The Income-tax Act, 2025 provides significant tax incentives for companies undertaking skill development projects through eligible training institutes. The National Institute of Securities Markets (NISM), as a premier institution for securities market capacity building, plays a crucial role in this framework. Understanding the eligibility criteria for training institutes under the skill development rules is essential for companies seeking to claim deductions under Section 47.
The Statutory Framework for Skill Development
Section 47(1) provides that any expenditure (excluding cost of any land or building) incurred on any skill development project by a company shall be allowed as a deduction, in the tax year in which such expenditure is incurred provided such project is notified by the Board as per the guidelines issued by it.
Section 47(2) provides that if a deduction under this section is claimed and allowed for any tax year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed for such expenditure under any other provision of this Act for the same or any other tax year. This ensures that there is no double deduction for the same expenditure.
Eligible Company Definition
Rule 40(8)(a) defines an "eligible company" as a company which is engaged in the business of manufacture or production of any article or thing, not being an article or thing mentioned at serial numbers 1 and 2 of the list of articles or things specified in Schedule XIII, or is engaged in providing specified services.
The specified services include accounting services, architect services, automobile repair or maintenance, banking, insurance and financial services, beauty and cosmetology, cable operators or Direct To Home (DTH) services, cargo handling and stevedoring services, construction including painting or woodwork or plumbing or flooring, courier services, design services, event management, facilities management, fire and safety services, food processing or preservation services, health and wellness services, home decor services, hospital and healthcare services, hospitality, logistics and transportation by any mode, market research services, media or film or advertising, mining and extraction of mineral resources, packaging and warehousing, port and maritime services, power sector services, private security, refrigeration and air-conditioning, repair and maintenance services, retail marketing, telecom services, and travel and tourism.
Training Institute Definition
Rule 40(8)(d) defines a "training institute" as a training institute set up by the Central Government or a State Government or a local authority, affiliated to a State Council for Vocational Training, affiliated to, or approved by, or empanelled by, the National Council for Vocational Education and Training (NCVET), affiliated to, or approved by, or empanelled by, the Central Government and certified by the NCVET as having training standards equivalent to training institutes affiliated to the NCVET, or affiliated to, or approved by or empanelled by, the State Government and certified by the NCVET or a State Council for Vocational Training.
National Council for Vocational Education and Training
The National Council for Vocational Education and Training (NCVET) is constituted by the Ministry of Skill Development and Entrepreneurship vide Notification No. SD-17/113/2017-E&PW dated 5-12-2018. The NCVET is responsible for regulation of vocational education and training in India.
State Council for Vocational Training
The State Council for Vocational Training is established by a State Government and is responsible for vocational training within the State.
NISM's Role in Skill Development
The National Institute of Securities Markets (NISM) is an initiative of SEBI focused on capacity building and plays a crucial role in equipping professionals with essential expertise to thrive in securities markets. NISM articulates and implements its purpose through its four verticals, offering a comprehensive array of capacity-building initiatives, including full-time and part-time academic programs, induction programs, tailored training solutions, E-Learning courses, and certification programs.
NISM designs and offers various skill-based long-term and short-term programs to the market participants and student community for capacity building in securities markets. The institute offers a range of e-learning courses for investors, professionals, and students to learn at their own pace.
NISM Certification and Eligibility
NISM has not set any eligibility criteria for taking any of its courses and getting the NISM certification. Associate persons of any age, financial background, or educational qualifications can apply to the NISM certification test. However, specific domains may have recommendations or employer conditions.
NISM certifications are often required for regulatory compliance and job eligibility in India's financial sector. The certification program includes mandatory certifications such as Mutual Funds, Investment Adviser, and Research Analyst.
Skill Development Programs at NISM
NISM conducts a wide range of capacity building activities at various levels aimed at enhancing the quality standards in securities markets. The institute offers skill development programs that are designed to meet the needs of the securities market industry.
NISM Partnership Programs
NISM has partnership programs with various institutions and organizations to deliver skill development training. These partnerships enable NISM to extend its reach and impact in the skill development ecosystem.
E-Learning and Skill Development Modules
NISM offers eLearning programs and skill development modules that are accessible to a wide range of learners. These programs are designed to provide flexible learning options for professionals and students.
