Schedule XI — PART A RECOGNISED PROVIDENT FUNDS

[See section 2(91)]
PART A
RECOGNISED PROVIDENT FUNDS
Application of Part
1. This Part shall not apply to any provident fund to which the Provident Funds
Act, 1925 (19 of 1925), applies.
Definitions.
2. For the purposes of this Part, unless the context otherwise requires,—
( a) “approving authority” means the Principal Chief Commissioner or Chief
Commissioner or Principal Commissioner or Commissioner;
( b) “employer” means any person who maintains a provident fund for the
benefit of his or its employees, being—
( i) a Hindu undivided family, company, firm or other association of
persons, or
( ii) an individual engaged in a business or profession, the profits and
gains whereof are assessable to income-tax under the head “Profits
and gains of business or profession”;
( c) “employee” means an employee participating in a provident fund, ex -
cluding personal or domestic servant;
( d) “contribution” means any sum credited by or on behalf of any employee
out of his salary, or by an employer out of his own funds, to the individual
account of an employee, excluding any sum credited as interest;
( e) “balance to the credit of an employee” means the total amount to the
credit of his individual account in a provident fund at any time;
( f) “annual accretion”, in relation to the balance to the credit of an employee
means the increase to such balance, in any year arising from contribu -
tions and interest;
( g) “accumulated balance due to an employee” means the balance to his
credit, or portion thereof claimable by the employee under the regula -
tions of the fund, on the day he ceases to be an employee of the employer
maintaining the fund;
( h) “regulations of a fund” means the specific regulations governing the
constitution and administration of a particular provident fund; and
( i) “salary” includes dearness allowance, if provided for in the terms of
employment, but excludes all other allowances and perquisites.
Recognition to provident fund and its withdrawal.
3. (1) The approving authority may grant recognition to a provident fund, which in
his opinion, satisfies the conditions prescribed in paragraph 4 and the rules made
by the Board in this regard and may, at any time, withdraw such recognition if, in
his opinion, the provident fund violates any of those conditions.
(2) An order granting recognition shall take effect on such date specified by the ap-
proving authority as per any rules made or may be made by the Board in this behalf,
such date not being later than the last day of the tax year in which the order is made.
(3) An order withdrawing recognition shall take effect from the date on which it
is made.
(4) An order according recognition to a provident fund shall not, unless the approving
authority otherwise directs, be affected by the fact that—
( a) the fund is subsequently amalgamated with another provident fund on
the occurrence of an amalgamation of the undertakings in connection
with which the two funds are maintained; or
( b) the fund subsequently absorbs the whole or a part of another provident
fund belonging to an undertaking which is wholly or in part transferred to
or merged in the undertaking of the employer maintaining the first-men-
tioned fund.
Conditions to be satisfied by recognised provident funds.
4. In order to receive and retain recognition, a provident fund, shall, subject to the
provisions of paragraph 5, satisfy the following conditions and any other conditions
as may be prescribed—
( a) all employees shall be employed in India, or employed by an employer
whose principal place of business is in India;
( b) the contributions of an employee in any year shall be a fixed proportion
of his salary for that year, deducted by the employer from each periodi-
cal payment of salary in that proportion and credited to the employee’s
individual account in the fund;
( c) 44[***]
( d) the fund shall be vested in two or more trustees or the Official Trustee
under a trust which shall not be revocable, except with the consent of
all the beneficiaries;
( e) the fund shall consist only of––
( i) contributions as specified above, received by the trustees;
( ii) accumulations thereof;
( iii) interest credited in respect of such contributions and accumulations;
( iv) securities purchased therewith; and
( v) any capital gains arising from the transfer of capital assets of the
fund;
45[(f) the fund shall be a fund––
44. Omitted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its omission, clause ( c) read as
under :
“( c) the employer’s contributions to the employee’s account in any year shall not exceed
the employee’s contribution in that year, and shall be credited to the employee’s
account at intervals not exceeding one year;”
45. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, clause (f) read
as under :
“( f) the fund shall be the fund of an establishment—
( i) to which the provisions of section 1(3) of the Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952 (19 of 1952) apply; or
( ii) notified by the Central Provident Fund Commissioner under section 1(4) of
the said Act,
and such establishment shall be exempted from the operation of all or any of the
provisions of any scheme mentioned in section 17 of the said Act;”
( i) of an establishment to which the provisions of section 1(3) of the
Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
(19 of 1952) apply; or
( ii) of an establishment notified by the Central Provident Fund Commis-
sioner under section 1(4) of the said Act,
and such establishment shall obtain exemption under section 17 of the
said Act from the operation of all or any of the provisions of any scheme
as referred to in that section;]
( g) the employer, subject to clause (h), shall not be entitled to recover any
sum from the fund, except when the employee—
( i) is dismissed for misconduct; or
( ii) voluntarily leaves his employment otherwise than due to ill-health
or other unavoidable cause before the end of the term of service
specified in the regulations of the fund;
( h) for the purposes of clause (g), the recovery made by the employer shall
be limited to––
( i) the contributions made by him to the individual account of the
employee;
( ii) interest credited in respect of such contributions as per the regu -
lations of the fund; and
( iii) the accumulations thereof;
( i) the accumulated balance due to an employee shall be payable on the day
he ceases to be an employee of the employer maintaining the fund;
( j) except as provided in clause ( i) or as per conditions and restrictions
prescribed, no portion of the balance to the credit of an employee shall
be payable to him.
