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.
 

[DR.MARIAPPAN GOVINDARAJAN]

Whether you have got clarified in this query? If not please inform.

[Bijay Shrestha]

No Sir.

But I think it should be allowed u/s 43B.

AI Summary

Treatment of gratuity payments: deductibility hinges on whether the payment qualifies as a contribution to a fund or a general business deduction. The company's gratuity provision is disallowed when created, and the core issue is whether a subsequent payment out of that provision is deductible as a contribution to a gratuity fund or under the general business deduction principle; the text notes practical reporting gaps and records a view favoring allowance under the contribution-to-fund approach without reaching a definitive statutory determination.