality control (QC), routine product testing, troubleshooting, production line support, sales, or administration cannot be counted. The DSIR requires a minimum of 2-3 full-time, dedicated research staff (such as PhDs, M.Techs, BEs, or MSc graduates) who maintain daily project logs and R&D notebooks.

DSIR guidelines do not specify a minimum equipment cost threshold, but the facility must possess scientific instrumentation and testing setups that match the complexity of the research projects declared. Typically, a laboratory should have scientific instruments and R&D hardware worth at least ₹10 Lakhs to ₹20 Lakhs to be considered viable.

Under Section 35(2AB) of the Income Tax Act, 1961, companies engaged in manufacturing or biotechnology with recognized in-house R&D centers can write off 100% of their capital R&D expenditure (excluding cost of land and buildings) and revenue expenditure in the year it is incurred. This reduces taxable profit and improves corporate cash flows.

No. DSIR recognition (Form 3CK) is the prerequisite. Once recognized, the company must submit a separate application to the DSIR for approval of R&D expenditures under Section 35(2AB). The DSIR will evaluate these expenses and, if satisfied, issue **Form 3CM** certifying the approval directly to the Income Tax Department.

Recognized in-house R&D centers and SIROs are eligible to procure domestic scientific equipment, computer software, prototypes, and R&D consumables at a reduced GST rate of 5% instead of the standard 18% or 28%.

To claim this, the supplier must issue an invoice at 5% GST. The purchasing company must provide the supplier with a copy of their valid DSIR registration certificate along with a declaration signed by the head of the R&D unit stating that the goods will be used solely for research purposes.

Under **Notification No. 50/96-Customs**, recognized in-house R&D units get a 100% waiver of basic customs duty and IGST on imported research equipment, spares, and consumables.

For each shipment, the company must apply online to the DSIR for an **Essentiality Certificate (EC)**. Once issued, this EC is submitted to the Customs clearance agent at the port to waive the duties.

The primary tax incentives for Scientific Research and Development under the Income Tax Act, 1961 include:

• Section 35(1)(i): Allows for the deduction of revenue expenditure incurred on scientific research related to your business (e.g., salaries, material costs) that are not capital in nature.
• Section 35(1)(iv): Provides for the deduction of capital expenditure incurred on scientific research related to your business (like machinery or equipment).
• Section 35(2AB): Incentivizes in-house R&D for companies engaged in bio-technology or manufacturing. Companies with DSIR-approved R&D centers can claim a deduction of expenditure incurred on in-house research (excluding land and building costs).
• Section 35(2AA): Allows a deduction for payments made to National Laboratories, Universities, or IITs for approved scientific research programs.
• Section 80-IB(8A): Provides a 100% tax deduction on profits and gains derived from the business of scientific research and development for companies whose main object is R&D.
• Rule 5(2): Relates to accelerated depreciation (often 40%) on plant and machinery used for technology or know-how developed in a government-owned laboratory, university, or DSIR-recognized institution.

No. The Government of India (DSIR) does not charge any application, processing, or renewal fees for the recognition or registration of in-house R&D units or SIROs.

Yes. As part of the evaluation process, a screening committee consisting of DSIR officials and domain experts (academicians or scientists) will conduct a site visit. They will verify the physical layout, check that the listed research equipment is installed and operational, interview R&D staff, and audit project reports, patents, and daily lab journals.

The most common reasons include:

• R&D lab not physically separated from production or QC zones
• Inadequate dedicated research manpower, or staff shared with operations
• Lack of technological novelty in research projects (routine testing or standard product maintenance)
• Failure to maintain separate accounting/bookkeeping registers for R&D expenditures

Recognized units must maintain separate ledger accounts for all R&D capital and revenue expenses. These ledgers must be verified and certified by a Chartered Accountant, who signs off on the statements (typically Form 3CL) before they are submitted in annual filing returns to the DSIR.