Agricultural Extension and Skill Development Project Deduction (Income Tax Act 2025, Section 47)

Section 47 of the Income Tax Act 2025 allows a deduction for money spent on a notified agricultural extension project (any assessee) or a notified skill development project (companies only). Land and building costs are excluded, the project must be notified by the Board before you claim, and the same spending cannot be deducted again under any other provision. The Income-tax Rules, 2026 (rules 37 to 40) set the approval forms, audit and filing conditions. The figures here follow the Act as amended by the Finance Act, 2026 (tax year 2026-27).

What does section 47 of the Income Tax Act 2025 allow?

Section 47(1) allows, as a deduction in the tax year in which the expenditure is incurred, any expenditure (excluding the cost of any land or building) on:

• an agricultural extension project, by any assessee (section 47(1)(a)); or
• a skill development project, by a company (section 47(1)(b)).

The condition is that the project is notified by the Board as per the guidelines it has issued. A project that is not notified does not qualify under this section. An assessee is simply the person liable to tax, so it can be a company, a firm, a trust or an individual.

Agricultural extension vs skill development: what is the difference?

	Agricultural extension project	Skill development project
Provision	Section 47(1)(a); rules 37, 38	Section 47(1)(b); rules 39, 40
Who can claim	Any assessee	A company that is an "eligible company" (rule 40(8))
Purpose	Training, education and guidance of farmers (rule 37(1)(a))	Training in a separate facility in a training institute (rule 39(1))
Prior approval	Ministry of Agriculture and Farmers Welfare (rule 37(1)(b))	Letter of concurrence from the training institute; National Council recommendation (rules 39(4), 39(9))
Spending test	Expected expenditure above Rs 25,00,000, excluding land and building (rule 37(1)(c))	No minimum amount in the rules
Application form	Form 20 to the Member (IT), CBDT	Form 22 to the National Council
Notification form	Form 21	Form 23
Notification period	Not more than three tax years at a time	Not more than three tax years initially; a further period as the Board notifies (rule 39(13))

How is a project notified? Step by step

Apply before you start the project (rules 37(2) and 39(2)). The agricultural route runs straight to the Board. The skill route goes through the National Council for Vocational Education and Training, which recommends to the Board.

Agricultural extension project (rule 37)

1. The project must be for training, education and guidance of farmers, have prior approval of the Ministry of Agriculture and Farmers Welfare, and be expected to cost more than Rs 25,00,000 (excluding land and building).
2. File Form 20 with the Member (IT), CBDT, with the Ministry's approval letter stating the expected expenditure, a detailed project note, and the expenditure details and expected completion date (rule 37(3)).
3. If there is a defect, the Board tells you within one month from the end of the month of receipt. You fix it within one month from the end of the month the intimation is served. Otherwise the application is treated as invalid (rule 37(4) to (6)).
4. If the application is complete, the Board notifies the project in Form 21 within two months from the end of the quarter of receipt, for a period of up to three tax years (rule 37(7)).
5. To continue, apply at least three months before the notification expires. The Board calls for a Commissioner's report and may extend for up to three more tax years (rule 37(8) to (10)).

Skill development project (rule 39)

1. The project must be run by an eligible company in a separate facility in a training institute.
2. File Form 22 with the National Council, and send a copy with the acknowledgement to your Commissioner of Income-tax. Attach the institute's letter of concurrence, a detailed project note, and expenditure details with the expected completion date (rule 39(2) to (4)).
3. The National Council may make inquiries and recommends approval or rejection to the Board within two months from the end of the month of receiving a complete application. The Commissioner sends his own recommendation to the National Council within one month from the end of the month in which he receives the copy (rule 39(9), (10)).
4. On a favourable recommendation, the Board notifies in Form 23 within two months from the end of the quarter in which it gets the report, for up to three tax years (rule 39(11)).

Who is an "eligible company" for a skill development project?

Under rule 40(8), an eligible company is one engaged in manufacture or production of an article or thing (other than articles at serial numbers 1 and 2 of the list in the Thirteenth Schedule), or in providing one of 31 listed services. The list includes accounting services, construction, courier services, hospitality, logistics, retail marketing, telecom services and travel and tourism. Check the full list in rule 40(8)(a)(ii) before planning a project.

A "training institute" means one set up by the Central or State Government or a local authority, or one affiliated to, approved by or empanelled with the relevant vocational training bodies, as set out in rule 40(8)(d).

How much can be deducted? Worked examples

The eligible expenses are all expenses incurred wholly and exclusively for the project, reduced by the items below (rule 38(5) for agricultural projects, rule 40(4) for skill projects).

Reduction	Agricultural extension (rule 38(5))	Skill development (rule 40(4))
Amount received from beneficiaries	Yes	Not listed
Cost of any land or building	Yes	Yes
Expenditure reimbursed or reimbursable by anyone, directly or indirectly	Yes	Yes

Example 1: Agricultural extension project, tax year 2026-27

Assumptions: Greenfield Agro Services Pvt Ltd runs a farmer training project that was notified in Form 21 before it began. All figures are for tax year 2026-27 and are invented for illustration.

Step	Item	Rs
1	Expenses wholly and exclusively for the project	62,00,000
2	Less: fees received from farmers	(3,00,000)
3	Less: cost of a training building	(12,00,000)
4	Less: amount reimbursed by a third party	(5,00,000)
	Eligible expenditure (62,00,000 - 3,00,000 - 12,00,000 - 5,00,000)	42,00,000

The deduction is allowed in 2026-27, the year the expenditure was incurred (section 47(1)).

