Section 29 · Computation of total income
Section 29 of the Income-tax Act, 2025 — Deductions Related to Employee Welfare (PF, Superannuation, Gratuity, Pension)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 29, Income-tax Act 2025
29. (1) The following sums, in the case of an assessee being an employer,
shall be allowed as deduction in computing income chargeable under
section 26:—
(a) any sum paid by way of contribution towards a recognised provident
fund or an approved superannuation fund, subject to—
(i) such limits, as may be prescribed, for recognising the provident
fund or approving the superannuation fund; and
(ii) such conditions, as the Board may specify, for cases where the
contributions are not made annually either as 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;
(b) any sum paid by way of contribution towards a pension scheme
referred to in section 124, for an employee up to 14% of the salary of the
employee in the tax year, where such salary includes dearness allowance,
if the terms of employment so provide, but excludes all other allowances
and perquisites;
(c) any sum paid by way of contribution towards an approved gratuity fund
created by the assessee for the exclusive benefit of his employees under
an irrevocable trust;
(d) irrespective of anything contained in sub-section (2), any provision made
for the purpose of making contribution towards approved gratuity fund
or for the purpose of payment of any gratuity that has become payable
during the tax year;
7
[(e) the amount of contribution received from an employee to which the provi-
sions of section 2(49)(o) apply, if it is credited by the assessee to the account
7. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, clause (e) read
as under :
‘(e) (i) the amount of contribution received from an employee to which the provisions
of section 2(49)(o) apply, if it is credited by the assessee to the account of the
employee in the relevant fund or funds by the due date;
(ii) for the purposes of sub-clause (i), “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
In plain language
What Section 29 is about
Section 29 of the Income-tax Act, 2025 is a business-and-profession deduction section. When a business or professional computes its taxable profit under the head "Profits and gains of business or profession", Section 29 tells it which employee-welfare payments it is allowed to subtract as business expenses — chiefly the employer's contributions to the provident fund, superannuation fund, pension scheme and gratuity fund set up for its staff.
This single section pulls together rules that under the old Income-tax Act, 1961 were scattered across Section 36(1)(iv), 36(1)(iva), 36(1)(v), 36(1)(va) and Section 40A(7). The 2025 Act consolidates them and states the conditions more plainly, but the underlying tax treatment is broadly the same as before.
Who it applies to
- Employers carrying on a business or profession — companies, firms, LLPs, proprietors, professionals — who employ staff and run welfare funds for them.
- It does not apply to salaried employees claiming their own deductions (they look to Chapter VIA / Section 80C-type reliefs); Section 29 is purely for the employer's profit computation.
What the employer can deduct
- Recognised Provident Fund and Approved Superannuation Fund: the employer's own contribution is deductible, subject to the limits and conditions prescribed for recognising the PF or approving the superannuation fund.
- Pension scheme contribution: the employer's contribution to a notified pension scheme (such as the NPS) is deductible up to 14% of the employee's salary for the tax year. "Salary" here means basic pay plus dearness allowance (where DA forms part of the terms of employment) and excludes other allowances and perquisites.
- Approved gratuity fund: contributions paid to an approved gratuity fund created under an irrevocable trust for the exclusive benefit of employees are deductible.
- Gratuity that has become payable: a provision is allowed only to the extent gratuity has actually become payable during the tax year, or is a contribution towards an approved gratuity fund.
- Employee contributions collected by the employer: when the employer deducts PF/ESI/superannuation etc. from an employee's salary, that collected amount is first treated as the employer's income; it becomes deductible only if the employer deposits it into the employee's account in the relevant fund by the due date under the governing law.
The all-important "due date" rule for employee contributions
This is the trap that costs employers the most money. The amount an employer recovers from an employee's wages (for example the employee's share of EPF or ESI) is deductible only if it is credited to the fund on or before the statutory due date — for EPF that is typically the 15th of the following month. If the employer deposits even one day late, the deduction is lost permanently, and it is not revived by paying it before filing the return. This mirrors the strict position confirmed in the Checkmate Services Supreme Court ruling and is carried forward into the 2025 Act.
Key restrictions
- No general gratuity provision: a mere book provision for future gratuity liability on retirement/termination is not deductible. Only actual payment, contribution to an approved fund, or gratuity that has crystallised in the year qualifies.
- No double deduction: if a provision was already deducted, no further deduction is allowed when the actual gratuity is later paid out of that provision.
- Only listed funds: no deduction for setting up or contributing to any other fund, trust, society or institution unless specifically permitted by Section 29(1) or required by another law.
How it interacts with other sections
- Section 28 / general computation: Section 29 deductions reduce the business income that flows from the charging provisions.
- Section 37 (general business expenditure): welfare items covered by Section 29 are governed by Section 29's specific conditions, not the residual Section 37 route.
