Income Tax 2025

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Expenditure on agricultural extension project and skill development project. ​

47(1) ​

Any expenditure (excluding cost of any land or building) incurred, on––

  • (a) agricultural extension project by any assessee; or
  • (b) 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 as per the guidelines issued by the Board.

47(2) ​

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

Explanation

Section Summary: ​

This section allows taxpayers to claim a deduction for expenses incurred on agricultural extension projects or skill development projects, provided these projects are notified by the tax authorities. The deduction is available in the year the expenditure is incurred, but it excludes the cost of land or buildings. Additionally, if a deduction is claimed under this section, it cannot be claimed again under any other provision of the Income Tax Act.

Key Changes: ​

  1. New Deduction Category: This section introduces a specific deduction for expenses on agricultural extension projects (for all taxpayers) and skill development projects (only for companies). Previously, such expenses might have been claimed under general business expense provisions, but now they are explicitly recognized under this section.
  2. Notification Requirement: The projects must be notified by the tax authorities (the Board) as per their guidelines, which adds a layer of compliance.
  3. No Double Deduction: If a deduction is claimed under this section, it cannot be claimed again under any other section of the Income Tax Act.

Practical Implications: ​

  1. For Taxpayers: Individuals or entities involved in agricultural extension or skill development projects can reduce their taxable income by claiming these expenses as deductions. However, they must ensure the projects are notified by the Board.
  2. For Companies: Companies investing in skill development projects can benefit from this deduction, which may encourage more investment in workforce training.
  3. Compliance Burden: Taxpayers must ensure that their projects meet the notification requirements and that they maintain proper documentation to substantiate the expenses.

Critical Concepts: ​

  1. Agricultural Extension Project: Activities aimed at improving agricultural practices, such as training farmers, providing technical assistance, or disseminating knowledge about modern farming techniques.
  2. Skill Development Project: Initiatives focused on enhancing the skills of individuals, often through training programs, workshops, or certifications.
  3. Notification by the Board: The tax authorities will issue guidelines specifying which projects qualify for this deduction. Taxpayers must ensure their projects align with these guidelines.

Compliance Steps: ​

  1. Identify Eligible Projects: Determine if the agricultural extension or skill development project qualifies under this section.
  2. Check Notification Status: Verify that the project is notified by the Board as per their guidelines.
  3. Maintain Documentation: Keep detailed records of all expenses incurred, excluding land or building costs.
  4. Claim Deduction in Relevant Year: Ensure the deduction is claimed in the tax year the expenditure is incurred.
  5. Avoid Double Deduction: Do not claim the same expense under any other section of the Income Tax Act.

Examples: ​

  1. Agricultural Extension Project: A farmer cooperative spends ₹5 lakh on training farmers in organic farming techniques. If the project is notified by the Board, the cooperative can claim the ₹5 lakh as a deduction in the year the expense is incurred.
  2. Skill Development Project: A software company spends ₹10 lakh on a coding bootcamp for its employees. If the project is notified, the company can deduct the ₹10 lakh from its taxable income for that year. However, it cannot claim the same ₹10 lakh under any other section, such as general business expenses.

This section encourages investment in agriculture and skill development while ensuring proper compliance through the notification process.