India Inc. is likely to receive income tax exemptions for deploying Corporate Social Responsibility (CSR) funds into vocational training initiatives, according to sources familiar with the upcoming Budget 2026. This move is anticipated to encourage greater corporate participation in skill development and job creation, aligning with the government's focus on boosting workforce competitiveness.
The proposal comes amid increasing emphasis on skill-based education and the need to enhance the employability of India's youth. NITI Aayog member Arvind Virmani emphasized the importance of improving the quality of education, skilling, and job training to raise wages and productivity. He noted that merely possessing degrees without skills is insufficient in today's economy.
Currently, companies exceeding specific financial benchmarks are mandated to allocate 2% of their average net profits to CSR activities, as per Section 135 of the Companies Act, 2013. While CSR spending has seen a rise, with listed companies investing ₹17,967 crore in FY24, there have been instances of unspent funds due to challenges in identifying suitable projects and implementation partners. Allowing income tax exemptions for CSR funds directed towards vocational training aims to address these issues by incentivizing investment in a critical area.
The government is striving to create a culture of lifelong learning, adapting the workforce to rapidly changing technologies. The Skill India Digital Hub (SIDH) is one such initiative designed to meet the diverse skilling needs of the population by offering relevant skill courses, certifications, jobs, and apprenticeships. Furthermore, there are expectations for the government to set a clear target of 6% of GDP for education, prioritizing digital infrastructure and public-private skilling partnerships.
If implemented, the proposed tax exemptions could channel more CSR funds towards establishing skilling infrastructure in schools and higher education institutions, strengthening workforce readiness. Embedding vocational training, modular learning, and work-linked degree programs within formal education can ensure that job seekers are not only qualified but also possess practical skills.
The move could also encourage greater collaboration between industries and training providers to design courses that align with specific job market needs. This will help bridge the skills gap and improve employment opportunities for young people. Moreover, rationalizing the Goods and Services Tax (GST) on verified digital learning programs to a lower bracket of 5% would make high-quality AI-enabled education more accessible, empowering training providers and startups.
Overall, the proposed income tax exemptions for CSR spending on vocational training reflect the government's commitment to promoting skill development, enhancing employability, and fostering long-term economic growth. By incentivizing corporate participation, the initiative has the potential to create a more skilled and productive workforce, driving India's progress towards becoming a global economic powerhouse.
