Rule 318 — Investment of fund moneys. Made under s.2 of the Income-tax Act, 2025.
Rule 318 gives effect to Section 2 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) permits all moneys contributed to the fund, or received or accrued by way of interest or otherwise, to be deposited in a Post Office Savings Bank Account in India, or deposited in a current account or a savings account with any scheduled bank, or utilised for making contributions under a Group Gratuity Scheme entered into with the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 or any other insurer as defined in section 2(58) of the Act.
Sub-rule (2) provides that any funds not deposited or used as mentioned above shall be invested in accordance with the notification of the Ministry of Finance (Department of Financial Services) number F. No. 11/14/2013-pr, dated the 2nd March, 2015, published in the Gazette of India, Extraordinary, Part I, section 1, as amended from time to time.
An approved gratuity fund holds money that belongs to employees and must be there when a gratuity falls due, so the trustees cannot be left free to invest it as they choose. The rule lists the three safe destinations they may use without more — a post office account, a scheduled bank account, or a Group Gratuity Scheme with the Life Insurance Corporation or another insurer — and then, rather than writing an investment pattern of its own, sends everything else to the Ministry of Finance notification that governs the investment of such funds generally, as amended from time to time.
The three destinations in sub-rule (1) are permissive and exhaustive of what may be done without recourse to the notification: money placed elsewhere is caught by sub-rule (2), which is mandatory in terms and requires investment in accordance with the Ministry of Finance notification of the 2nd March, 2015 as amended from time to time. Because the notification is picked up as amended, the applicable pattern is whatever is currently in force under it, and no percentage or category may be read out of this rule — it states none. Note also that sub-rule (1) covers not only contributions but interest and other receipts, so accretions do not sit outside the discipline; and the insurer for a Group Gratuity Scheme is either the Life Insurance Corporation of India or an insurer as defined in section 2(58) of the Act.
The trustees of an approved gratuity fund receive contributions from the employer and interest on earlier deposits during the year. They keep part of it in a savings account with a scheduled bank and use part for contributions under a Group Gratuity Scheme with an insurer within section 2(58), both of which sub-rule (1) permits. The balance, not being deposited or used in any of the three permitted ways, must be invested in accordance with the Ministry of Finance notification dated the 2nd March, 2015 as amended.
The trustees and the employer meet this rule in the fund's investment decisions and its annual accounts, and again if approval of the fund is examined and the pattern of its holdings is tested.
Any funds not deposited or used as mentioned above shall be invested in accordance with the notification of the Ministry of Finance, (Department of Financial Services) number F. No. 11/14/2013-PR, dated the 2nd March, 2015
