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Case law › Income-tax Act 2025 › Chapter IV › Section 29
Chapter IVwas s.36, s.40A

Section 29 of the Income-tax Act, 2025

Section 29 — Deductions related to employee welfare. Successor to s.36, s.40A of the 1961 Act.

Where this section sits

Section 29 is in Chapter IV — Computation of Total Income, which runs from section 13 to section 95.

← Section 28  ·  Section 30 →

What this section does

Sub-section (1) lists, for an assessee being an employer, the employee-welfare sums allowed as a deduction in computing income chargeable under section 26. Clause (a) allows contributions to a recognised provident fund or an approved superannuation fund, subject to prescribed limits for recognising or approving the fund and to conditions the Board may specify where contributions are not made annually as fixed amounts or on a definite basis. Clause (b) allows contribution to a pension scheme referred to in section 124 for an employee up to 14% of that employee's salary in the tax year, salary here including dearness allowance if the terms of employment so provide but excluding all other allowances and perquisites. Clause (c) allows contribution to an approved gratuity fund created by the assessee for the exclusive benefit of his employees under an irrevocable trust. Clause (d), which overrides sub-section (2), allows any provision made for contributing to an approved gratuity fund or for paying gratuity that has become payable during the tax year. Clause (e), as substituted by Act No. 4 of 2026 with effect from 1 April 2026, allows the employer a deduction for employee contributions falling under section 2(49)(o) if credited to the employee's account in the relevant fund on or before the due date of filing the return of income under section 263(1) for the tax year.

Sub-section (2) is the countervailing bar on gratuity: clause (a) disallows any provision for payment of gratuity on retirement or termination, subject only to sub-section (1)(d), and clause (b) stops a second deduction when actual payment is later made out of a provision for which deduction has already been allowed. Sub-section (3) disallows any sum paid by the employer towards setting up, forming or contributing to any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 or other institution for any purpose, except where the payment is for the purposes and to the extent provided by sub-section (1)(a), (b) or (c), or is required by or under any other law in force.

Why it is there

Employer contributions to employee funds are a real business cost, but an unpoliced deduction for a mere book provision would let an employer claim relief for money it has not parted with, and for funds it controls. The section therefore allows only contributions to funds the Act recognises or approves, caps the pension-scheme contribution as a percentage of salary, and in sub-section (3) shuts the general door to any other fund or institution. Clause (e) addresses a different mischief entirely: money deducted from the employee's own wages and held by the employer instead of being credited to the fund.

Who it applies to

The figures, and what each one turns on

Read the condition in the same row. A figure quoted without it is a wrong answer with a citation attached.
WhatFigureThe condition on itWhere
Ceiling on deduction for contribution to a pension scheme referred to in section 124Up to 14% of the salary of the employee in the tax yearSalary includes dearness allowance if the terms of employment so provide, but excludes all other allowances and perquisites; the figure is a ceiling per employee, not a fixed allowanceSub-section (1)(b)
Outer date for crediting an employee's own contribution and still getting the deductionThe due date of filing of return of income under section 263(1) for the tax yearApplies to contributions received from an employee to which section 2(49)(o) applies; clause (e) as substituted by Act No. 4 of 2026 w.e.f. 1-4-2026Sub-section (1)(e)

What this means in practice

The 14% in clause (b) is a ceiling measured employee by employee on that employee's salary for the tax year, and the salary base is narrow: dearness allowance counts only if the terms of employment provide for it, and no other allowance or perquisite counts at all. On gratuity, the only provision that survives is the one in clause (1)(d) — a provision for contributing to an approved gratuity fund or for gratuity that has actually become payable in the year — and sub-section (2)(b) then makes that deduction final, so the later cash payment out of the same provision earns nothing. The change worth marking is clause (e): the substituted text ties the employer's deduction for employee contributions to the section 263(1) return due date, where the earlier version tied it to the due date under the labour law or contract governing the fund. Sub-section (3) is a general shutter — a payment to any other fund or institution is allowed only if some other law required it, or if it fits clause (a), (b) or (c).

An example

Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.

A company pays an employee a salary of twelve lakh rupees for the tax year, of which dearness allowance forms part under the terms of employment, and contributes two lakh rupees to a pension scheme referred to in section 124 for that employee. Clause (b) allows only up to 14% of the salary, that is one lakh sixty-eight thousand rupees, and the balance is not deductible. Separately, the company deducts employee provident fund contributions of three lakh rupees from wages during the year and credits them to the fund a week before it files its return under section 263(1); clause (e) as substituted allows that deduction, whereas a credit made after the return due date would not qualify.

Where you meet this section

You meet this in the computation of business income filed with the return and in the tax audit particulars an employer's accountant reports on employee-welfare payments. It surfaces as a disallowance in a scrutiny assessment, most often on late-credited employee contributions under clause (e) or on a gratuity provision that does not fit clause (1)(d).

The words themselves

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
Section 29(1)(b), Income-tax Act, 2025.
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, on or before the due date of filing of return of income under section 263(1) for the tax year.
Section 29(1)(e), as substituted by Act No. 4 of 2026 w.e.f. 1-4-2026, Income-tax Act, 2025.
in case deduction has been allowed for any provision made under sub- section (1)(d), then no deduction shall be allowed on actual payment made from such provision.
Section 29(2)(b), Income-tax Act, 2025.

What people get wrong

What this replaced

The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.

See the full 1961 to 2025 concordance.

Rules that serve this section

Rules of the Income-tax Rules, 2026 that work section 29. Where the rule’s own heading names the section we say so; the rest are marked on reading the rule, which is our derivation and not the department’s. A rule that serves the section silently and that we have missed will not appear here.

All of them are in the Rules 2026 index.

Circulars of the Board on this section

A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.

See every circular and notification on this section, or the circulars index.

Notifications that reach this section

A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.

See every circular and notification on this section, or the notifications index.

Case law carried across

Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 29. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.

Explainers

Read with

What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.