Section 35CCD Deduction towards expenditure incurred on skill development project

Section 35CCD of the Income Tax Act provides deduction towards expenditure incurred on the skill development project. Whereas, rule 6AAF of the Income Tax Rules provides the guidelines to be followed by the company in order to notify the skill development project. Further, rule 6AAG provides the conditions to be satisfied by the skill development project. All the provisions are briefly covered in the current article.

Provisions governing deduction towards expenditure on a skill development project–

The provisions of section 35CCD of the Income Tax Act states as under-

• The company incurring expenditure on notified skill development project are eligible for deduction. Notably, the term ‘eligible company’ is defined under rule 6AAH.
• Expenditure incurred towards the cost of land and building are not allowed as deduction.
• The company should fulfil all the guidelines prescribed under rule 6AAF and conditions prescribed under rule 6AAG.
• Amount of deduction available under section 35CCD–

• Deduction claimed/ allowed under section 35CCD will not be allowed as a deduction under any other provisions of the Act.

Guidelines to be followed for notifying skill development project–

Rule 6AAF of the Income Tax Rules covers the guidelines which the company needs to satisfy so as to notify the skill development project. The guidelines are briefly explained hereunder-

• The skill development project should be-
  • Undertaken by the eligible company; and
  • The project should have been undertaken in separate facilities in a training institute.
• Filing of an application in Form No. 3CQ-
  • The eligible company needs to file an application in Form No. 3CQ to the National Skill Development Agency.
  • The application should be filed in duplicate.
  • List of documents to be attached with the application-
    • Detail note on the skill development project to be undertaken,
    • Details of the expected expenditure to be incurred on the project,
    • Details of an expected date of completion of the project,
    • Concurrence letter from the training institute where the skill development project is to be undertaken.
  • Line of action post submission of the application-
    • The National Skill Development Agency, before the expiry of one month from the date of receipt of an application, intimate the defect, if any, in the application.
    • The intimated defect should be removed by the applicant within fifteen days from the date of intimation.
    • Once the application is complete, the National Skill Development Agency, after appropriate examination, will send its recommendation to the Central Board of Direct Taxes. Such recommendation should be sent before the expiry of two months from the end of the month in which the application is completed.
    • In turn, the jurisdictional Commissioner/ Director of Income-tax will send his recommendation, regarding grant of approval or rejection of an application, to the National Skill Development Agency.
    • In case the National Skill Development Agency recommends a grant of approval-
      • The Central Board of Direct Taxes should issue a notification in Form No. 3CR specifying the skill development project.
      • Such notification should be issued within fifteen days from the end of the month in which recommendation report is received from the National Skill Development Agency.
    • A copy of notification issued by the Central Board of Direct Taxes will be sent to following-
      • The Applicant,
      • The National Skill Development Agency,
      • The training institute, and
      • The Commissioner/ Director of Income-tax.
    • The notification issued by the Central Board of Direct Taxes can be rescinded under the following circumstances-
      • The eligible company or the training institute has ceased its activities,
      • The activities carried on by the eligible company or the training institute are not genuine, or
      • The activities of the skill development project are not carried on as per provisions of the Act or rule.

Conditions to be satisfied by the Skill Development Project–

The company needs to satisfy the conditions prescribed under rule 6AAG for claiming deduction under section 35CCD. The conditions are listed hereunder-

• The company should maintain separate books of accounts of the skill development project.
• Such books of account should be audited by the practising chartered accountant.
• The audit report should contain the following details/ information-
  • Auditor’s comment on the true and fair view of the books of accounts,
  • Genuineness of activities of the skill development project, and
  • Fulfilment of conditions prescribed under the Act and rules.
• Deduction under section 35CCD is available towards expenditure incurred wholly and exclusively for undertaking the skill development project.
• The company should furnish the following documents to the Commissioner/ Director of Income-tax-
  • An audited statement of accounts of the skill development project,
  • The audit report, and
  • Amount of deduction claimed under section 35CCD.