Clarification regarding approval to gratuity fund. - Income Tax - 1620/CBDT

INSTRUCTION NO. 1620/CBDT Dated: June 4, 1985 Reference is invited to Board's Instruction No.1182(F.No.216/6/77-ITA,II) dated the 7th June, 1978 wherein it was clarified that approval to superannuation Funds, which provide for payment of annuities to an employee or transfer of equitable interest to another approved superannuation Fund, when the employee leaves the service voluntarily before he attains the specified age for retirement may not be refused merely on the ground that he left the service voluntarily before he reached the age of normal retirement. It was also stated therein that if such superannuation Fund complies with the Rules and conditions set out in part B of the 4th Schedule to I.T.Act 1961 and relevant rules of Income-tax Rules, 1962 approval under the Income-tax Act should be granted. 2. The Board have carefully examined similar question in respect of gratuity funds. Rule 3 of part C of the 4th Schedule to I.T.Act, 1961 lays down the conditions for approval of gratuity fund. It is provided in clause (b) of the said rule that the fund shall have for its sole purpose the provision of a gratuity to employees in the trade or undertaking on their retirement at or after a specified age or on their becoming incapacitated prior to such retirement or on termination of their employment after a minimum period of service specified in the rules of the fund or to the widows, children or dependents of such employees on their death. In view of the position that an employee does not receive any immediate benefit by the mere transfer of the amounts to his credit from one account to another and remains in virtually the same position as he would have been, had the amounts continued to remain in gratuity fund maintained by his former employer, the Board have decided that approval to gratuity funds, which provide for transfer of equitable interest to another approved gratuity fund, when the employee leaves the service voluntarily before he attains the specified age for retirement, may not be refused merely on the ground that he left the service voluntarily before he reached the age for normal retirement. If such a gratuity fund complies with the rules and conditions set out in part C of the 4th Schedule to Income-tax Act, 1961 and relevant rules of the Income-tax Rules, 1962, approval under the I.T.Act should be granted in such cases. 3. The Board desire that the above clarification may be kept in mind while according approval to gratuity funds.