Relaxation of conditions.
5. (1) Irrespective of anything contained in paragraph 4(a), the approving authority
may, if he thinks fit and subject to such conditions that he thinks proper to attach
to such recognition, record recognition to a fund which is—
( a) maintained by an employer whose principal place of business is outside
India; and
( b) the proportion of employees employed outside India does not exceed
10%.
(2) Irrespective of anything contained in paragraph 4(b), an employee who retains
his employment––
( a) while serving in the armed forces of the Union; or
( b) when taken into or employed in the national service under any law for
the time being in force,
may, contribute to the fund during such service in the armed forces or employment
in the national service, a sum not exceeding the amount he would have contributed
had he continued to serve the employer, whether he received any salary or not from
the employer.
(3) Irrespective of anything contained in paragraph 4(e) or (i),—
( a) at the request made in writing by the employee who ceases to be an
employee of the employer maintaining the fund, the trustees of the fund
may agree to retain the whole or any part of the accumulated balance to
be drawn by him at any time on demand;
( b) when the accumulated balance due to such employee is retained in the
fund as per clause ( a), the fund may also include interest in respect of
such accumulated balance; and
( c) the fund may also consist of any amount and interest thereof transferred
from the employee’s individual account in any recognised provident fund
maintained by his former employer.
(4) 46[***]
(5) Irrespective of anything contained in paragraph 4( j), in order to allow an
employee to pay the amount of tax assessed on his total income under paragraph
11(4), such employee shall be allowed to withdraw from the balance amount to his
credit in the recognised provident fund, a sum not exceeding the difference between
such amount and the amount to which he would have been assessed if the transferred
balance referred to in paragraph 11(2) had not been included in the total income.
47[Employer’s annual contributions, when deemed to be income received by
employee.
6. The portion of the annual accretion in the tax year to the balance of an employee
in a recognised provident fund consisting of interest credited on the balance to the
46. Omitted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its omission, sub-paragraph (4)
read as under :
“(4) Subject to any rules made by the Board, the approving authority may relax the provisions
of paragraph 4(c) for any particular fund,—
( a) to permit the payment of larger contributions by an employer to the employee’s
individual account whose salary does not exceed five hundred rupees per month;
and
( b) to permit the employers to credit the employees’ individual accounts with periodical
bonuses or contributions of a contingent nature, when the calculation and payment
of such bonuses or contributions is provided for on definite principles by the regu-
lations of the fund.”
47. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, paragraph 6
read as under :
“6. Employer’s annual contributions, when deemed to be income received by employee. —The
portion of the annual accretion in the tax year to the employee’s balance in a recognised
provident fund consisting of—
( a) contributions made by the employer exceeding 12% of the employee’s salary; and
( b) interest credited on the balance to the credit of an employee in so far as it is allowed
at a rate exceeding such rate as fixed by the Central Government by notification,
shall be deemed to have been received by the employee and included in his total income for
that tax year and shall be liable to income tax.”
credit of an employee in so far as it is allowed at a rate exceeding such rate as fixed
by the Central Government by notification, shall be deemed to have been received by
the employee and included in his total income for that tax year and shall be liable to
income-tax.]
Exemption for employee’s contributions.