- Employer contribution beyond limits becomes a perquisite in the employee's hands and can be disallowed for the employer if it exceeds prescribed caps.
Practical implications
- Run a monthly PF/ESI deposit calendar — timing, not intent, decides the deduction on employee-share amounts.
- Get your gratuity and superannuation funds formally approved by the Commissioner; unapproved funds fail the test.
- Keep NPS/pension contributions within 14% of salary to secure the full deduction.
💡 Example
Example 1 — the "late by one day" disaster. Shree Ganesh Textiles (a proprietorship) deducts the employees' EPF share of ₹1,80,000 from wages for June 2026. The statutory due date to deposit is 15 July 2026. The accountant deposits it on 18 July 2026. Because the credit missed the due date, the entire ₹1,80,000 is disallowed under Section 29 and added back to taxable business income. At a 30% slab, that late deposit effectively cost the firm about ₹54,000 in extra tax — even though the money did eventually reach the employees.
Example 2 — pension contribution cap. A company pays an employee a salary (basic + DA) of ₹12,00,000 in the year and contributes ₹2,00,000 to the employee's NPS account. The deductible ceiling is 14% of ₹12,00,000 = ₹1,68,000. So ₹1,68,000 is allowed under Section 29 and the excess ₹32,000 is disallowed in the employer's profit computation.
A relatable story. Meena runs a small design studio with eight staff. She always felt generous — she "provided" ₹3,00,000 in her books for future gratuity so the accounts looked prudent. At assessment, the officer disallowed the whole provision because Section 29 permits gratuity only when it is actually paid, contributed to an approved fund, or has become payable in the year. Meena learned the lesson: set up an approved irrevocable gratuity trust and route contributions through it, rather than making a paper provision that the tax law simply ignores.
| Welfare item | Deductible? | Limit / condition | Old 1961 equivalent |
|---|
| Employer's Recognised Provident Fund contribution | Yes | Within limits for recognition of the fund; actual payment basis | Sec 36(1)(iv) |
| Employer's Approved Superannuation Fund contribution | Yes | Within prescribed limits/conditions | Sec 36(1)(iv) |
| Employer's pension scheme (e.g. NPS) contribution | Yes | Up to 14% of salary (basic + DA) | Sec 36(1)(iva) |
| Contribution to Approved Gratuity Fund (irrevocable trust) | Yes | Fund must be approved | Sec 36(1)(v) |
| Gratuity that has become payable in the year | Yes | Only to the extent crystallised/paid | Sec 40A(7) |
| General book provision for future gratuity | No | Mere provision disallowed | Sec 40A(7) |
| Employee's share of PF/ESI collected from wages | Yes, if timely | Must be credited to fund by statutory due date (else permanently lost) | Sec 36(1)(va) |
Related sections
Section 28 — Income chargeable under business or profession Section 30 — Deduction for rent, rates, repairs and insurance Section 37 — General deduction for business expenditure Section 36 (1961 Act) — Other deductions incl. PF, superannuation, gratuity Section 40A(7) (1961 Act) — Gratuity provision disallowance Section 124 — Pension scheme (NPS) related provisions
Frequently asked questions
What does Section 29 of the Income-tax Act 2025 cover?
It lists the employee-welfare payments an employer can deduct while computing business or professional income — mainly contributions to recognised provident fund, approved superannuation fund, notified pension schemes and approved gratuity funds. It consolidates the old Sections 36(1)(iv), (iva), (v), (va) and 40A(7).
If I deposit the employees' PF share late, do I lose the deduction?
Yes. The employee's share you collect from wages is deductible only if credited to the fund by the statutory due date (for EPF, generally the 15th of the following month). Even a one-day delay means permanent disallowance, and paying before filing the return does not revive it.
How much pension (NPS) contribution can an employer deduct?
The employer's pension scheme contribution is deductible up to 14% of the employee's salary for the year, where salary means basic pay plus dearness allowance. Any excess over 14% is disallowed in the employer's profit computation.
Can I deduct a provision I make in my books for future gratuity?
No. A general provision for future gratuity liability is not deductible. Deduction is allowed only for actual gratuity payments, contributions to an approved gratuity fund, or gratuity that has become payable during the tax year.
Does the gratuity fund need to be approved?
Yes. To claim the deduction, the gratuity fund must be an approved fund created under an irrevocable trust for the exclusive benefit of employees. Contributions to unapproved funds do not qualify under Section 29.
Is Section 29 for employees or employers?
It is for employers computing business or professional income. Salaried employees claim their own reliefs elsewhere; Section 29 only decides what the employer can subtract as a business expense.
What is the difference between the employer's contribution and the employee's contribution under Section 29?
The employer's own contribution to PF/superannuation/pension/gratuity is deductible on an actual-payment basis within limits. The employee's share that the employer deducts from wages is deductible only if it is deposited into the fund by the statutory due date.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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