A Comprehensive Guide to Section 29 Deductions under Income Tax Bill, 2025
Section 29 of the Income Tax Bill 2025 allows the deduction in respect of various payments made by an employer in the course of his business or profession. You must be aware of these deductions as this will help you reduce your tax obligations legitimately. Let’s delve into the intricacies of Section 29 of the Income Tax Bill, 2025.
Deductions allowed under Section 29 of the Income Tax Bill, 2025
(1) Employer’s Contribution to Recognized Provident Fund [Section 29(1)(a)]
Deduction shall be allowed while computing income from business or profession in respect of contributions made by an employer to:
(a) Recognized Provident Fund or
(b) Approved Superannuation Fund
Note:
- Deduction towards employer contribution shall be allowed on actual payment basis.
- Allowable deduction shall be subject to limits as prescribed for recognizing the provident fund or approving the superannuation fund.
- Deduction shall be subject to the conditions as prescribed by the CBDT for cases where the contributions are not made annually either a fixed amounts, or annual contributions fixed on some definite basis by reference to the income chargeable under the head “Salaries” or the contributions or to the number of members of the fund.
(2) Employer’s Contribution towards Notified Pension Scheme [Section 29(1)(b)]
Deduction shall be allowed against income from business or profession in respect of contribution made by the employer towards notified pension scheme i.e. National Pension Scheme (NPS). Important points to note are:
- Maximum deduction allowable is 14% of the salary of the employee in the tax year;
- Salary includes dearness allowance if the terms of employment provide so but excludes all other allowances & perquisites.
(3) Employers’ Contribution towards Approved Gratuity Fund [Section 29(1)(c)/(d)]
Deduction for the following shall be allowed to an employer in respect of gratuity expenses incurred in his business/ profession:
- Contribution paid to an approved gratuity fund created by the assessee for the exclusive benefit of his employees under an irrevocable trust;
- Any provision made for the purpose of making contribution towards approved gratuity fund;
- Any provision made for the purpose of payment of any gratuity that has become payable during the tax year.
If the deduction has already been claimed towards provision for gratuity, then no deduction shall be allowed when actual payment is made from such provision.
Note:
No deduction shall be allowed for any provision made for the payment of gratuity to the employees on their retirement or termination for any reason.
(4) Employee’s Contribution towards Provident Fund, Approved Superannuation Fund, ESI etc. [Section 29(1)(e)]
Clause 49(o) of Section 2 states that contributions received from employees by an employer towards provident fund or superannuation fund or any fund set up under ESI Act or any other employee welfare fund shall be included in the income of the employer of that tax year.
However, if the employer deposits employee’s contribution so received to the relevant funds by the due date, then such contribution shall be allowed as a deduction from PGBP income. The purpose of this provision is to ensure that the employer deposits employee’s contribution to the relevant funds timely so that interests of the employees could be safeguarded.
Meaning of Due Date
“Due Date” means the date by which the assessee is required as an employer to credit employee contribution to the account of an employee in the relevant fund under any Act, rule, order or notification issued under it or under any standing order, award, contract of service or otherwise.
For example: According to EPF provisions, the employer is required to deposit PF contribution by 15th of every month. Therefore, the employer should ensure that employee’s contribution to PF is deposited on or before this date every month else the same will be included in the income of the employer and no deduction thereof shall be allowed even if is paid on a later date by the employer.
Note: The provisions of section 37 of the Income Tax Bill, 2025 shall not apply for determining the “due date” under this clause. Section 37 states that deduction towards employer’s contribution to a PF, superannuation fund or gratuity fund or other employee welfare funds shall be allowed in the tax year if such amount is paid on or before the due date of filing income tax return for the said tax year.
The said provision of section 37 is applicable to employer’s contribution only. This provision is not applicable in case of employee’s contribution. Therefore, the employer should ensure that employee’s contribution are deposited timely within deadline prescribed in the respective laws.
Exception to Section 29
Section 29(3) states that no deduction shall be allowed in respect of any sum paid by employer towards:
- Setting up/ Formation of any fund, trust, company, AOP, BOI, Registered society or
- As contribution to any fund, trust, company, AOP, BOI, Registered society
Except where such sum is paid for the purposes and to the extent provided by or under sub-section (1)(a) or (b) or (c), or as required by or under any other law in force.
In simple words, the deductions under the section 29 shall be admissible if the employer incurs expenditure or makes contribution in respect of a recognized/ approved fund or as per requirement of any prevailing law.
Disclaimer: The above information is meant for educational purposes only. Readers are requested to act diligently and under consultation with any professional before applying the information contained in this article. For any support mail at: support@taxwink.com
