Section 47(1)(b) of the Income Tax Act, 2025 provides a deduction for expenditure incurred on skill development projects by companies. This provision is designed to encourage investment in skill development and vocational training. Understanding the eligible company criteria and approval process is essential for companies seeking to claim this deduction.
The Scope of the Deduction
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.
Eligible Company Criteria
A company is eligible to undertake a skill development project if it is:
Engaged in Manufacturing or Production
The company must be 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 the Thirteenth Schedule.
Engaged in Specified Services
Alternatively, the company must be engaged in providing services from a specified list of 31 service categories.
The 31 Eligible Service Categories
The following services qualify for skill development project deduction:
- Accounting services
- Architect services
- Automobile repair or maintenance
- Banking, insurance and financial services including ATM installation, maintenance and operations or banking correspondents or insurance agents
- Beauty and cosmetology, including hair styling or manicurists or pedicurists
- Cable operators or Direct To Home (DTH) services
- Cargo handling and stevedoring services
- Construction including painting or woodwork or plumbing or flooring or electrical wiring or installation or maintenance of lifts
- Courier services
- Design services including fashion or gems and jewellery or apparel or industrial designing
- Event management
- Facilities management, housekeeping, cleaning services
- Fire and safety services
- Food processing or preservation services, including post harvesting and post farm-gate skills
- Health and wellness services including spa or nutritionists or weight management or health instructors or yoga or gym trainers
- Home decor services, landscaping
- Hospital and Healthcare services, such as Lab technicians, nursing and other paramedical staff
- Hospitality, including culinary skills or catering services
- Logistics and transportation by any mode, including by air, sea, road, rail or pipelines, and related services such as driving or operation of heavy machinery equipment, forwarding agents, packers and movers
- Market research services
- Media or film or advertising
- Mining and extraction of mineral resources, including hydrocarbons
- Packaging and warehousing, including both ambient temperature storage and cold storage, operation of internal container depots and container freight stations
- Port and maritime services such as dredging, piloting, tug boat operations, ship building, ship scrapping and bunkering
- Power sector services, including those required for erection or installation or maintenance of equipment or towers, etc. in generation, transmission or distribution sector projects
- Private security, including guards, supervisors, installation and maintenance of security equipment etc.
- Refrigeration and air-conditioning
- Repair and maintenance services, including installation and servicing of household goods or white goods
- Retail marketing, including shop floor assistants or merchandisers
- Telecom services, including erection and maintenance of towers
- Travel and tourism, including guides or ticketing or sales or cab drives
Application Process
Form 22 Filing
Before undertaking any project, the eligible company must make an application in Form No. 22 to the National Council for Vocational Education and Training (NCVT) for notification of such project under Section 47(1)(b).
Accompanying Documents
The application must 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
- Details of the expenditure expected to be incurred on the project and expected date of completion of the project
Deficiency Rectification
If any defect is noticed in the application, the NCVT shall intimate the defect to the applicant for its rectification. The applicant must remove the defect within a period of one month from the end of the month in which the intimation letter is served.
Approval or Rejection
If the application is complete in all respects, the NCVT may make such inquiry or call for such documents as it may consider necessary and send its recommendation to the Board. 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.
Audit Requirements
Separate Books of Account
The company undertaking a skill development project must maintain separate books of account for the project and get such books of account audited by an accountant as defined in section 515(3)(b).
Audit Report
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, rules, or the conditions mentioned in notification.
Existing Employees
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.
Eligible Expenditure
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
- Any expenditure on the project that is reimbursed or reimbursable to the assessee by any person, whether directly or indirectly
Reporting 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.
Expert Legal Guidance
Understanding the eligible company criteria and approval process for skill development projects is essential for companies seeking to claim this deduction. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping companies navigate the approval process and ensure compliance with all conditions.