Income Tax Act, 1961

The Income Tax Act, 1961, before amendment by Finance Act, 2010, allowed a weighted deduction of 125% for any sum paid out of business income to a university, college or other institution in case the amount is used for scientific research. Similar weighted deduction of 125% was also allowed for any sum paid out of business income to a national laboratory or a university or Indian Institute of Technology for the purpose of an approved scientific research programme. The Finance Act 2010 has increased the above-mentioned weighted deduction from 125% to 175% with effect from 1^st April, 2010. Any sum paid to a hospital does not qualify for weighted deduction under the Income Tax Act 1961.

The weighted deduction from business income is allowed for incentivising research and development in the country. Consequently, the weighted deduction is allowed with a condition that the donation received by the recipient organization will be used for scientific research and development. As an orphanage is not engaged in any research and development, it can not be included in the scheme specifically meant for encouraging research and development. However, donation to a hosptital approved under section 80G of the Income Tax Act, 1961 qualifies for deduction at the rate of 50% of the donation.

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to an Unstarred Question in Rajya Sabha today.

Weighted deduction for scientific research expanded to increase incentives for qualifying business payments used for approved R&D. The weighted deduction for sums paid from business income to universities, national laboratories and Indian Institutes of Technology for approved scientific research programmes has been increased by legislative amendment, and applies only where recipients use the funds for scientific research and development; hospitals are excluded from the weighted deduction scheme while charitable donations to hospitals may qualify for a partial deduction under the charitable-deduction regime, and orphanages are not eligible.