7. An employee participating in a recognised provident fund shall, in respect of his
own contributions to his individual account in the fund in the tax year, be entitled
to a deduction in the computation of his total income of an amount determined as
per section 123.
Exclusion from total income of accumulated balance
8. (1) Subject to the provisions of sub-paragraph (2), the accumulated balance due
and payable to an employee shall be excluded from the computation of his total
income—
( a) if the employee has rendered continuous service with his employer for
five years or more; or
( b) even if, the employee has not served continuously, the service was ter -
minated due to––
( i) the employee’s ill-health; or
( ii) by the contraction or closure of the employer’s business; or
( iii) other cause beyond the control of the employee;
( c) if, on the cessation of his employment, the employee obtains
employment with any other employer, to the extent the accumulated
balance due and becoming payable to him is transferred to his individ-
ual account in any recognised provident fund maintained by such other
employer; or
( d) the entire balance standing to the employee’s credit is transferred to his
account under a pension scheme referred to in section 124 and notified
by the Central Government.
(2) Where the accumulated balance due and payable to an employee includes any
amount transferred from another recognised provident fund or funds of a previous
employer or employers, the continuous service period for the purposes of sub-para-
graph (1)(a) or (b) shall include the period or periods served under the aforesaid
previous employer or employers.
Tax on accumulated balance.
9. Where the accumulated balance due to an employee is included in his total income
owing to the provisions of paragraph 8 not being applicable, then—
( a) the Assessing Officer shall calculate the total of the various sums of
tax which would have been payable by the employee in respect of his
total income for each of the years concerned if the fund had not been a
recognised provident fund; and
( b) the amount by which such total exceeds the total of all sums paid by or
on behalf of such employee by way of tax for such years shall be payable
by the employee in addition to any other tax for which he may be liable
for the tax year in which the accumulated balance due to him becomes
payable.
Deduction at source of tax payable on accumulated balance.
10. In cases where paragraph 9 applies––
( a) the trustees of a recognised provident fund; or
( b) any person authorised by the regulations of the fund to make payment
of accumulated balances due to employees,
shall deduct from the accumulated balance at the time of payment, the amount
payable under the rule and the provisions of Chapter XIX-B shall apply as if the
accumulated balance were income chargeable under the head “Salaries”.
Treatment of balance in newly recognised provident fund.
11. (1) Where recognition is accorded to a provident fund with existing balances,
an account shall be made of the fund up to the day immediately preceding the day
on which the recognition takes effect,—
( a) showing the balance to the credit of each employee on such day; and
( b) containing such further particulars as may be prescribed.
(2) The account shall also show in respect of balance to the credit of each employee—
( a) the amount thereof to be transferred to the employee’s account in the
recognised provident fund (herein referred to as transferred balance);
and
( b) such “transferred balance” shall be shown as balance to his credit in the
recognised provident fund on the date on which the recognition takes
effect, and sub-paragraph (4) and paragraph 5(5) shall apply accordingly.
(3) Any part of the balance to the credit of each employee in the existing fund not
transferred to the recognised fund shall be excluded from the recognised fund’s
account and shall be liable to income-tax as per the provisions of this Act, other
than this Part.
(4) Subject to rules made by the Board in this behalf,—
( a) the Assessing Officer shall calculate the aggregate of all amounts in the
transferred balance that would have been liable to income-tax if this Part
had been in force since the fund’s institution, without regard to any tax
which may have been paid on any amount;
( b) the aggregate of amounts in a transferred balance, if any, shall be deemed
to be income received by the employee in the tax year in which the
recognition of the fund takes effect and shall be included in the
employee’s total income for that tax year;
( c) for the purposes of assessment, the remainder of the transferred balance
shall be disregarded, but no other exemption or relief, by way of refund
or otherwise, shall be granted in respect of any sum comprised in such
transferred balance.
(5) In cases of serious accounting difficulty, the approving authority may, subject to
rules, make a summary calculation of the aggregate as provided in sub-paragraph (4).
(6) Nothing in this paragraph shall affect the rights of the persons administering
an unrecognised provident fund or dealing with it, or with the balance to the credit
of any individual employee prior to recognition, in any manner permitted by law.
Accounts of recognised provident funds.
12. (1) The accounts of a recognised provident fund shall be maintained by the
trustees of the fund in such form, for such period, and contain such particulars, as
may be prescribed.