Eligibility of NISM as a Training Institute
For a company to claim deduction under Section 47 for skill development projects conducted through NISM, the institute must meet the definition of a "training institute" under Rule 40(8)(d). NISM qualifies as a training institute if it is affiliated to, or approved by, or empanelled by, the NCVET, or if it is certified by the NCVET as having training standards equivalent to training institutes affiliated to the NCVET.
The training center should have a minimum of 1,500 sq. ft. of space and should have a minimum of three years of operations. The entity should be involved in skill development training programs.
Approval Procedure for Skill Development Projects
Rule 39 sets out the procedure for approval of skill development projects. The eligible company shall make an application in Form No. 22 to the NCVET for notification of such project under section 47(1)(b). A copy of the application shall also be sent to the Commissioner of Income-tax having jurisdiction over the applicant.
The application shall be accompanied by a letter of concurrence from the training institute in which the project is to be undertaken, a detailed note on the skill development project to be undertaken by the eligible company, and details of the expenditure expected to be incurred on the project and expected date of completion of the project.
If any defect is noticed in the application, the NCVET shall intimate the defect to the applicant for its rectification. The applicant shall remove the defect within one month from the end of the month in which the intimation letter for removal of the deficiency is served. Where the applicant fails to remove the deficiency, the NCVET shall send its recommendation for treating the application as invalid to the Board.
If the application is complete in all respects, the NCVET may make such inquiry or call for such documents from the eligible company or the training institute as it may consider necessary for satisfying itself regarding the genuineness of the current and proposed activity of the applicant relating to skill development, and send its recommendation to the Board for grant of approval or rejection.
The Commissioner of Income-tax having jurisdiction over the applicant shall send his recommendation to the NCVET for grant of approval or rejection after considering the compliance of the applicant with the various provisions of the Act. If the NCVET recommends the grant of approval, the Board shall issue a notification in Form No. 23 under section 47(1)(b), specifying the project, subject to conditions, to be effective for such period not exceeding three tax years.
Conditions for Notification
Rule 40 provides the conditions subject to which a skill development project is to be notified. The company undertaking a skill development project shall maintain separate books of account for the project and get such books of account audited by an accountant. The audit report shall include the comments of the auditor on the true and fair view of the books of account maintained for the project, the genuineness of the activities of the project, and the fulfilment of the conditions specified in the relevant provisions of the Act.
A project in respect of existing employees of the company shall not be eligible for notification under section 47(1)(b), where the training of such employees commences after six months of their recruitment. The expenses, eligible for deduction under section 47(1)(b), shall be all expenses incurred wholly and exclusively for undertaking an eligible project as reduced by the cost of any land or building and any expenditure on the project that is reimbursed or reimbursable to the assessee.
Compliance Requirements
The company shall, on or before the due date of furnishing the return of income under section 263(1), furnish the audited statement of accounts of the project for the tax year along with the audit report and the amount of deduction claimed under section 47(1)(b), to the Commissioner of Income-tax having jurisdiction over the company.
If it is found by the Commissioner of Income-tax that the company has not maintained separate books of account for the project or has not got such books of account audited by an accountant, or has not furnished the documents, or has ceased to carry out activities of the project, or the activities of the project are not genuine, or the activities of the project are not being carried out in accordance with the relevant provisions, he shall furnish a report to the Board for appropriate action.
If the NCVET is not satisfied about the genuineness of the activities of the notified project, it shall send its recommendation to the Board for appropriate action.
Best Practices for Companies
Companies undertaking skill development projects through NISM or other eligible training institutes should ensure that the training institute meets the definition under Rule 40(8)(d). The company should obtain a letter of concurrence from the training institute and ensure that the project is approved by the NCVET.
The company should maintain separate books of account for the project and get them audited by an accountant. The company should furnish the required statements and reports within the prescribed time limits. The company should also ensure that the training provided is in accordance with the approved project plan.
Regular review of compliance with the conditions of notification should be conducted, and any issues should be addressed promptly. The company should also maintain proper documentation to support the deduction claimed.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on skill-linked training institute eligibility, please consult qualified legal and tax professionals.
Need Expert Legal Guidance?
Navigating the complex skill development deduction framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive advisory services on Section 47 compliance, training institute eligibility, and deduction claims. Contact us for expert guidance on your skill development project matters.