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TMI BlogContribution to approved gratuity fund - Points connected with tax relief in respect of initial contribution under clause (v) of sub-section (1) and approval of gratuity fundX X X X Extracts X X X X X X X X Extracts X X X X ..... x) indicates the manner in which tax relief in respect of initial contribution to a gratuity fund, which has been informally approved under the aforesaid circular, should be calculated. Do these instructions continue to hold good even after the coming into force of the 1961 Act? If not, how should the initial contribution to approved gratuity funds be treated. Comments : Section 36(1)(v) provides that any sum paid by an assessee as contribution towards an approved gratuity fund shall be allowed as a deduction in computing his business income. Rule 104 of the Income-tax Rules, 1962, provides that the amount to be allowed as a deduction on account of initial contribution shall not exceed 81/3 per cent of the employees salary for each year of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifically lays down that an application for approval of a gratuity fund shall be accompanied by two copies of the accounts of the fund for the last three years for which such accounts have been made up. This provision contemplates that an application for approval may be made 3 years after the establishment of a gratuity fund. ln order that the benefits of approval for the intervening period may not be denied to bona fide gratuity funds, the Commissioners may, after considering all the relevant facts of the case, accord approval to a gratuity fund with effect from the date from which it satisfies the conditions laid down in rule 3 of Part C of the Fourth Schedule. Circular : No. 30(XLVII-18), dated 30-11-1964. ANNEX - CIRCULAR DATED 3-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided that the employer makes adequate arrangements for deduction and payment of tax from the gratuities. 3. Unlike the provisions in the Income-tax Act relating to recognition of provident funds or approval of superannuation funds, there is no provision for approving any other type of funds, but section 10(4)(c) provides that no allowance shall be made in respect of a payment to a provident or other fund established for the benefit of employees unless the employer has made effective arrangements to secure that tax shall be deducted at source from any payment made from the fund which are taxable under the head Salaries. It would, therefore, appear that the said section contemplates that contributions by employers to funds other than recogni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the length of service of each employee concerned; g. so much of the contributions as cannot properly be treated as ordinary annual contributions shall be treated by the Commissioner of Income-tax in the same manner as is adopted by the Central Board of Revenue to deal with similar contributions to an approved superannuation fund. 5. As stated above, there is no question of any formal approval of any gratuity fund as such under the law. All that the employers want, however, is that the rules of the gratuity funds being found satisfactory, the contributions made by the employers should be allowed as a deduction in computing their profits. The Board have given careful consideration to this request and have decided that if the rules of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 656 4 738 4 867 3 2,781 3 This relief will be allowed whole in the year of assessment in respect of the year in which such initial contribution is made. clarification 2 RULE 104 OF INCOME-TAX RULES - INITIAL CONTRIBUTION - WHETHER CAN BE MADE IN INSTALMENTS - Rule 104 lays down that any initial contribution in respect of the past services of an employee admitted to the benefits of an approved gratuity fund shall not exceed 81/3 per cent of the employees salary for each year of his past service with the employer. It has been represented to the Board that insistence, under the above rule, on the entire initial contribution being made in one year, i.e., the year in which the employee is admitted to the benefits of the fund, would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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