Skill Development Deduction for Healthcare Training

Healthcare training institutions play a critical role in developing the skilled workforce needed for India's healthcare sector. The Direct Tax Code (DTC) 2025 provides a significant tax incentive for companies undertaking skill development projects under Section 47(1)(b). This guide analyses the skill development deduction and its application to healthcare training institutions.

The Skill Development Deduction Framework

Section 47(1)(b) — Deduction for Skill Development Projects

Section 47(1)(b) 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) — No Double Deduction

If a deduction under this section is claimed and allowed for any tax year in respect of any expenditure referred to in Section 47(1), deduction shall not be allowed for such expenditure under any other provision of this Act for the same or any other tax year.

Eligibility Conditions

1. Company Status

The deduction is available only to companies. Individuals, firms, and other entities are not eligible.

2. Skill Development Project

The expenditure must be incurred on a skill development project. The project must be notified by the Board as per the guidelines issued by it.

3. Nature of Expenditure

The expenditure must not be in the nature of cost of any land or building.

4. Approval by the Board

The project must be notified by the Board as per the guidelines issued by it.

Healthcare Training Institutions — Eligible Entities

Eligible Company Definition

Under Rule 40, an "eligible company" means a company which is engaged in:

The business of manufacture or production of any article or thing; or
Providing specified services, including hospital and healthcare services, such as lab technicians, nursing and other paramedical staff

Training Institute Definition

A "training institute" means 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 NCVET
Affiliated to, or approved by or empanelled by, the State Government and certified by NCVET or a State Council for Vocational Training

The Approval Process

Form 22 — Application for Approval

The company shall make an application in Form No. 22 to the National Council for Vocational Education and Training (NCVET) for notification of such project under Section 47(1)(b). The application enables tax benefits linked to approved skill development projects under Section 47(1)(b).

Form 23 — Notification

Form No. 23 is issued by the CBDT under Section 47(1)(b) for approved skill development projects, following approval of Form 22 and recommendation by NCVET.

National Council for Vocational Education and Training (NCVET)

The National Council for Vocational Education and Training is the approving authority for skill development projects.

Conditions for Approval

Under Rule 40, the following conditions apply:

The company shall maintain separate books of account for the project
The books of account shall be audited by an accountant
The audit report shall include comments on the true and fair view of the books, genuineness of activities, and fulfilment of conditions
A project in respect of existing employees shall not be eligible where training of such employees commences after six months of their recruitment
Expenses eligible for deduction shall be reduced by the cost of any land or building and any expenditure reimbursed or reimbursable

Audit and Reporting

Under Rule 40(5), 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 to the Commissioner of Income-tax having jurisdiction over the company.

Practical Compliance for Healthcare Training Institutions

1. Assess Eligibility

Determine whether the company is eligible (engaged in healthcare or related services)
Determine whether the training institution is eligible (affiliated to NCVET or equivalent)
Determine whether the project qualifies as a skill development project

2. Apply for Approval

File Form 22 with NCVET
Include a letter of concurrence from the training institute
Include a detailed note on the skill development project
Include details of the expenditure expected to be incurred

3. Obtain Notification

After NCVET recommendation, the Board will issue Form 23
The project will be notified for a period not exceeding three tax years

4. Maintain Documentation

Maintain separate books of account for the project
Get the books audited by an accountant
Furnish the audited statement of accounts with the return of income

5. Claim Deduction

Claim the deduction in the return of income
Ensure the expenditure is not claimed under any other provision

Consequences of Non-Compliance

Disallowance of Deduction

If the conditions are not fulfilled or the project is not notified:

The deduction may be disallowed
Income may be recomputed
Interest and penalty may be levied

Withdrawal of Notification

If the Board is satisfied that the company has ceased its activities, or its activities are not genuine, or are not being carried out in accordance with the conditions, the notification may be revoked.

Expert Legal Guidance

Anuj Desai & Associates provides comprehensive legal advisory services on skill development deduction for healthcare training institutions. Our direct tax experts help healthcare companies understand the deduction conditions, prepare applications, and navigate the approval process. We assist in application preparation, documentation, and representation before NCVET and income-tax authorities.

Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on skill development deduction or any other direct tax matter, please consult qualified legal professionals.

Need Expert Legal Guidance?

Navigating the skill development deduction framework for healthcare training institutions requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:

Application Preparation: Assistance with Form 22 filing
Approval Process: Guidance on the NCVET approval process
Documentation: Assistance with documentation and audit reports
Representation: Representation before NCVET and income-tax authorities

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Skill Development Deduction for Healthcare Training Institutions