Rule 29 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 29 of the Income-tax Rules, 2026 sets the prescribed authority and the whole approval machinery for in-house research and development expenditure under section 45(2) — application in Form No. 11, approval in Form No. 14, and annual audit in Form No. 13.
The two prescribed authorities under rule 29
| Provision | Prescribed authority |
|---|---|
| Section 45(1)(b) read with (a)(ii) | Principal Chief Commissioner of Income-tax (Exemptions), in concurrence with the Secretary, Department of Scientific and Industrial Research, Government of India |
| Section 45(2) | Secretary, Department of Scientific and Industrial Research, Government of India |
The 1962 parallel is rule 6. What rule 29 keeps from it is the two-key structure — the tax administration and the scientific department both have a role, and for the section 45(1) limb neither acts alone.
The precondition — an agreement, not just an application
Sub-rule (2)(b): "no company shall be entitled for deduction under said section, unless it enters into an agreement with the prescribed authority for co-operation in research and development facility and fulfils such conditions with regard to maintenance of books of account and audit thereof and furnishing of reports in the manner provided in this rule".
The application to enter into that agreement is made in Form No. 11.
Sub-rule (2)(b) does not say a company is entitled once approved. It says entitlement depends on entering into the agreement and fulfilling the conditions on books, audit and reports in the manner provided in this rule. A company that holds a Form No. 14 approval but stops filing Form No. 13 has failed the same sub-rule of rule 29 that granted it the deduction.
The approval process in rule 29
- Application in Form No. 11 to the Secretary, DSIR.
- If satisfied that the section 45(2) conditions and those in the sub-rule are fulfilled, the authority passes an order in writing in Form No. 14, approving the facility, within four months from the end of the month in which the application is received.
- Where an application is rejected, a reasonable opportunity of being heard shall be granted to the company.
- A copy of the order is furnished to the Chief Commissioner of Income-tax having jurisdiction over the company.
The eight conditions of approval under rule 29
Sub-rule (2)(e) makes approval of the expenditure subject to the following:
| # | Condition |
|---|---|
| (i) | The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a similar nature |
| (ii) | The prescribed authority furnishes its report electronically — Part A of Form No. 12 on the approval of the facility, and Part B of Form No. 12 quantifying the expenditure incurred during the tax year and eligible for deduction under section 45(2) |
| (iii) | Form No. 12 is furnished electronically to the jurisdictional Chief Commissioner within one hundred and twenty days — of the grant of the approval for Part A, and of the submission of the audit report for Part B |
| (iv) | The company maintains separate books of account for each approved facility, audited annually |
| (v) | A report of audit in Form No. 13 is furnished electronically to the Secretary, DSIR on or before the due date specified in section 263(1)(c), for each succeeding tax year |
| (vi) | The company attaches a copy of the audited annual account with the return of income filed under section 263(1)(a) for each tax year |
| (vii) | The company ensures that capital and revenue expenditure on the facility is reflected in the schedules or notes to accounts in the audited financial statement prepared for the annual report and for computing income-tax |
| (viii) | Assets acquired by the approved facility are utilised only for the approved purpose and not disposed of without the approval of the Secretary, DSIR |
Sub-rule (3) defines "audited" for this purpose as audit of accounts by an accountant as defined in section 515(3)(b).
The company's own books do not settle the quantum. Under condition (ii)(B) the prescribed authority quantifies the expenditure eligible for deduction, and under (iii)(B) it does so within 120 days of the audit report being submitted. So the chain runs: separate books → annual audit → Form No. 13 to DSIR → Part B of Form No. 12 from DSIR to the Chief Commissioner. Miss Form No. 13 and Part B never issues.
Worked example
| Step | Treatment under rule 29 |
|---|---|
| Company applies to DSIR in July | Form No. 11 |
| Approval due | Form No. 14 by end of November — four months from the end of July |
| DSIR reports the approval | Part A of Form No. 12, within 120 days of the grant |
| Facility books | Separate books per facility, audited annually by an accountant under section 515(3)(b) |
| Annual filing | Form No. 13 to the Secretary, DSIR by the section 263(1)(c) due date |
| Quantification | Part B of Form No. 12, within 120 days of the audit report |
| Facility used partly for routine quality control | Condition (i) is in issue — the facility must not relate purely to such activity |
| Sale of an instrument bought by the facility | Requires DSIR approval before disposal |
Compliance checklist
- Apply in Form No. 11 and execute the agreement — approval alone is not the entitlement.
- Track the four-month approval window from the end of the month of application.
- Keep separate books for each approved facility.
- Have those books audited annually by an accountant under section 515(3)(b).
- File Form No. 13 electronically to DSIR by the section 263(1)(c) due date, every year.
- Attach the audited annual account to the return.
- Show capital and revenue R&D spend in the notes to the audited financial statements.
- Obtain DSIR approval before disposing of any asset of the facility.
- Watch the 120-day Form No. 12 windows, since the deductible amount comes from Part B.
Common mistakes
- Treating the Form No. 14 approval as the end of the compliance.
- Common books across two approved facilities.
- Missing the annual Form No. 13, which stalls the Part B quantification.
- Claiming the whole book figure rather than the amount quantified by the authority.
- Disposing of facility assets without DSIR approval.