NGOs running vocational training and skill development programmes play a critical role in India's skilling ecosystem. The Direct Tax Code (DTC) 2025, through Section 47(1)(b) , provides a significant tax benefit for companies undertaking skill development projects. However, NGOs themselves may also benefit indirectly by partnering with eligible companies. This guide analyses the skill development project deduction framework and its relevance to NGO-run vocational programmes.
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. NGOs, trusts, and other entities are not directly 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.
Relevance to NGO-Run Vocational Programmes
1. Partnership with Companies
NGOs can partner with eligible companies to run vocational training programmes:
- The company claims the deduction
- The NGO provides the training infrastructure and expertise
- The company funds the project
2. Eligible Services
NGOs offering the following services may be eligible for partnership:
- Healthcare and paramedical training
- Hospitality and culinary skills
- IT and technology training
- Beauty and wellness training
- Construction and plumbing training
- Logistics and transportation training
3. Training Institute Status
The NGO's training institute must be:
- Set up by the Central Government or a State Government or a local authority; or
- Affiliated to a State Council for Vocational Training; or
- Affiliated to, or approved by, or empanelled by, NCVET; or
- Affiliated to, or approved by, or empanelled by, the Central Government and certified by NCVET; or
- Affiliated to, or approved by or empanelled by, the State Government and certified by NCVET or a State Council for Vocational Training
4. Eligibility for Company
The partner company must be:
- Engaged in the business of manufacture or production of any article or thing; or
- Engaged in providing specified services, including healthcare and other services
The Approval Process
Rule 39 — Procedure for Approval
Rule 39 of the Income-tax Rules, 2026 prescribes the procedure for approval of skill development projects.
Step 1: Application Filing
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).
Step 2: NCVET Review
The NCVET may make such inquiry or call for such documents from the eligible company or the training institute as it may consider necessary.
Step 3: NCVET Recommendation
The NCVET shall send its recommendation to the Board for grant of approval or rejection of the application.
Step 4: Board Notification
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.
Step 5: Validity Period
The notification shall be effective for a period not exceeding three tax years.
Step 6: Renewal
The company may apply for renewal in consultation with the NCVET.
Documentation Requirements
Form 22 — Application
- Letter of concurrence from the training institute
- Detailed note on the skill development project
- Details of the expenditure expected to be incurred
- Expected date of completion of the project
Form 23 — Notification
- Issued by the Board under Section 47(1)(b)
- Specifies the project, subject to conditions
- Effective for a period not exceeding three tax years
Annual Compliance Documents
- Separate books of account for the project
- Audited statement of accounts
- Note on the project undertaken
Practical Compliance for NGOs
1. Identify Eligible Partner
- Identify a company eligible to claim the deduction
- Identify companies in manufacturing or specified services
2. Ensure Training Institute Status
- Ensure the NGO's training institute is eligible
- Obtain affiliation or approval from NCVET or equivalent
3. Partner with Company
- Partner with the company to run the skill development project
- Provide the training infrastructure and expertise
4. Maintain Documentation
- Maintain separate books of account for the project
- Get the books audited by an accountant
- Furnish audited statement of accounts
5. Comply with Conditions
- Ensure the project is not for existing employees
- Ensure the project is in a separate facility
- Ensure compliance with all conditions
Consequences of Non-Compliance
Disallowance of Deduction
If the conditions are not fulfilled:
- The deduction may be disallowed
- Income may be recomputed
- Interest and penalty may be levied
Withdrawal of Notification
If the project activities are not genuine, the notification may be revoked.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on skill development project deduction. Our direct tax experts help NGOs and companies understand the eligibility conditions, prepare applications, and navigate the approval process. We assist in partnership structuring, Form 22 filing, documentation, and representation before NCVET and the CBDT.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on skill development project deduction or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex skill development project deduction framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Eligibility Assessment: Evaluation of project eligibility
- Partnership Structuring: Guidance on NGO-company partnerships
- Form 22 Filing: Assistance with application preparation and filing
- Representation: Representation before NCVET and the CBDT
Contact us for expert legal guidance on your skill development project matters.