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

Under the Income-tax Act, 2025 (applicable from the June 2027 session), which statement correctly describes the treatment of an employer's contribution to a pension scheme referred to in section 124 for an employee, from the employer's side as a deduction?

The employer can deduct contributions to the section 124 pension scheme up to 14% of the employee's salary. For this purpose salary includes dearness allowance, if the terms of employment provide, but excludes all other allowances and perquisites.

  1. ADeduction is allowed up to 14% of the employee's salary, where salary includes dearness allowance if the terms of employment so provide but excludes all other allowances and perquisitesCorrect
  2. BDeduction is allowed up to 14% of the employee's salary, where salary includes all allowances and perquisites
  3. CDeduction is allowed up to 10% of the employee's salary including all allowances
  4. DNo deduction is allowed because contributions to funds are barred for every employer

Explanation

Section 29(1)(b) allows the employer a deduction for contributions to the section 124 pension scheme up to 14% of salary. Salary here covers dearness allowance only if the terms of employment so provide, and excludes other allowances and perquisites. The option including all allowances is wrong because it widens the base.

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