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Rule 38Published

Rule 38: Agricultural extension project conditions

Rule 38 sets continuing conditions for notified agricultural extension projects. It requires separate audited accounts, limits beneficiary charges and direct or indirect benefits, and prescribes the eligible-expense calculation and annual documents.

Official notified Income-tax Rules, 2026

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Rule 38 - Conditions for notification of agricultural extension projects under section 47(1)(a)

(1) The assessee undertaking an agricultural extension project (herein referred as the project) shall maintain separate books of account of the project notified under section 47(1)(a) and get such books of account audited by an accountant as defined under section 515(3)(b).

(2) The audit report referred to in sub-rule (1) shall include comments of the auditor on the true and fair view of the books of account maintained for the project, the genuineness of the activities of the project, and fulfilment of the conditions specified in the relevant provisions of the Act, the rules, or a notification issued under rule 37.

(3) The assessee shall not accept an amount exceeding the amount approved in the notification from the beneficiary under the eligible project for training, education, guidance, or any material distributed for such training, education or guidance.

(4) The assessee shall not derive any direct or indirect benefit from the notified project except for the deduction of eligible expenditure in accordance with section 47(1)(a), rule 37 and this rule.

(5) The expenses, eligible for deduction under section 47(1)(a), shall be all expenses incurred wholly and exclusively for undertaking an eligible project as reduced by (a) the amount received from the beneficiary; (b) the cost of any land or building; (c) any expenditure on the project that is reimbursed or reimbursable to the assessee by any person, whether directly or indirectly.

(6) The assessee shall, on or before the due date of furnishing the return of income under section 263(1), furnish the following to the Commissioner of Income-tax having jurisdiction over the assessee:– (a) the audited statement of accounts of the project for the tax year along with the audit report and the amount of deduction claimed under section 47(1)(a); (b) a note on the project undertaken during the tax year, the programme of the project to be undertaken during the current year, and the financial allocation for such programme; and (c) a certificate from the Ministry of Agriculture and Farmers Welfare, Government of India, regarding the genuineness of the project undertaken by the assessee during the tax year.

(7) If it is found by the Commissioner of Income-tax that— (a) the assessee has not maintained separate books of account for the project or has not got such books of account audited by an accountant in accordance with sub-rule (1); or (b) the assessee has not furnished the documents referred to in sub-rule (6); or (c) the assessee has ceased to carry out activities of the project; or (d) the activities of the project of the assessee are not genuine; or (e) the activities of the project are not being carried out in accordance with the relevant provisions of the Act, rules, or the conditions subject to which the notification was issued under rule 37, he may, after making appropriate inquiries, furnish a report on the circumstances referred to in clauses (a) to (e) to the Board for appropriate action as per the provisions of rule 37(11).

Rule breakdown

Maintain separate project accounts and the specified audit

Keep separate books for the project notified under section 47(1)(a) and have them audited by an accountant as defined in section 515(3)(b).

The audit report must comment on the true and fair view of the books, genuineness of the activities and compliance with the Act, rules and notification conditions. A report addressing only arithmetic does not cover the full stated scope.

Limit charges to beneficiaries

The assessee must not accept more than the amount approved in the notification from beneficiaries for training, education, guidance or the distributed material.

Check both the actual charge and the notification’s permitted amount. Keep fee, receipt and material-distribution records so that beneficiary collections can be reconciled.

Observe the restriction on benefits

The assessee must not derive any direct or indirect benefit from the notified project except the deduction of eligible expenditure under the stated provisions.

Review arrangements involving the assessee’s own benefit against this condition. A claim for a tax deduction does not remove the separate restriction on other benefits.

Calculate eligible expenditure after the reductions

Start with expenses incurred wholly and exclusively for the eligible project. Reduce them by beneficiary receipts, land or building cost, and expenditure reimbursed or reimbursable by any person directly or indirectly.

Hypothetical: qualifying project expenses before these reductions total ₹40 lakh, including ₹5 lakh of land cost. Beneficiary receipts are ₹2 lakh and a separate ₹3 lakh expense is reimbursable. With no overlap among those amounts, the resulting amount is ₹30 lakh, subject to all statutory conditions.

Furnish annual documents by the linked return deadline

By the section 263(1) return due date, submit the audited project accounts and audit report with the deduction amount to the jurisdictional Commissioner. Also submit the required project note, programme and financial allocation, and the ministry certificate of genuineness for the year’s project.

Track the ministry certificate separately from the accountant’s audit. One does not replace the other.

Monitor continued activity and conditions

After appropriate inquiry, the Commissioner may report listed failures to the Board for action under Rule 37(11). These include missing accounts, audit or documents, cessation or non-genuine activities and breached Act, rule or notification conditions.

Retain annual project delivery evidence and filing records throughout the notified period, alongside the original application and notification.

Key takeaways

Separate books and audit

The project needs its own accounts and the stated audit comments.

Reduce reimbursable costs

Reimbursable expenditure is excluded even if reimbursement has not yet been received.

Two separate assurances

The audit report and ministry genuineness certificate serve different requirements.

Practical checklist

  • Keep separate project books and delivery evidence.
  • Reconcile beneficiary receipts and reimbursements.
  • Obtain both the audit report and ministry certificate.
  • Check the actual notification’s conditions annually.

Avoid

  • Do not include land or building cost in the eligible-expense calculation.
  • Do not wait for cash reimbursement before recognising a reimbursable-cost exclusion.

FAQs

Can reimbursement-pending expenditure remain in the eligible amount?

The rule excludes expenditure that is reimbursed or reimbursable, whether directly or indirectly.

Can any beneficiary charge be collected?

The accepted amount cannot exceed the amount approved in the notification for the listed project services or materials.

Does an audit report replace the ministry certificate?

No. Sub-rule (6) separately requires the ministry certificate regarding genuineness of the project for the tax year.

Glossary

Eligible expenditure
The wholly and exclusively incurred project expenses after the rule’s stated reductions.
Reimbursable expenditure
Project expenditure recoverable from another person, directly or indirectly, whether or not yet reimbursed.

Official sources