Draft Income Tax Rules 286, 287 – Shortened Title (without losing facts): Approval Requirements for Employee Welfare Funds and Government Grant Threshold for Institutions under Schedule VII (Sl. No. 2, 17 & 18)
Rules 286 and 287 of the Draft Income-tax Rules, 2026 prescribe conditions relating to employee welfare funds and the determination of institutions substantially financed by the Government under Schedule VII. Rule 286 sets out the requirements for approval of a fund established for the welfare of employees and their dependents under Schedule VII (Table: Sl. No. 2). Such a fund must be created under a trust and evidenced by a trust deed, and contributions to the fund must be made by employees through periodical subscriptions. An application for approval must be submitted in Form No. 180 to the Principal Commissioner or Commissioner having jurisdiction over the area where the fund’s accounts are maintained, along with the prescribed documents. The authority may grant approval after recording satisfaction that all conditions under the relevant Schedule and the rule are fulfilled, specifying the tax year or years for which approval is valid, which cannot exceed three tax years. If the conditions are not fulfilled, the application may be rejected with recorded reasons, but only after giving the applicant an opportunity of being heard. Rule 287 provides that, for the purposes of Schedule VII (Table: Sl. No. 17 and 18), a university, educational institution, hospital, or similar institution will be considered substantially financed by the Government in a tax year if the Government grant received during that year exceeds 50% of its total receipts, including donations.
Extract of Rules No. 286, 287 of Draft Income-tax Rules, 2026
Rule 286
Requirements for approval of a fund for welfare of employees and their dependents under Schedule VII [Table: Sl. No. 2] of the Act.
(1) Any fund established for such purposes as may be notified by the Board for the welfare of employees and their dependents (where such employees are member of such fund) shall be formed under a trust and it shall be evidenced by a trust deed.
(2) The contributions to the fund are to be made by the employees by way of periodical subscription.
(3) The application for approval shall be made in Form No. 180 to the Principal Commissioner or Commissioner having jurisdiction over the area or territory in which the accounts are kept and such application shall be accompanied by the documents mentioned therein.
(4) The Principal Commissioner or Commissioner, where he is satisfied that, —
(a) all the conditions laid down in Schedule VII [Table: Sl. No.2] and this rule are fulfilled; he shall record such satisfaction in writing and grant approval to the fund specifying the tax year or years for which the approval is valid which shall not exceed 3 tax years;
(b) one or more of the conditions laid down in Schedule VII [Table: Sl. No.2] and this rule are not fulfilled, he shall reject the application for approval, after recording the reasons for such rejection in writing.
(5) No order of rejection of an application shall be passed without giving an opportunity of being heard.
Rule 287
Percentage of Government Grant for considering any university, hospital, or any other institution, as substantially financed by the Government for the purposes of Schedule VII [Table: Sl. No. 17 and 18] of the Act.
For the purposes of Schedule VII [Table: Sl. No. 17 and 18], any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any tax year, if the Government grant to such university or other educational institution, hospital or other institution for such tax year exceeds 50 % of their total receipts including any donations during the said tax year.
