Rules 2026

Rule 326 of the Income-tax Rules, 2026

Rule 326 — Arrangements for winding up of the fund.

Where this rule sits

What this rule does

The rule requires that any arrangement for the winding up of the gratuity fund, or for its amalgamation with another fund, be subject to the prior approval of the approving authority and to such conditions as that authority may impose.

Why it is there

An approved gratuity fund holds money set aside for employees' gratuity, and approval was granted on the footing that the fund would be run under the conditions in rules 317 to 329. Winding up or amalgamating the fund disposes of that money and takes it outside those conditions, so the rule requires the approving authority to be asked first, and lets it attach conditions to whatever it permits.

Who it applies to

The trustees of an approved gratuity fund proposing to wind it up or amalgamate it with another fund
The approving authority, as defined in rule 316(a), whose prior approval is required

What this means in practice

Approval must be prior: an arrangement already carried into effect cannot be regularised afterwards under this rule. It covers both ends of the fund's life — winding up and amalgamation with another fund — and in either case the approving authority may impose conditions, so approval is rarely a bare permission. The rule states no conditions of its own; what they are is for the approving authority to decide in the particular case.

An example

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

The trustees of an approved gratuity fund wish to merge it with the gratuity fund of another company in the group. Under the rule they must obtain the prior approval of the approving authority before the amalgamation is given effect, and must comply with any conditions that authority imposes as part of that approval.

Where you meet this rule

In the application to the approving authority when an employer restructures and its gratuity fund is to be wound up or merged, and in the conditions attached to the approval given.

The words themselves

Any arrangements for the winding up of the fund or for its amalgamation with another fund shall be subject to the prior approval of, and to such conditions as may be imposed by, the approving authority.

Rule 326, Income-tax Rules, 2026.

What people get wrong

Winding up or merging the fund first and seeking approval afterwards. The rule requires prior approval.
Treating an amalgamation as outside the rule because the fund continues in another form. Amalgamation with another fund is expressly covered.
Expecting approval to come without conditions. The arrangement is subject to such conditions as may be imposed by the approving authority.

Read with

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.