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CS Executive · Tax Laws and Practice · Income under the Head Salary

Under section 29 of the Income-tax Act, 2025, an employer makes a provision in its books for gratuity that has actually become payable to retiring employees during the tax year. What is the position on deduction?

A provision for gratuity that has become payable during the tax year is deductible for the employer. Once that deduction is allowed, no further deduction is permitted when the amount is actually paid out of the provision, preventing a double deduction.

  1. ADeduction is allowed for the provision for gratuity that has become payable during the tax year, and no further deduction is allowed on actual payment from that provisionCorrect
  2. BDeduction is allowed only when the gratuity is actually paid, never on provision
  3. CNo deduction is allowed for any gratuity provision or payment
  4. DDeduction is allowed on both the provision and again on actual payment

Explanation

Section 29(1)(d) allows a provision for gratuity that has become payable during the tax year. Section 29(2)(b) bars a second deduction on actual payment from such provision. Allowing both would be double deduction.

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