Employee welfare expenses: Clause 29 of the Income Tax Bill, 2025 vs. Sections 36 and 40A of the Income Tax Act, 1961

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..... profession." This article delves into the intricacies of Clause 29, comparing it with the existing provisions u/ss 36 and 40A of the Income Tax Act, 1961, which also deal with deductions related to employee welfare. Objective and Purpose The primary objective of Clause 29 is to streamline and clarify the deductions available to employers for contributions made towards employee welfare funds. This includes contributions to provident funds, superannuation funds, pension schemes, and gratuity funds. The intent is to provide a clear legislative framework that aligns with modern employment practices and enhances compliance. Historically, deductions related to employee welfare have been a contentious area, with numerous disputes arising over th .....

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..... vident and superannuation funds, subject to limits and conditions. However, Clause 29 provides more explicit guidelines on the conditions under which these contributions are deductible. * Pension Schemes: Clause 29 aligns with Section 36 in allowing deductions for contributions to pension schemes. However, Clause 29 specifies a uniform limit of 14% of the salary, which includes dearness allowance, whereas Section 36 refers to Section 80CCD for limits. * Gratuity Funds: Both provisions allow deductions for contributions to approved gratuity funds. Clause 29, however, provides additional clarity on provisions made for gratuity payments. * Employee Contributions: The treatment of employee contributions is similar in both provisions, with .....

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..... that are not made annually or are based on variable factors. The clarity provided by Clause 29 can reduce disputes and litigation related to employee welfare deductions, benefiting both taxpayers and the tax administration. Comparative Analysis In comparison with international practices, Clause 29 aligns with global trends towards transparency and specificity in tax deductions related to employee welfare. Many jurisdictions have moved towards clear legislative guidelines to reduce ambiguity and enhance compliance. Clause 29's structured approach is consistent with these trends, although its effectiveness will depend on its implementation and the clarity of accompanying rules and notifications. Conclusion Clause 29 of the Income Tax .....

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