Provision for Gratuity

[Bijay Shrestha]

Dear Friends,

When a company makes Provision for Gratuity, it is disallowed u/s 40A(7) of the IT Act 1961 and added back in IT computation.

But after that, if the Company makes payment of gratuity out of that provision in subsequent year, under which section its allowed as deduction in IT computation ?? under Section 43B or 40A(7) or 37 ??

A plain reading of Section 43B does not include Payment of Gratuity out of the Provision. It only includes Contribution to Gratuity Funds.

If we allow under 40A(7), there is no such column in IT Return to include such payment.

And Section 37 includes allowances of expenditures not covered by section 30 to 36.

Please suggest.
 

AI Summary

Clarification Sought on Gratuity Deduction Under Income Tax Act: Sections 43B, 40A(7), or 37? A participant in a discussion forum inquired about the tax treatment of gratuity provisions under the Income Tax Act, 1961. Specifically, they questioned which section allows the deduction of gratuity payments made from a provision in subsequent years: Section 43B, 40A(7), or 37. They noted that Section 43B mentions contributions to gratuity funds but not payments from provisions, and Section 40A(7) lacks a corresponding column in the IT Return. Another participant asked if the issue was resolved, to which the inquirer replied that they believe it should be allowed under Section 43B.