A training budget is not a notified project
For tax year 2026–27, section 47(1)(b) of the Income-tax Act, 2025 permits the stated expenditure deduction for a company's skill-development project notified by the Board. Land and building costs are excluded. The project, eligible company, institute, expenditure and notification period must satisfy Rules 39 and 40 of the notified Income-tax Rules, 2026. This guide was checked on 28 October 2026. It concerns the current tax year, rather than changing the section numbers used for FY 2025–26 / AY 2026–27 returns. Check the company's chosen tax regime separately: the illustrations assume that the deduction is legally available under that regime. Income-tax Act, 2025 as amended by Finance Act 2026: section 47.
Establish company, institute and trainee eligibility
Rule 40(8) defines eligible companies by the specified manufacturing population or listed service activities; incorporation alone is insufficient. It separately defines qualifying training institutes, including the specified government, affiliation, approval, empanelment and certification routes. Rule 39(1) requires a separate facility in a training institute. Keep evidence of the actual qualifying route rather than treating a private training vendor's commercial registration as approval. Under Rule 40(3), a project for existing employees is ineligible where their training commences after six months of recruitment. Match recruitment and training commencement dates for the relevant employee population; a generic annual HR training calendar does not answer that test. Income-tax Act, 2025 as amended by Finance Act 2026: section 47.
File Form 22 before undertaking the project
Rule 39(2) requires the eligible company to apply to the National Council for Vocational Education and Training before undertaking the project. Send the jurisdictional Commissioner a copy with acknowledgment evidence of submission to the National Council. The application needs the institute's concurrence, a detailed project note, expected expenditure and expected completion date. A company's application is Form 22; the Board's project notification is Form 23. The notified rule controls the recipient and process: do not assume that a portal submission receipt alone establishes receipt by every required authority or that an educational FAQ replaces the rule. Income-tax Act, 2025 as amended by Finance Act 2026: section 47.
Diary the actual procedural milestones
Under Rule 39(5)–(6), the National Council's defect intimation and the applicant's cure period are measured from the end of their respective receipt or service months. A complete application moves through the recommendation process in sub-rules (9)–(10). If approval is recommended, sub-rule (11) requires the Board to issue Form 23 within two months from the end of the quarter in which it receives the report, for an effective period not exceeding three tax years. These are specified procedural duties, not a statement that an unanswered application automatically becomes approved. Inspect the actual notification, covered project, conditions and effective years before claiming. Income-tax Act, 2025 as amended by Finance Act 2026: section 47.
Calculate the unreimbursed eligible expenditure once
Rule 40(4) starts with expenditure wholly and exclusively for the eligible project, reduced by land/building costs and expenditure reimbursed or reimbursable directly or indirectly by any person. A reimbursement receivable can matter before cash arrives. Map those reductions to unique invoices so the same cost is not removed twice merely because it carries more than one exclusion flag. Section 47(2) prevents another deduction for the same expenditure once the section 47 deduction has been claimed and allowed, in the same or another tax year. Where the expense is already in book profit, calculate the overall tax bridge; do not deduct the same eligible cost a second time without the corresponding reconciliation. Income-tax Act, 2025 as amended by Finance Act 2026: section 47.
Retain separate books and complete the annual reporting
Rule 40(1)–(2) requires separate project books and an accountant's audit covering the stated true-and-fair, activity and compliance matters. Under sub-rule (5), furnish the project's audited accounts, audit report and deduction amount to the jurisdictional Commissioner by the applicable section 263(1) return due date. Determine that actual company deadline and any relevant extension separately. Notification conditions continue after initial approval; sub-rules (6)–(7) and Rule 39(14) provide reporting and possible revocation processes, including the stated hearing opportunity. An expense spreadsheet cannot replace the notified project, audit and evidence trail. Income-tax Act, 2025 as amended by Finance Act 2026: section 47.
Applicable primary references
Income-tax Act, 2025 as amended by Finance Act 2026: section 47 CBDT Notification 22/2026, G.S.R. 198(E): Rules 39–40 and Forms 22/23
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Remove ineligible capital components
Assume an eligible notified project has current costs ₹30,00,000, comprising excluded land ₹4,00,000, excluded building ₹6,00,000 and otherwise qualifying unreimbursed project expenditure ₹20,00,000. The model section 47 pool is ₹20,00,000. It is neither the gross ₹30,00,000 nor a historic weighted multiple.
