The employer company contributing towards gratuity for the employees is required to make such contribution to the irrevocable trust. The said trust required to obtain approval under Part C of Fourth Schedule of Income-tax Act, 1961. The conditions for approval are prescribed under Rule 4 of Part C of Fourth Schedule of Income-tax Act. According to section 36(1)(v) read with section 40A(7) of Income-tax Act, 1961, any sum paid by the employer by way of contribution towards gratuity fund is allowable as expenditure if the gratuity fund is approved by the tax authorities. In practice, the employer files an application with tax authorities to obtain approval for the gratuity trust.

However, there are cases where such applications are pending with tax authorities for even 10 years. The applications are neither approved nor rejected. Further, no  objections are raised during the period of pendency. The same tax authority raises the question on allow ability of contribution to such fund when the approval is pending. The employer carries unwarranted risk of dis allowance though the required contributions are made towards the irrevocable gratuity fund. According to Rule 8 of Part C of Fourth Schedule of Income-tax Act, in case the application for approval is rejected then the employer may appeal within sixty days to the Central Board of Direct Taxes (CBDT).


The time limit shall be set for disposals of application for approval of gratuity trust. Further, there shall be provision for deemed approval if the application for approval is not disposed of by tax authorities within specified time limit. Further, process be set to submit applications online not only for gratuity trust but even for all other approvals for which applications are required to be made like Section 12AA, Part A & B of Fourth schedule of Income-tax Act, 1961 etc. 

Source- ICAI Pre- Budget Memorandum–2018 (Direct Taxes and International Tax)

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One Comment

  1. Bhadkamkar Avinash Vishnu says:

    Please forward this to PMO and Finance Minister to direct the concerned authorities. Same is the case of exemption under Employees’ Deposit Linked Insurance scheme under EPF Act foe getting exemption from Central EPFO.

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September 2021