Income Tax 2025

Appearance

Deduction in respect of certain donations for scientific research or rural development. ​

135(1) ​

In computing the total income of an assessee, there shall be deducted, as per the provisions of this section, any sum paid by the assessee in the tax year to,––

  • (a) a research association which has as its object the undertaking of scientific research, or to a University, college or other institution approved for the purposes of section 45(3)(a)(i) to be used for scientific research;
  • (b) a research association which has as its object the undertaking of research in social science or statistical research, or to a University, college or other institution approved for the purposes of section 45(3)(a)(ii) to be used for research in social science or statistical research;

135(2) ​

Deduction for contributions made as per sub-section (1) shall not be allowed, if—

  • (a) the gross total income of the assessee includes income which is chargeable under the head “Profits and gains of business or profession”; or
  • (b) the contribution is made in cash exceeding two thousand rupees.

135(3) ​

Deduction under sub-section (1)(a) and (1)(b) shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee, approval to such association, University, college, other institution referred there in to whom the payment was made has been withdrawn.

135(4) ​

The claim of the assessee for a deduction in respect of any sum referred to in sub-section (1) in the return of income for any tax year filed by him, shall be allowed on the basis of information relating to such sum furnished by the payee to the prescribed income-tax authority or the person authorised by such authority, subject to verification as per the risk management strategy formulated by the Board from time to time.

Explanation

Section Summary: ​

Section 135 of the new income tax law provides a deduction for donations made by taxpayers to approved research associations, universities, colleges, or institutions engaged in scientific research, social science research, or statistical research. The deduction is aimed at encouraging contributions to research and development activities in India. However, certain conditions and restrictions apply to claim this deduction.

Key Changes: ​

  1. Expanded Scope of Deduction: The section now explicitly includes donations for research in social science and statistical research, in addition to scientific research.
  2. Cash Donation Limit: A new restriction is introduced, disallowing deductions for cash contributions exceeding ₹2,000.
  3. Approval Withdrawal Clause: Even if the approval of the recipient institution is withdrawn after the donation is made, the deduction will not be denied.
  4. Verification Mechanism: The deduction will be allowed based on information furnished by the payee (recipient institution) to the income-tax authority, subject to verification under the Board's risk management strategy.

Practical Implications: ​

  1. For Taxpayers: Taxpayers can claim deductions for donations made to approved research institutions, provided the contributions are not in cash exceeding ₹2,000. This incentivizes contributions to research and development.
  2. For Businesses: Businesses with income chargeable under "Profits and gains of business or profession" cannot claim this deduction, limiting its applicability to individuals or entities with non-business income.
  3. For Institutions: Approved research institutions must furnish donation-related information to the income-tax authority to enable donors to claim deductions.

Critical Concepts: ​

  1. Gross Total Income: This refers to the total income of the taxpayer before allowing any deductions under this section. If it includes business income, the deduction under this section is not allowed.
  2. Approved Institutions: Only donations to institutions approved under specific provisions of the Income Tax Act (e.g., section 45(3)(a)(i) or (ii)) are eligible for deduction.
  3. Risk Management Strategy: The Income Tax Board may verify claims based on a risk-based approach, ensuring compliance and reducing fraudulent claims.

Compliance Steps: ​

  1. Ensure Eligibility: Verify that the recipient institution is approved under the relevant provisions of the Income Tax Act.
  2. Avoid Cash Donations: Ensure that cash contributions do not exceed ₹2,000 to claim the deduction.
  3. Maintain Documentation: Keep proof of payment (e.g., receipts, bank statements) and ensure the institution provides the necessary information to the income-tax authority.
  4. File Accurate Returns: Claim the deduction in the income tax return, ensuring alignment with the information furnished by the payee.

Examples: ​

  1. Scenario 1: An individual donates ₹50,000 via bank transfer to an approved university for scientific research. The individual can claim a deduction under Section 135(1)(a), provided their gross total income does not include business income.
  2. Scenario 2: A taxpayer donates ₹3,000 in cash to a research association for social science research. Since the cash donation exceeds ₹2,000, the deduction under Section 135(1)(b) is disallowed.
  3. Scenario 3: A donor contributes ₹1,00,000 to an approved institution, but the institution's approval is later withdrawn. The donor can still claim the deduction under Section 135(3), as the withdrawal does not affect the deduction.

This section promotes contributions to research while ensuring compliance through clear restrictions and verification mechanisms.