Approval and net expenditure answer different questions
For tax year 2026–27, section 47(1)(a) of the Income-tax Act, 2025 covers expenditure on a Board-notified agricultural-extension project. Rules 37–38 of the Income-tax Rules, 2026 prescribe the approval and continuing conditions. This guide, checked on 28 October 2026, concerns farmer training, education and guidance, rather than the separate company skill-development route. It does not relabel provisions for FY 2025–26 / AY 2026–27. Establish that the selected tax regime permits the deduction before applying any model. Income-tax Act, 2025, section 47.
Test the expected eligible project budget
Rule 37(1) requires prior Ministry of Agriculture and Farmers Welfare approval and expected expenditure exceeding ₹25 lakh, excluding land/building cost. Equality is not 'exceeding'. A large property purchase cannot make a small underlying training programme cross this test. The expected-budget screening is distinct from the eventual annual deduction: qualifying notification does not convert every future invoice into deductible expenditure. Retain the Ministry-approved project, technical objectives, expected cost and completion date together. Income-tax Act, 2025, section 47.
Apply before undertaking the project
Under Rule 37(2)–(3), apply in Form 20 to Member (IT), CBDT before undertaking the project, with the Ministry approval letter, project note and expenditure/completion details. Form 21 is the Board notification under sub-rule (7), not the applicant's substitute for Form 20. A complete application's specified notification timetable is two months from the end of its receipt quarter. Defect intimation, cure and invalidity have their own sub-rules. Preserve completeness and receipt evidence; the timetable is not authority to invent deemed notification. Income-tax Act, 2025, section 47.
Respect the beneficiary collection and benefit restrictions
Rule 38(3) prevents accepting beneficiary amounts above the notification-approved amount for the specified training, guidance or materials. Sub-rule (4) prohibits the stated direct or indirect project benefit except the eligible deduction. Read the actual project conditions rather than treating the programme as an unrestricted commercial training business. Charges approved in principle still affect the net deduction under sub-rule (5); receipt monitoring and tax-expense classification are separate controls. Income-tax Act, 2025, section 47.
Build an invoice-level net deduction
Rule 38(5) covers wholly and exclusively eligible project expenses reduced by beneficiary amounts received, land/building cost and expenditure reimbursed or reimbursable directly or indirectly by any person. Identify overlapping exclusions by unique invoice so a reimbursed land purchase is not deducted twice from the same gross pool. Section 47(2) prevents another allowance for expenditure already claimed and allowed here. Reconcile any eligible expense already charged in book profit before inserting an additional tax deduction. These calculations do not decide the separate treatment of an excluded cost. Income-tax Act, 2025, section 47.
Maintain the continuing approval file
Separate books and an accountant's audit are required by Rule 38(1)–(2). Sub-rule (6) requires the stated audited statements, report, deduction amount, programme/allocation note and Ministry genuineness certificate by the applicable section 263(1) return due date. Determine that actual deadline separately. Rule 37(8) allows a further-period application at least three months before notification expiry; renewal requires its own assessment. Notification and further periods are subject to the stated three-tax-year limits and revocation process with hearing. An old approval should not silently be extended in the computation. Income-tax Act, 2025, section 47.
Applicable primary references
Income-tax Act, 2025, section 47 CBDT Notification 22/2026: Rules 37–38, Forms 20/21
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Exclude the property budget
Expected gross budget ₹40 lakh includes land ₹10 lakh and building ₹8 lakh. The relevant non-property budget is ₹22 lakh, below the exceeding-₹25-lakh condition, despite the gross ₹40 lakh.
Illustrative example 2: Equality is insufficient
An otherwise eligible expected non-property budget of ₹25 lakh does not exceed ₹25 lakh. ₹25,00,001 exceeds it by ₹1; every other approval condition remains necessary.
Illustrative example 3: Reduce beneficiary receipts
Assume a valid notified project has otherwise eligible current expenses ₹30 lakh and permitted beneficiary receipts ₹4 lakh, with no other exclusions. Net model expenditure is ₹26 lakh. This annual net result is not a fresh replacement for the original expected-budget approval test.
Illustrative example 4: Remove reimbursement entitlement
Assume expenses ₹36 lakh, excluded property ₹6 lakh, beneficiary receipts ₹3 lakh and separate non-property costs reimbursable ₹5 lakh. The model deduction pool is ₹22 lakh. Sponsor cash received of only ₹2 lakh does not justify ignoring the remaining ₹3 lakh entitlement.
Illustrative example 5: Do not remove the same invoice twice
Gross costs ₹40 lakh include excluded land ₹10 lakh, of which ₹4 lakh is also reimbursable; separate non-land reimbursable expenses are ₹3 lakh. With no beneficiary receipts, remove the ₹10 lakh land once and the separate ₹3 lakh: pool ₹27 lakh. Subtracting all ₹7 lakh reimbursement again would incorrectly give ₹23 lakh.
Illustrative example 6: Diary the renewal application
Assume notification expires on 31 March 2029. Three calendar months earlier is 31 December 2028. An application on 15 January 2029 is 15 days later than that model latest date. This illustration assumes the stated expiry and no separate date adjustment; it does not grant renewal.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm period and regime | Tax-year law and deduction restrictions |
| 2 | Define the actual project | Farmer training, education and guidance |
| 3 | Obtain prior Ministry approval | Approved scope and expected expenditure |
| 4 | Test the non-property budget | Land/building exclusions and exceeding-₹25-lakh comparison |
| 5 | Submit Form 20 before undertaking | Authority, documents and receipt |
| 6 | Obtain actual Form 21 | Project conditions and effective tax years |
| 7 | Control beneficiary collections | Approved cap, receipt register and benefit restrictions |
| 8 | Reconcile unique eligible costs | Property, beneficiaries and reimbursement overlap |
| 9 | Complete books, audit and reporting | Rule 38(6) documents and applicable due date |
| 10 | Diary renewal and close tax bridge | Expiry, timely application and no duplicate deduction |
Sixteen practitioner FAQs
1. Is this the skill-development company route?
No. It concerns agricultural-extension projects under section 47(1)(a).
2. Which period is covered?
Current tax year 2026–27.
3. Is the earlier AY automatically renumbered?
No. Apply its separately applicable law.
4. What activities does Rule 37 identify?
Training, education and guidance of farmers.
5. Is prior Ministry approval required?
Yes, under the stated approval rule.
6. Does ₹25 lakh exactly exceed the budget test?
No.
7. Can land and buildings help cross it?
Their costs are excluded from that expected-expenditure test.
8. Which form does the applicant use?
Form 20.
9. Who issues Form 21?
The Board, for the notified project.
10. Does an application receipt itself prove notification?
No. Retain the actual notification.
11. Can every beneficiary collection be accepted?
Check the approved amount and Rule 38 restrictions.
12. Do permitted beneficiary receipts reduce eligible expenditure?
Rule 38(5) requires the stated reduction.
13. Does an unpaid reimbursement entitlement matter?
Reimbursable expenditure is also covered by the reduction.
14. Should an overlapping excluded invoice be removed twice?
No. Reconcile unique costs.
15. Are separate project books and audit required?
Yes, together with the specified annual reporting.
16. Is renewal automatic?
No. Make the timely application and establish actual further notification.
Conclusion
Check expected project expenditure excluding land and buildings, obtain the actual notification, and reduce the deduction for beneficiary receipts and reimbursable costs.