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of <h1>Income Tax Act Update: Deductions for Gratuity Provisions Limited to Current Year u/s 40A(7.</h1> The circular discusses the provisions for deductions related to service gratuity payable to employees under the Income Tax Act. Initially, provisions made on a scientific basis for estimated gratuity were deductible under section 37(1). However, following a re-examination and Supreme Court judgments, the Finance Act, 1975, introduced section 40A(7), disallowing deductions for mere provisions unless they are contributions to approved funds or gratuity payable within the year. The circular clarifies that actuarial valuation should be conducted for each employee annually, and deductions are allowed only for current year provisions, not for past liabilities.
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