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CS Executive · Tax Laws and Practice · Computation of Total Income and Tax Liability of various Entities

Rohan Chemicals Ltd accrued Rs 3,00,000 employer contribution to a gratuity fund in tax year 2026-27, paid Rs 1,00,000 before 31 March 2027 and the balance of Rs 2,00,000 after the return due date for 2026-27, in tax year 2027-28. It claimed all of it in 2026-27 earlier. What is the correct deduction position under section 37 of the Income-tax Act, 2025, for 2026-27?

Only Rs 1,00,000 is deductible for 2026-27. Employer gratuity fund contributions are allowed on actual payment, and the Rs 2,00,000 paid after the return due date misses the section 37(3) relief, so it is allowed in the year it is paid.

  1. ARs 3,00,000, being the accrued amount
  2. BRs 1,00,000, since the balance was paid after the return due dateCorrect
  3. CRs 2,00,000 only
  4. DNil, as gratuity contributions are allowed only on approval

Explanation

Employer contributions to a gratuity fund fall under section 37(2)(b) and need actual payment. Rs 1,00,000 was paid within the year. The Rs 2,00,000 was paid after the return due date, so sub-section (3) relief does not apply; it is allowed in 2027-28 when paid. Claiming accrued Rs 3,00,000 ignores the payment condition.

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