The Income-Tax Act, 1961

Part C

Approved Gratuity Fund

⁴[See sections 2(5), 10(25)(iv), 17(1)(iii), 36(1)(v)]

1. Definitions.-

In this Part, unless the context otherwise requires "employer", "employee", "contribution" and "salary" have, in relation to gratuity funds, the meanings assigned to those expressions in rule 2 of Part A in relation to provident funds.

2. Approval and withdrawal of approval.-

(1) The ¹[²[Principal Chief Commissioner or Chief Commissioner] or ³[Principal Commissioner or Commissioner]] may accord approval to any gratuity fund which, in his opinion, complies with the requirements of rule 3 and may at any time withdraw such approval if, in his opinion, the circumstances of the fund cease to warrant the continuance of the approval.

(2) The ¹[²[Principal Chief Commissioner or Chief Commissioner] or ³[Principal Commissioner or Commissioner]] shall communicate in writing to the trustees of the fund the grant of approval with the date on which the approval is to take effect and where the approval is granted subject to conditions, those conditions.

(3) The ¹[²[Principal Chief Commissioner or Chief Commissioner] or ³[Principal Commissioner or Commissioner]] shall communicate in writing to the trustees of the fund any withdrawal of approval with the reasons for such withdrawal and the date on which the withdrawal is to take effect.

(4) The ¹[²[Principal Chief Commissioner or Chief Commissioner] or ³[Principal Commissioner or Commissioner]] shall neither refuse nor withdraw approval to any gratuity fund unless he has given the trustees of that fund a reasonable opportunity of being heard in the matter.

3. Conditions for approval.-

In order that a gratuity fund may receive and retain approval, it shall satisfy the conditions set out below and any other conditions which the Board may, by rules, prescribe-

(a) the fund shall be a fund established under an irrevocable trust in connection with a trade or undertaking carried on in India, and not less than ninety per cent of the employees shall be employed in India ;

(b) 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 dependants of such employees on their death;

(c) the employer in the trade or undertaking shall be a contributor to the fund; and

(d) all benefits granted by the fund shall be payable only in India.

4. Application for approval.-

(1) An application for approval of a gratuity fund shall be made in writing by the trustees of the fund to the ⁴[Assessing Officer], by whom the employer is assessable and shall be accompanied by a copy of the instrument under which the fund is established and by two copies of the rules ⁵[and, where the fund has been in existence during any year or years prior to the financial year in which the application for approval is made, also two copies of the accounts of the fund relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up], but the ¹[²[Principal Chief Commissioner or Chief Commissioner] or ³[Principal Commissioner or Commissioner]] may require such further information to be supplied as he thinks proper.

(2) If any alteration in the rules, constitution, objects or conditions of the fund is made at any time after the date of the application for approval, the trustees of the fund shall forthwith communicate such alterations to the ⁴[Assessing Officer] mentioned in sub-rule (1), and in default of such communication, any approval given shall, unless the ¹[²[Principal Chief Commissioner or Chief Commissioner] or ³[Principal Commissioner or Commissioner]] otherwise orders, be deemed to have been withdrawn from the date on which the alteration took effect.

5. Gratuity deemed to be salary.-

Where any gratuity is paid to an employee during his lifetime, the gratuity shall be treated as salary paid to the employee for the purposes of this Act.

6. Liability of trustees on cessation of approval.-

If a gratuity fund for any reason ceases to be an approved gratuity fund, the trustees of the fund shall nevertheless remain liable to tax on any gratuity paid to any employee.

7. contributions by employer, when deemed to be income of employer.-

Where any contributions by an employer (including the interest thereon, if any) are repaid to the employer, the amount so repaid shall be deemed for the purposes of income-tax 1*** to be the income of the employer of the previous year in which they are so repaid.

8. Appeals.-

(1) An employer objecting to an order of the ²[³[Principal Chief Commissioner or Chief Commissioner] or ⁴[Principal Commissioner or Commissioner]] refusing to accord approval to a gratuity fund or an order withdrawing such approval may appeal, within sixty days of such order, to the Board.

(2) The appeal shall be in such form and shall be verified in such manner and shall be subject to the payment of such fee as may be prescribed.

⁵[8A. Particulars to be furnished in respect of gratuity funds.-

The trustees of an approved gratuity fund and any employer who contributes to an approved gratuity fund shall, when required by notice from the ⁶[Assessing Officer], furnish within such period, not being less than twenty-one days from the date of the notice, as may be specified in the notice, such return, statement, particulars or information, as the ⁶[Assessing Officer] may require.]

9. Provisions relating to rules.-

(1) In addition to any power conferred in this Part, the Board may make rules-

(a) prescribing the statements and other information to be submitted along with an application for approval;

(b) limiting the ordinary annual and other contributions of an employer to the fund;

⁷[(bb) regulating the investment or deposit of the moneys of an approved gratuity fund: Provided that no rule made under this clause shall require the investment of more than fifty per cent of the moneys of such fund in Government securities as defined in section 2 of the Public Debt Act, 1944 (18 of 1944);]

(c) providing for the assessment by way of penalty of any consideration received by an employee for an assignment of, or the creation of a charge upon, his beneficial interest in an approved gratuity fund;

(d) providing for the withdrawal of the approval in the case of a fund which ceases to satisfy the requirements of this Part or the rules made thereunder; and

(e) generally, to carry out the purposes of this Part and to secure such further control over the approval of gratuity funds and the administration of gratuity funds as it may deem requisite.

(2) All rules made under this Part shall be subject to the provisions of section 296.

4. Subs. by Act 16 of 1972, s. 42 for "See sections 2(5), 17(1)(iii), 36 (1)(v)" (w.e.f. 1-4-1973).

1. Subs. by Act 4 of 1988, s. 2, for "Commissioner" (w.e.f. 1-4-1988).

2. Subs. by Act 25 of 2014, s. 4 for "Chief Commissioner" (w.e.f. 1-6-2013).

3. Subs. by s. 4, ibid., for "Commissioner" (w.e.f. 1-6-2013).

4. Subs. by Act 4 of 1988, s. 2, for "Income-tax Officer" (w.e.f. 1-4-1988).

5. Subs by Act 42 of 1970, s. 57, for "and of the accounts of the fund for the last year for which such accounts have been made up" (w.e.f. 1-4-1971).

1. The words "and super-tax" omitted by Act 10 of 1965, s. 66 (w.e.f. 1-4-1965).

2. Subs. by Act 4 of 1988, s. 2, for "Commissioner" (w.e.f. 1-4-1988).

3. Subs. by Act 25 of 2014, s. 4 for "Chief Commissioner" (w.r.e.f. 1-6-2013).

4. Subs. by s. 4, ibid., for "Commissioner" (w.r.e.f. 1-6-2013).

5. Ins. by Act 42 of 1970, s. 57 (w.e.f. 1-4-1971).

6. Subs. by Act 4 of 1988, s. 2, for "Income-tax" (w.e.f. 1-4-1988).

7. Ins. by Act 42 of 1970, s. 57 (w.e.f. 1-4-1971).

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