## Disallowance of Contributions to Welfare Funds

### Provision for Gratuity — Section 40A(7)

General rule: Any provision for gratuity is disallowed.
Exceptions (disallowance does NOT apply):
Contributions to an approved gratuity fund during the year (subject to Section 43B — i.e., actually paid).
Provision for gratuity that has become payable during the year (e.g., on an employee's retirement, death, or termination).
No double deduction: If a provision is claimed in FY 2023-24, and in FY 2024-25 the amount is actually paid to the employee out of that provision, it cannot be claimed again in FY 2024-25.

### Contributions to Unrecognised Funds — Section 40A(9)

Any contribution by the assessee, as an employer, to unrecognised welfare funds is not allowed as a deduction. These are funds where no real benefit flows to employees.

Worked example

### Example 1

Example — approved fund. A company creates a ₹2,00,000 provision and actually contributes it to an approved gratuity fund during the year. The deduction is allowed (provision exception + Section 43B paid-basis satisfied).

### Example 2

Example — no double deduction. Provision of ₹1,00,000 claimed in FY 2023-24. In FY 2024-25 ₹1,00,000 is paid to a retiring employee from that provision. No fresh deduction in FY 2024-25, since it was already claimed.

⚠️ Common exam mistakes

Allowing a general provision for gratuity (not to an approved fund and not yet payable).
Claiming the deduction twice — once on provision and again on actual payment.
Allowing contributions to unrecognised welfare funds.

Reference: Sections 40A(7) & 40A(9) — Income-tax Act, 1961

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Disallowance of provision for gratuity and contributions to unrecognised welfare funds – Sections 40A(7) and 40A(9)

Worked example

⚠️ Common exam mistakes