Applicable Section and rules of IT Act

Hi Jayanta,

If an employer wants to set up its own Trust Fund for giving pension to employees, to ensure tax exemption on contributions, here’s what applies under the Income Tax Act:

Applicable Section for Recognition

• Section 80CCD(1B) (along with Section 80CCD(1)) is for employees' contributions to pension schemes, but your query is about employer’s own trust.

• For employer’s contribution to a pension fund/trust to be eligible for tax exemption, the relevant section is:

  Section 80CCC / Section 36(1)(iv)

• More importantly, the trust should be registered under:

  Section 10(23C)(iv) or Section 10(23AAA)

• But the usual approach for employer-sponsored pension schemes is recognition under:

  Section 80CCD(2) — employer’s contribution to notified pension schemes.

Recognition Procedure & Rules

• The pension fund or trust must obtain recognition from the Income Tax Department under Section 80CCD(2)or relevant provisions.

• The trust should apply for recognition under Section 10(23C) (for charitable trusts) if applicable, but generally, for pension funds, Section 80CCD(2) along with rules under Pension Fund Regulatory and Development Authority (PFRDA) applies.

• Contributions by the employer are exempt under Section 36(1)(iv) if made to a recognized pension scheme/trust.

Key Points:

• The trust fund should be a recognized provident or pension fund.

• The fund must comply with prescribed rules and conditions regarding maintenance, investment, and benefits.

• Employer’s contribution up to 10% of salary is generally exempt under Section 36(1)(iv).

• Employees’ contribution eligible for deduction under Section 80CCD(1).

Summary

Suggestion

• The employer should set up the trust as per PFRDA guidelines.

• Apply for recognition under Income Tax Act with detailed trust deed and scheme rules.

• Ensure compliance with Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 if applicable.