Contribution 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 fund
Treatment of initial contribution: Certain points have been raised in connection with the provisions in the Income-tax Act, 1961, relating to gratuity funds. These points and Board’s comments thereon are as under :
Point No. 1: Paragraph 6 of Board’s Circular No. 70(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 81 /3 per cent of the employee’s salary for each year of his past service with the employer. The aforesaid rule is effective from April 1, 1962, and is applicable to assessments for the assessment year 1962-63 and subsequent years. The instructions contained in paragraph 6 of the Board’s Circular referred to hereinabove are, therefore, not applicable to assessments for the assessment year 1962-63 and earlier years.