Rules 2026

Rule 321 of the Income-tax Rules, 2026

Rule 321 — Ordinary annual contributions.

Where this rule sits

What this rule does

The rule governs the employer's ordinary annual contribution to a superannuation fund. The contribution shall be made on a reasonable basis, as may be approved by the approving authority, having regard to the length of service of each employee concerned, but shall not exceed 8⅓% of the salary of each employee during each year.

Why it is there

A superannuation fund carries tax advantages, so the annual contribution has to be both principled and capped. The rule supplies the principle, a reasonable basis approved by the approving authority and related to each employee's length of service, and the cap, a percentage of each employee's salary, so the fund cannot be used to move unlimited amounts out of the employer's hands.

Who it applies to

An employer making ordinary annual contributions to a fund
The approving authority approving the basis of contribution

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.

What	Figure	The condition on it	Where
Ceiling on the employer's ordinary annual contribution	Not exceeding 8⅓% of the salary of each employee during each year	Applies employee by employee; the contribution must in any case be on a reasonable basis approved by the approving authority having regard to length of service	Rule 321

What this means in practice

The 8⅓% is a ceiling, not the contribution. What the employer may contribute is what a reasonable basis approved by the approving authority yields, having regard to the length of service of each employee, and the percentage only caps that figure. The cap is applied to each employee's salary separately, so it cannot be averaged across the workforce or used to load contributions onto senior employees while others fall short. Contributing at the ceiling without an approved basis does not satisfy the rule.

An example

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

An employer proposes to contribute for an employee whose salary for the year is Rs 12,00,000. Whatever basis it uses, the contribution for that employee cannot exceed 8⅓% of Rs 12,00,000, that is Rs 1,00,000. Contributing Rs 1,00,000 for that employee while contributing well below the reasonable basis for others does not answer the rule, which requires the basis itself to be reasonable, approved by the approving authority and related to length of service.

Where you meet this rule

You meet it when the basis of an employer's annual contribution to an approved superannuation fund is put to the approving authority, and when the contribution actually made for a year is tested against each employee's salary.

The words themselves

The ordinary annual contribution by the employer to a fund shall be made on a reasonable basis, as may be approved by the approving authority, having regard to the length of service of each employee concerned

Rule 321, Income-tax Rules, 2026.

What people get wrong

Treating 8⅓% as the prescribed rate of contribution. It is a ceiling; the contribution is what an approved reasonable basis yields.
Applying the ceiling to the total salary bill. The rule caps the contribution at 8⅓% of the salary of each employee.
Fixing the basis without approval. The rule requires the basis to be one approved by the approving authority.
Ignoring length of service. The rule requires the basis to have regard to the length of service of each employee concerned.

What this page does not tell you. It does not reproduce the rule. Everything above was written from the rule’s own text as the Income Tax Department publishes it — the text is here. A rule is subordinate legislation: it prescribes the method, the form or the period, and it cannot enlarge the charge the section imposes. Where a figure matters, read the sub-rule it comes from.