Example 2: Skill development project, tax year 2026-27

Assumptions: Sunrise Logistics Ltd, an eligible company, runs a notified driver training project in a separate facility at an approved institute. It has no beneficiary fees. Figures are illustrative.

Step	Item	Rs
1	Expenses wholly and exclusively for the project	30,00,000
2	Less: cost of a building at the facility	(8,00,000)
3	Less: reimbursed by a government scheme	(2,50,000)
	Eligible expenditure (30,00,000 - 8,00,000 - 2,50,000)	19,50,000

Real-life examples

Meena's farmer training programme

Meena's agri-tech company plans a three-year programme to train farmers in drip irrigation. She first gets the Ministry of Agriculture and Farmers Welfare's approval letter, which states the expected spend of Rs 80,00,000, and files Form 20 before the first workshop. The Board notifies the project in Form 21. Because she applied before starting and the expected spend is above Rs 25,00,000, the project meets the rule 37(1) conditions.

Ravi starts the project first

Ravi's manufacturing company trains new machine operators. He starts the programme in January and plans to apply for notification later. Rule 39(2) requires the application before undertaking the project, and section 47(1) requires the project to be notified. Whether any spend before notification can be claimed is a point to settle with your adviser, since the rules do not say, but Ravi has put the claim at risk by starting first.

Can I claim the same expense under another section as well?

No. Under section 47(2), if you claim and are allowed a deduction under this section, the same expenditure gets no deduction under any other provision of the Act, for the same or any other tax year. So if you claim the Rs 42,00,000 in Example 1, you cannot also claim depreciation or amortise it elsewhere.

What conditions apply after notification?

Condition	Agricultural (rule 38)	Skill (rule 40)
Separate books of account for the project, audited by an accountant under section 515(3)(b)	Yes, rule 38(1)	Yes, rule 40(1)
Audit report comments on true and fair view, genuineness, and fulfilment of conditions	Yes, rule 38(2)	Yes, rule 40(2)
Cap on amount charged to beneficiaries	Not above the amount approved in the notification, rule 38(3)	Not applicable
No direct or indirect benefit from the project (other than the deduction)	Yes, rule 38(4)	Not stated
Existing employees	Not applicable	Not eligible if their training starts after six months of recruitment, rule 40(3)
Filing with the Commissioner by the return due date under section 263(1)	Audited accounts, audit report, deduction amount, project note, and a Ministry certificate on genuineness, rule 38(6)	Audited accounts, audit report and deduction amount, rule 40(5)

The Board can revoke a notification after giving a reasonable opportunity of being heard if the activities cease, are not genuine, or the conditions are not followed (rules 37(11) and 39(14)). The Commissioner reports such lapses to the Board (rules 38(7) and 40(6)).

Common mistakes

• Starting before applying. Both application rules say "before undertaking any project".
• Including land or building cost. Section 47(1) and the rules exclude it.
• Forgetting reimbursements and beneficiary receipts. They reduce the eligible spend, even if the reimbursement arrives later ("reimbursed or reimbursable").
• Mixing project and business books. Separate, audited books are a condition of the notification.
• Missing the annual filing. The audited accounts must reach the Commissioner by the return due date, and a miss can lead to a report to the Board.
• Letting the notification lapse. For the agricultural route, apply for renewal at least three months before expiry.
• Double claiming. Section 47(2) bars the same expense under any other provision.

Quick reference

Item	Agricultural	Skill
Defect intimation by authority	1 month from end of month of receipt	1 month from end of month of receipt
Time to fix defect	1 month from end of month of service	1 month from end of month of service
Decision / notification	2 months from end of quarter of receipt	2 months from end of quarter of National Council report
Renewal application	At least 3 months before expiry	Board may notify further period (rule 39(13))
Annual filing	By return due date, section 263(1)	By return due date, section 263(1)

Where this is in the Act

• Section 47(1)(a), (b): deduction for agricultural extension and skill development projects
• Section 47(2): no double deduction
• Rule 37: approval of agricultural extension projects (Forms 20, 21)
• Rule 38: conditions for agricultural extension projects
• Rule 39: approval of skill development projects (Forms 22, 23)
• Rule 40: conditions for skill development projects and definitions
• Section 263(1) (return due date) and section 515(3)(b) (accountant), referred to in rules 38 and 40

FAQs

Who can claim a deduction under section 47?

Any assessee can claim for an agricultural extension project. Only a company can claim for a skill development project, and the rules require it to be an eligible company.

Is there a minimum spend?

For agricultural extension, the expected expenditure must exceed Rs 25,00,000, excluding land and building (rule 37(1)(c)). The skill development rules state no minimum.

How long does a notification last?

For an agricultural extension project, up to three tax years at a time, and it can be renewed by a fresh application. For a skill development project, up to three tax years initially, and the Board may notify a further period.

Is the cost of land or building deductible?

No. Section 47(1) excludes it, and rules 38(5) and 40(4) deduct it from eligible expenses.

Can I also claim the same spend under another section?

No. Section 47(2) disallows any other deduction for the same expenditure in any tax year once it is allowed under section 47.

If you handle project filings for clients, Finexo's practice management software can track notification expiry dates and annual filing deadlines across your client list. It does not file the forms for you. For a related deduction on research spending, see our scientific research expenditure deduction guide. For TDS, see TDS on rent under the Income Tax Act 2025. This article is general information, not tax advice.