(2) The accounts shall be available to inspection by the income-tax authorities at
all reasonable times, and the trustees shall provide the Assessing Officer with the
abstracts of such accounts as may be prescribed.
Appeal.
13. (1) An employer objecting to an order of the approving authority not granting
recognition or withdrawing recognition from a provident fund may appeal to the
Board, within sixty days of such order.
(2) The appeal shall be in such form and verified in such manner, and subject to the
payment of such fee as may be prescribed.
Treatment of fund transferred by employer to trustee.
14. (1) When an employer who maintains a provident fund, whether recognised or
not, for the benefit of his employees and has not transferred the fund or portion of
it, transfers such fund or portion to trustees in trust for the participating employees,
the transferred amount shall be deemed to be of the nature of capital expenditure.
(2) When an employee receives the accumulated balance due to him from the
fund, any portion of such balance representing the employee’s share of the amount
transferred to the trustees (without addition of interest and exclusive of employee’s
contributions and interest thereon) shall be deemed to be,—
( a) employer’s expenditure under section 34;
( b) incurred in the tax year in which the accumulated balance due to the
employee is paid,
provided an arrangement for deduction of tax at source has been made from the
amount of such share by the employer.
PART B
APPROVED SUPERANNUATION FUNDS AND GRATUITY FUNDS
Interpretation.
1. For the purposes of this Part, unless the context otherwise requires, “approv -
ing authority”, “employer”, “employee”, “contribution” and “salary”, in relation
to superannuation funds and gratuity funds shall have, the meanings as assigned
to those expressions in paragraph 2( a), (b), (c), (d) and (i) of Part A in relation to
provident funds.
According approval to superannuation fund and its withdrawal.
2. (1) The approving authority may grant approval to any superannuation fund or
its part, or any gratuity fund, as the case may be, which in his opinion satisfies the
conditions prescribed in paragraph 3, and may withdraw such approval at any time,
if, in his opinion, the circumstances cease to warrant such approval.
(2) The approving authority shall inform the trustees of the fund, in writing, the grant
of approval with the date on which the approval is to take effect and the conditions
subject to which such approval is granted, if any.
(3) The approving authority shall inform the trustees of the fund, in writing, any
withdrawal of approval along with the reasons and the date on which the withdrawal
is to take effect.
(4) The approving authority shall not refuse or withdraw any approval without
giving the trustees a reasonable opportunity of being heard.
Conditions for approval.
3. In order to receive and retain approval, a superannuation fund or a gratuity fund,
as the case may be, shall satisfy the following conditions, and any other conditions
as may be prescribed:—
( a) the fund shall be established under an irrevocable trust in connection
with a trade or an undertaking carried on in India, with at least 90%
employees employed in India;
( b) the sole purpose of the fund shall be the provision of annuities or gratuity,
as the case may be, for employees in the trade or undertaking––
( i) upon their retirement at or after a specified age;
( ii) upon incapacitation before retirement;
( iii) on termination of employment after a minimum period of service
specified in the rules of the gratuity fund; or
( iv) for the widows, children or dependants of such employees on their
death;
( c) the employer in the trade or undertaking shall contribute to the fund;
and
( d) all annuities, pensions and other benefits, granted from the fund shall
be payable only in India.
Application for approval.
4. (1) An application for approval of a superannuation fund or part of it, or any
gratuity fund, as the case may be, shall be made in writing by the trustees to the
Assessing Officer by whom the employer is assessable, and shall be accompanied by—
( a) a copy of the instrument establishing the fund and two copies of the rules
thereof; and
( b) two copies of the accounts of the fund relating to such earlier year or
years (not more than three years immediately preceding the year in which
the said application is made) for which the accounts have been made
up, if the fund has been in existence before the financial year in which
the application for approval is made.
(2) In addition to the documents referred to in sub-paragraph (1), the approving
authority may require such further information to be furnished as he thinks proper.
(3) If any alteration is made to the rules, constitution, objects or conditions of the
fund after the date of the application for approval,––
( a) the trustees shall immediately inform such alterations to the Assessing
Officer mentioned in sub-paragraph (1); and
( b) failure to inform such alterations may result in the approval given, if
any, be deemed to be withdrawn from the date on which the alteration
took effect, unless the approving authority orders otherwise.
Gratuity deemed to be salary.
5. If any gratuity is paid to an employee during his lifetime, the gratuity shall be
treated as salary paid to the employee for the purposes of this Act.
