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of <h1>Income Tax Act Update: Gratuity Deductions Limited to Approved Funds u/ss 37(1) and 40A(7.</h1> The circular addresses the provision for estimated service gratuity payable to employees and its deduction under sections 37(1) and 40A(7) of the Income Tax Act, as amended by the Finance Act, 1975. Initially, provisions for gratuity based on actuarial valuation were deductible under section 37(1). However, the Finance Act, 1975, introduced section 40A(7), disallowing deductions for gratuity provisions unless they were contributions to approved gratuity funds or payments made when gratuity became payable during the year. Previous instructions allowing deductions for unapproved gratuity funds have been withdrawn, and pending assessments must align with these updated guidelines.
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