Tax Deductions for Gratuity Provisions Limited to Approved Fund Contributions per Section 40A(7) Changes.

The circular addresses the tax treatment of provisions for estimated service gratuity payable to employees. Initially, the Board allowed such provisions as deductions under section 37(1) if made on a scientific basis, such as actuarial valuation. However, following a Supreme Court judgment, the Board revised its stance, withdrawing earlier instructions and clarifying that deductions for gratuity provisions are only permissible if contributions are made to approved gratuity funds. The Finance Act, 1975, introduced section 40A(7), disallowing deductions for mere provisions in accounts, except for actual payments made during the year. The circular emphasizes compliance with these updated instructions for pending assessments.

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