Contributions of employee when deemed to be income of employer.
6. When contributions by an employer (including the interest, if any) are repaid to
the employer, the amount so repaid shall be deemed for the purposes of income-tax
to be the income of the employer of the tax year in which they are so repaid.
Deduction of tax on contributions paid to an employee.
7. (1) When any contributions made by an employer to an approved superannuation
fund, including interest are paid to an employee during his lifetime under conditions
other than those specified in Schedule II (Table: Sl. No. 8), tax on the amounts so
paid shall be deducted at the average rate of tax applicable to the employee—
( a) during the previous three years; or
( b) during the period for which the employee was a member of the fund, if
the period is less than three years.
(2) The trustees shall pay the tax so deducted to the Central Government within the
time and manner, as may be prescribed.
Deduction from pay of and contributions on behalf of employee to be included
in return.
8. When an employer deducts contributions from the emoluments of the employee
or pays on his behalf any contributions to an approved superannuation fund, all
such deductions or payments shall be included in the statement which is required
under section 397(3)(b).
Appeal.
9. (1) An employer objecting to an order of the approving authority refusing to
grant approval to a superannuation fund, or a gratuity fund, as the case may be, or
withdrawing such approval may appeal to the Board within sixty days of such order.
(2) The appeal shall be in such form and verified in such manner and subject to the
payment of such fee, as may be prescribed.
Liability of trustees on cessation of approval of superannuation fund.
10. If a fund or a part of a fund for any reason ceases to be an approved superan -
nuation fund, the trustees of the fund shall nevertheless remain liable to tax on any
sum paid on account of returned contributions (including interest on contributions,
if any), in so far as the sum so paid is in respect of contributions made before the
fund or part of the fund ceased to be an approved superannuation fund under the
provisions of this Part.
Liabilities of trustees on cessation of approval of gratuity fund.
11. If a gratuity fund for any reason ceases to be an approved gratuity fund, the
trustees shall nevertheless remain liable to tax on any gratuity paid to any employee.
Particulars to be furnished.
12. The trustees of an approved superannuation fund or an approved gratuity fund
and any employer who contributes to such a fund shall furnish such returns, state-
ment, particulars or information, as required by notice from the Assessing Officer
within the specified period, not being less than twenty-one days from the date of
the notice.
PART C
POWER TO MAKE RULES FOR PROVIDENT FUNDS,
SUPERANNUATION FUNDS AND GRATUITY FUNDS
Power of Board to make rules for fund.
1. In addition to powers granted by Part A and Part B of this Schedule, the Board
may make rules for a fund (provident fund or superannuation fund or gratuity fund)
in respect of the following:—
( a) to provide for the statements and information to be submitted along with
an application for approval or recognition for a fund;
( b) to provide for the returns, statements, particulars, or information which
the Assessing Officer may require from the trustees of an approved
superannuation fund or from the employer;
( c) to limit the ordinary annual and other contributions of an employer to
the gratuity fund or an approved superannuation fund;
( d) 48[***]
49[(e) to regulate investment or deposit of the moneys of a recognised or an
approved fund;]
( f) to provide for the assessment by way of penalty of any consideration
received by an employee for an assignment of, or creation of a charge
upon, his beneficial interest in a recognised or an approved fund;
( g) to determine the extent and manner of exemption from payment of tax
on contributions and interest credited to the individual account of the
employee in a provident fund from which recognition has been withdrawn;
48. Omitted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its omission, clause ( d) read as
under :
“( d) to limit the contributions to a recognised provident fund by employees who are
shareholders in the company;”
49. Substituted, ibid. Prior to its substitution, clause (e) read as under :
“( e) to regulate investment or deposit of the moneys of a recognised or an approved fund,
subject to the condition that no rule shall require more than 50% of the fund’s money
to be invested in Government securities as defined in section 2(f) of the Government
Securities Act, 2006 (38 of 2006);”
( h) to determine the extent and manner of exemption from payment of tax
on any payment made from a superannuation fund from which approval
has been withdrawn;
( i) to provide for the withdrawal of the approval of a superannuation fund
or gratuity fund, which ceases to satisfy the requirements of this Part or
the rules made thereunder; and
( j) to carry out any other the purpose of this Part and to secure such further
control over the recognition or approval of the funds and the adminis -
tration of such funds as it may deem requisite.
2. All rules made under this Part shall be subject to section 534.