Illustrative example 2: Recognise reimbursement before collection
Assume qualifying non-land/building costs ₹12,00,000 include ₹3,00,000 contractually reimbursable by a sponsor, of which only ₹1,00,000 has arrived. Rule 40(4)'s model pool is ₹9,00,000. Waiting for the remaining ₹2,00,000 cash would overstate this pool by ₹2,00,000.
Illustrative example 3: Reconcile an expense already deducted in the books
Assume otherwise available deduction ₹9,00,000 is fully charged in a draft ₹41,00,000 book profit, with no other differences. Add back that booked population ₹9,00,000 and take the single supported section 47 deduction ₹9,00,000: the isolated result stays ₹41,00,000. Simply deducting ₹9,00,000 again would incorrectly produce ₹32,00,000.
Illustrative example 4: Test the employee training commencement date
Assume recruitment on 15 April 2026. Six calendar months end on 15 October 2026. Commencement on 16 October is after six months and fails this Rule 40(3) timing condition for the stated existing-employee project. Commencement on 15 October is not after that point, although every other eligibility condition still needs proof. Do not substitute 180 days for calendar months.
Illustrative example 5: Count the deficiency cure period from month-end
Assume a Rule 39(5) deficiency intimation is served on 12 May 2026. The applicant's one-month period from the end of that month ends on 30 June 2026, before any separately applicable date-adjustment rule. Counting one month simply from 12 May would give 12 June and truncate the rule's model calendar by 18 days.
Illustrative example 6: Separate quarter-based notification timing from approval itself
Assume the Board receives a positive National Council report on 18 August 2026. That quarter ends on 30 September; two months from quarter-end lead to 30 November 2026. This is the Rule 39(11) issuance timetable on the assumed facts, not a notification invented by the company and not evidence that costs outside an actual notified period qualify.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm current period and regime | 2025 Act applicability and deduction availability |
| 2 | Establish eligible company activity | Rule 40(8)(a) manufacturing or listed service evidence |
| 3 | Verify the training institute | Actual affiliation, approval and certification route |
| 4 | Identify the separate facility and trainees | Institute concurrence and recruitment/commencement dates |
| 5 | Submit the pre-project application | Form 22, National Council receipt and Commissioner copy |
| 6 | Track defects and recommendations | Receipt/service dates and month/quarter calendars |
| 7 | Obtain the actual Board notification | Form 23, effective years and project conditions |
| 8 | Reconcile net project expenditure | Unique costs, land/buildings and reimbursement entitlements |
| 9 | Complete books and audit reporting | Separate accounts, audit and applicable section 263(1) deadline |
| 10 | Close the tax bridge and continuing file | One deduction, regime review and notification compliance |
Sixteen practitioner FAQs
1. Is every corporate training course covered?
No. The notified project and Rules 39–40 conditions must be established.
2. Which period does this guide address?
Tax year 2026–27 under the 2025 Act and 2026 Rules.
3. Is Form 22 the Board's approval notification?
No. It is the eligible company's application.
4. What is Form 23?
The Board's notification of the approved project under Rule 39.
5. Is company incorporation sufficient eligibility?
No. Test the Rule 40(8) activity definition.
6. Can an institute's normal business registration establish qualifying status?
No. Verify the prescribed institute route.
7. Must the facility be separate?
Rule 39(1) requires a separate facility in a training institute.
8. When is the application required?
Before undertaking the project, under Rule 39(2).
9. Does the Commissioner need a copy?
Yes, with the specified National Council submission acknowledgment.
10. Is all employee training excluded?
Apply the actual Rule 40(3) commencement-after-six-months restriction.
11. Does a positive recommendation equal a company-issued notification?
No. Retain the Board's actual Form 23.
12. Are land and buildings deductible in this pool?
They are excluded.
13. Does unpaid reimbursement still affect the working?
Reimbursable expenditure is also removed under Rule 40(4).
14. Can the same expenditure be deducted elsewhere after allowance here?
Section 47(2) prevents that duplication.
15. Is a project audit part of the requirements?
Yes, together with separate books and the stated annual reporting.
16. Is initial approval the end of compliance?
No. Conditions, genuine activities and ongoing reporting remain relevant.
Conclusion
Separate the project application from CBDT notification, remove land, buildings and reimbursable costs, and reconcile the deduction with the expense already booked.