Rules 295 to 300 of the Draft Income-tax Rules, 2026 prescribe provisions relating to penalties for assigning provident fund interests, procedures for recognition of provident funds, withdrawal of recognition, tax implications, and appeals.
Rule 295 provides that if an employee assigns or creates a charge on their beneficial interest in a recognized provident fund, the Assessing Officer must issue a notice requiring cancellation of such assignment or charge within two months. If the employee fails to do so, the consideration received for such assignment or charge will be treated as income in the tax year in which the Assessing Officer becomes aware of the arrangement.
Rule 296 specifies that employers seeking recognition of a provident fund must submit an application in Form No. 186 through the relevant Assessing Officer along with the trust deed and rules of the fund, and even funds recognized on or before 31 March 2006 or those that had applied earlier must file a fresh application.
Rule 297 provides that recognition generally takes effect from the first day of the month following receipt of the application, although delayed applications may be considered from the beginning of the financial year if sufficient reason exists.
Rule 298 allows the approving authority to withdraw recognition if statutory conditions are not satisfied or if exemption under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 is withdrawn, after giving the employer and trustees an opportunity to be heard.
Rule 299 states that upon withdrawal of recognition, the accumulated balance up to the preceding financial year may be paid tax-free subject to specified provisions, while the remaining balance will be taxed as if the fund had never been recognized.
Rule 300 provides that appeals must be filed in Form No. 187 with a fee of ₹1,000.
Extract of Rules No. 295, 296, 297 and 298, 299, 300 of Draft Income-tax Rules, 2026
Rule 295
Penalty for assigning or creating a charge on beneficial interest.
If an employee assigns or creates a charge on their beneficial interest in a recognized provident fund, the Assessing Officer shall give notice to the employee upon learning of the assignment or charge. The notice shall inform the employee that if he does not cancel the assignment or charge within two months of receiving the notice, the consideration received for such assignment or charge shall be deemed to be income received by the employee in the tax year in which the Assessing Officer became aware of the situation, and shall be assessed accordingly.
Rule 296
Application for recognition.
(1) An application for recognition shall be made by the employers maintaining a provident fund for which recognition is sought and shall be accompanied by the following document:—
(a) a copy of the original trust deed if any; and
(b) a copy of the rules of the fund.
(2) The application shall be submitted through the Assessing Officer of:
(a) the area in which the accounts of the fund are kept or,
(b) the area in which the local headquarters of the employer are situated, if the accounts are kept outside India
(3) The application shall be furnished in Form No. 186 and shall be verified in the manner specified therein.
(4) A fund which has been granted recognition on or before 31st March, 2006 or has applied for recognition before the publication of this notification in the Official Gazette, shall make a fresh application in Form No. 186 through the Assessing Officer referred to in sub-rule (2).
Rule 297
Order of recognition.
(1) An order according recognition to a provident fund shall take effect from the first day of the month immediately following the month in which the application for recognition is received by the income-tax authority concerned, unless, at the request of the employer, the first day of any later month in the same financial year is specified:
(2) In accordance with sub-rule (1), if the approving authority is satisfied that there was sufficient reason for the delay in submitting the application, he may accord recognition to the fund from a date not earlier than the 1st day of April of the financial year in which the application is made.
Rule 298
Withdrawal of recognition.
(1) The approving authority has the right to revoke recognition given to a provident fund if it fails to meet the conditions outlined in Part A of the Fourth Schedule to the Income-tax Act, 1961, Part A and Part C of Schedule XI to the Income-tax Act, 2025, or subsequent conditions set after recognition was granted under the Income-tax Act, 1961 and Income-tax Act, 2025. Additionally, if the exemption granted under Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 is withdrawn under subsection (4) of section 17 of the same Act, recognition may be withdrawn.
(2) Before withdrawing recognition, the approving authority shall give an opportunity to the employer and the trustees of the fund to show cause why recognition should not be withdrawn.
Rule 299
Exemption from tax when recognition withdrawn.
If the approving authority withdraws recognition from a provident fund, the balance to the credit of each employee at the end of the financial year before the withdrawal of recognition shall, subject to the provisions of paragraph 9 of Part A of Schedule XI, be paid to him free of tax at the time when such employee receives the accumulated balance due to him. The remaining accumulated balance due to him shall be subject to tax as if the fund had never been recognized.
Rule 300
Appeal
An appeal under paragraph 13(1) of Part A of the Eleventh XI shall be in Form No. 187 and shall be verified in the manner indicated therein and shall be accompanied by a fee of Rs 1000/-.
