Rules 301 to 306 of the Draft Income-tax Rules, 2026 lay down the regulatory framework governing superannuation funds, including definitions, trust conditions, investment rules, eligibility criteria, and limits on employer contributions.
Rule 301 defines key terms such as beneficiary, fund, trust, trustee, and approving authority for the purposes of these provisions.
Rule 302 prescribes conditions regarding the establishment and management of the fund, requiring that both the fund and the trust be established in India and that the trust have at least two trustees who are residents of India; any trustee permanently leaving India must vacate office, and a company cannot be appointed as trustee without prior approval of the approving authority.
Rule 303 regulates the investment of fund moneys, allowing deposits in the Post Office Savings Bank, current or savings accounts with scheduled banks, payments under insurance schemes, purchase of annuities, or investments in accordance with the relevant government notification.
Rule 304 provides that a company director can receive benefits from the fund only if he is a whole-time bona fide employee and does not beneficially own more than five percent of the company’s voting power.
Rule 305 limits the employer’s annual contribution to the fund for each employee to a maximum of 27% of the employee’s salary after reducing any employer contribution made to a provident fund for that year.
Rule 306 further restricts the employer’s initial contributions for past services, providing that such contributions shall not exceed 27% of the employee’s salary for each year of past service, after reducing any employer contributions to provident funds for the same period.
Extract of Rules No. 301, 302, 303, 304, 305, 306 of Draft Income-tax Rules, 2026
Rule 301
Definitions
For the purposes of this rule and rules 301 to 315 –
(1)”beneficiary” means a person referred to in paragraph 3(b) of Part B of Schedule XI for whom provision of annuity is made;
(2) “fund” means a superannuation fund or a part of a superannuation fund which includes a fund, by whatever name called, established or constituted with a sole purpose of making payment of pension or family pension by the employer to his employees;
(3) “trust” means the trust under which the superannuation fund is established and “trustee” means a trustee thereof;
(4) “approving authority” means the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
Rule 302
Conditions regarding trust and trustees.
(1) The fund and the trust shall be established in India.
(2) The trust shall have at least two trustees, provided that a company as defined in Section 2(20) of the Companies Act, 2013 shall not be appointed as a trustee without the prior approval of the approving authority.
(3) The trustees of the fund shall be resident in India and any trustee who leaves India permanently shall vacate his office.
Rule 303
Investment of fund moneys.
(1) All moneys contributed to the fund, or received or accrued by way of interest or otherwise may be :
(a) deposited in Post Office Savings Bank Account in India; or
(b) deposited in a current account or a savings account with any scheduled bank; or
(c) utilised in accordance with rule 306 for making payments under a scheme of insurance or for purchase of annuities referred to in that rule;
(2) Any funds not deposited or used as mentioned above shall be invested in accordance with the notification of the Ministry of Finance, (Department of Financial Services) number F. No. 11/14/2013–PR dated 2nd March, 2015 published in the Gazette of India, Extraordinary, PART I—Section 1 as amended from time to time.
Rule 304
Admission of directors to a fund.
A director of a company, as defined in Section 2(20) of the Companies Act, 2013, may only receive benefits from the fund if he is a whole-time bona fide employee of the company and does not beneficially own shares in the company carrying more than five per cent of the total voting power.
Rule 305
Ordinary annual contributions.
The employer’s yearly contribution to a fund for each employee shall not exceed 27% of their salary for each year as reduced by any contributions the employer made to a provident fund for the same employee during that year, whether recognized or not.
Rule 306
Initial contributions.
For purposes of the deduction allowable under Section 29(1)(a), subject to any condition which the Board may think fit to specify, the employer’s initial contribution to a superannuation fund for an employee’s past services shall not exceed the total of 27% of the employee’s salary for each year of past service, as reduced by the employer’s contributions to a provident fund (recognized or unrecognized) if any for the same employee for each such year.
