Guidelines for approval of Skill Development Project
Introduction
For claiming deduction under Section 47, an eligible company should be notified. For such notification, the eligible company is required to make an application to the National Skill Development Agency in Form 22. Further, it needs to fulfil certain conditions, such as the maintenance of books of accounts and getting them audited.
1. About
A company engaged in manufacture or production of any article or thing (not being alcoholic spirits and tobacco products) or a company engaged in providing specified services can claim the deduction under Section 47. This deduction is available when a company incurs any expenditure (not being expenditure in the nature of cost of any land or building) on any notified skill development project.
To get a skill development project notified, an eligible company is required:
(a) To make an application to the National Council for Vocational Education and Training in accordance with the guidelines prescribed under Rule 39; and
(b) To fulfil certain conditions specified under Rule 40.
2. Application for notification [Rule 39]
2.1. When a project can be notified for deduction
A skill development project shall be considered for notification if it is undertaken by an eligible company and the project is undertaken in separate facility in a training institute.
2.1-1. Meaning of eligible company [Rule 40(8)(a)]
An eligible company means a company engaged in the business of manufacture or production of any article or thing, not being an article or thing mentioned at serial number 1 and serial number 2 of the list of articles or things specified in the Thirteenth Schedule or engaged in providing following services:
• 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, shipbuilding, ship scrapping, 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; or
• Travel and tourism, including guides or ticketing or sales or cab drives.
2.1-2. Meaning of training institute [Rule 40(8)(d)]
Training institute means a training institute:
(a) Set up by Central Government, State Government or Local Authority;
(b) Affiliated to State Council for Vocational Training;
(c) Affiliated to (or approved or empanelled by) the National Council for Vocational Education and Training;
(d) Affiliated to (or approved or empanelled by) the Central Government and certified by the National Council for Vocational Education and Training as having training standards equivalent to training institutes affiliated to the National Council for Vocational Education and Training; or
(e) Affiliated to (or approved or empanelled by) the State Government and certified by the National Council for Vocational Education and Training or a State Council for Vocational Training as having training standards equivalent to training institutes affiliated to the National Council for Vocational Education and Training or the State Council for Vocational Training, as the case may be.
2.1-3. Meaning of National Council for Vocational Education and Training [Rule 40(8)(b)]
"National Council for Vocational Education and Training" means the National Council constituted by the Ministry of Skill Development and Entrepreneurship vide Notification No. SD-17/113/2017-E&PW dated 5-12-2018.
2.2. Filing of application
The eligible company, before undertaking any skill development project, shall make an application for notification of such project, in duplicate, in Form 22, to the National Council for Vocational Education and Training (National Council). The eligible company shall also send a copy of the application to the Jurisdictional Commissioner of Income-tax. Such application shall be accompanied by an acknowledgement receipt as evidence of having furnished the application form in duplicate to the National Council.
2.3. Documents to be furnished with application
Application for notification shall be accompanied by the following documents:
(a) Detailed note on the skill development project to be undertaken;
(b) Details of the expenditure expected to be incurred on the project and expected date of completion of the project; and
(c) A letter of concurrence from the training institute in which the project is to be undertaken.
2.4. Intimation of defects in application
Where any defect is noticed in the application or any relevant document is not attached thereto, the National Council shall intimate the defect to the applicant for its rectification. Such a defect shall be intimated before the expiry of 1 month from the end of the month in which the application is received in its office.
The applicant shall remove the defect within a period of 1 month from the end of the month in which such intimation letter. If applicant fails to remove the defect within such period so allowed, the National Council shall send its recommendation for treating the application as invalid to the Board. On receipt of such recommendation, the Board may pass an order treating the application as invalid if it is satisfied in this respect.
2.5. Sending recommendation for approval or rejection
If the application form is complete in all respects, the National Council may make necessary inquiry or call for necessary documents, from the eligible company or the training institute, for satisfying itself regarding the genuineness of the current and proposed activity of the applicant relating to skill development. It shall send its recommendation to the Board for grant of approval or rejection of the application. Such recommendation shall be sent before the expiry of 2 months from the end of the month in which the application form complete in all respects was received in its office.
The jurisdictional CIT shall send his recommendation to the National Council for grant of approval or rejection of the application, after considering the compliance of the applicant with the various provisions of Income-tax Act. Such recommendation must be sent before the expiry of 1 month from the end of the month in which the copy of the application was received in his office.
2.6. Issue of notification
The Board, on recommendation of National Council, shall issue notification within two months from the end of the quarter in which it receives the report from the National Council. Such notification shall be issued in Form 23 which shall remain effective for prescribed period subject to upper limit of 3 tax years.
If the Board is satisfied with the activities of the project during the period of notification, it may notify the said project for a further period in consultation with the National Council. A copy of such notification shall be sent to the applicant, the NSDA, the training institute and jurisdictional CIT or DIT.
If National Council recommends the rejection of the application, the Board shall pass an order rejecting the application.
2.7. Revocation of notification
The Board may revoke the notification issued at any time, if it is satisfied that:
(a) The eligible company or the training institute, as the case may be, has ceased its activities;
(b) Its activities are not genuine; or
(c) The activities of the project are not being carried out in accordance with all or any of the relevant provisions of Act/Rules or the conditions subject to which the notification was issued.
Applicant shall be given an opportunity of being heard in the matter before revocation of the notification. A copy of any order invalidating or rejecting the application or revoking the notification shall be sent to the applicant, the training institute, the National Council and Jurisdictional CIT.
3. Conditions for notification [Rule 40]
3.1. Maintenance of books of account
The company undertaking skill development project shall maintain separate books of account of the notified skill development project. It shall get such books of account audited by a Chartered Accountant.
The audit report shall include the comments of the auditor on:
(a) The true and fair view of the books of account maintained for skill development project;
(b) The genuineness of the activities of the skill development project; and
(c) Fulfilment of the conditions specified in the relevant provisions or the conditions mentioned in the notification.
3.2. Ineligibility for notification
A skill development project in respect of existing employees of the company shall not be eligible for notification, where the training of such employees commences after 6 months of their recruitment.
3.3. Expenses eligible for deduction
All expenses, not being expenditure in the nature of cost of any land or building, incurred wholly and exclusively for undertaking a notified skill development project shall be eligible for deduction.
However, any expenditure incurred on the skill development project which is reimbursed or reimbursable to the company by any person, whether directly or indirectly, shall not be eligible for deduction.
3.4. Furnishing of audited statement of accounts
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 skill development project for the tax year along with the audit report and amount of deduction claimed to the CIT.
3.5. Furnishing of report for rescinding notification
The CIT or DIT may furnish a report, after making appropriate enquiries, to the CBDT for rescinding notification if it is satisfied that:
(a) Company has not maintained separate books of account for the skill development project or has not got such books of account audited by a Chartered Accountant;
(b) Company has not furnished the required documents;
(c) Company has ceased to carry out activities of skill development project;
(d) Activities of skill development project of the company are not genuine; or
(e) Activities of the skill development project of the company are not being carried out in accordance with the relevant provisions or the conditions subject to which the notification was issued.
Further, if Board is not satisfied about the genuineness of the activities of the notified skill development project, the Board shall send its recommendation to the Board for rescinding notification.
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.