Sec. 35CCD-Expenditure on Skill Development Project (Vocational Education)

Sec. 35CCD-Expenditure on Skill Development Project (Vocational Education)

Sec 35CCD of the Income Tax, 1961 states that “A company which incurs any notified skill development project is qualified for weighted deduction of 150% of such expenditure from the assessment year 2013-14 but excluding following :

·        Cost of any land or building is not eligible for any deduction under this section; however cost of building is eligible for depreciation u/s 32 of the Act.

·        If a deduction is allowed under this section, no deduction will be available under any other section of the act in the same year or subsequent year.

In detail Section 35CCD: Weighted deduction in respect of Expenditure incurred by companies on notified skill development project

        i.          As per the national Manufacturing Policy has been notified by the Dept of Industrial Policy & Promotion (DIPP) vide Press note dated 04 November 2011 mentioned Income tax incentives for Vocational Educational Centers.

       ii.          The Finance Bill 2012 introduced Sec 35 CCD- In order to encourage companies to set up their OWN institutions  to invest on skill development projects in the manufacturing sector,  to provide for a weighted deduction of a sum equal to 150% of the expenditure ( not being expenses in the nature of cost of any land or buildings) on skill development project incurred by the company in accordance with the prescribed guidelines, Preconditions –

a.      Has to be a NOTIFIED Skill Development Project ( notified by the Board) 

b.      Has to be in the Manufacturing Sector

c.      Has to be by a company

d.      Has to be in accordance with the Prescribed Guidelines- as notified by the Board

e.      Has to be a Public Private Partnership Project (PPP) for Skill development in the ITI’s in separate facilities in coordination with NSDC Questions  

f.        The proposed amendment will take effect from 1st April 2012 i.e. A.Y. 2013-14

g.      Finance Bill mentioned "Prescribed Guidelines” - The guidelines been prescribed and new rules from 6AAF to 6AAH has been introduced in Income Tax Rules vide notification no 54/2013 dated 15.07.2013

The salient features of the guidelines are as under:

1. A company engaged in the business of manufacturing any article or thing (other than alcoholic spirits and tobacco products) or engaged in providing specified services, as listed under Rule 6AAH, shall be eligible for weighted deduction of the expenditure incurred on skill development.
2. The project should be undertaken in separate facilities in a training institute set up by the Central or State Government or a local authority or a training institute affiliated to National Council for Vocational Training (NCVT) or State Council for Vocational Training (SCVT). Besides Government training institutes, private sector training institutes affiliated to NCVT or SCVT shall also be eligible.
3. National Skill Development Agency (NSDA) shall be the nodal agency to scrutinize the applications made by eligible companies in Form No. 3CQ. The Central Board of Direct Taxes (CBDT) shall notify the skill development project based on the recommendation of NSDA in this regard.
4. All expenses (not being expenditure in the nature of cost of any land or building), incurred wholly and exclusively for undertaking a notified skill development project shall be eligible for deduction under section 35CCD,except the expenditure which is reimbursed or reimbursable to the company by any person, whether directly or indirectly.
5. The company undertaking skill development project shall be required to maintain separate books of account of the project notified under section 35CCD and get such books of account audited.
6. It is intended that the skill development project shall provide training to potential employees or newly recruited employees. Skill development of existing employees of the company shall not be eligible for notification under section 35CCD, if the training of such employees commences after six months of their recruitment

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