Provisions for gratuity actually accrued during the year is allowable
Section 40A(7)(a) speaks that any of provisions made for the payment of the gratuity to the employees on the retirement shall not be liable which means that the provision made for preretirement of the employees in future shall not be liable and the same also therefore do not debar the allowability of accrued liability for the employees who actually retired during the year. In fact such liability accrued during the year is taken care of in section 40A(7)(b) and the operation of section 40A (7) (a) is subject to section 40A(7)(b) which is as under:-
(b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.
It is clear from the above provisions contained in section 40A(7)(b) that provision made by the assessee for the purpose of payment of any gratuity, that has become payable during the year is allowable which means that the liability which has actually accrued during the year is allowable. In fact the CBDT has also clarified the introduction of section 40A(7) that the provision made for payment of gratuity that has become payable during previous year is allowable. Therefore the liability accrued on account of the gratuity which became payable during the year on account of the employees who retired during the year itself is allowable.
Comments are closed.