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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 ..... 0(XI-3), dated 3-11-1951 ( Annex ) 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 8 1 / 3 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should take effect. Rule 4(1) of Part C of the Fourth Schedule specifically 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. Circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for income-tax purposes but the actual payment of gratuity can be allowed as and when paid, provided 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, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be made on a reasonable basis acceptable to the Income-tax Department, i.e., either on actuarial basis or any other basis having regard 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 allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Allocation according to assessment years : YEARS 1939-40 1940-41 1941-42 1942-43 1943-44 TOTAL 1/12 of 9,000 2/12 of 9,000 3/12 of 9,000 3/12 of 9,000 3/12 of 9,000 =750 =1,500 =2,250 =2,250 =2,250 9,000 6. Income-tax and super tax rates : 42 pies 45.5 pies 56 pies 53 pies 74 pies 7. Tax relief : Rs. As. Rs. As. Rs. As. Rs. As. Rs. As. Rs. As. 164 1 355 7 656 4 738 4 867 3 2,781 3 This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply in the case of newly established gratuity funds. The Committee was informed that instructions had been issued to the Commissioners to the effect that while according approval to a gratuity fund, they might, after considering all the relevant facts of the case, accord such approval with retrospective effect from the date from which the Fund satisfied the requirements of rule 3 of Part C of the Fourth Schedule. This would ensure that, even though the fund had to wait for at least three years from its inception before applying for approval in order to satisfy the requirement of rule 4, the approval may, in deserving cases, be accorded from the date of inception of the fund. Source : Extracts from Minutes (Item 31) of Ninth Meet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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