Section 29
Section 29: deductions related to employee welfare
Section 29 lets an employer deduct, as a business expense, the contributions it makes towards its employees' welfare funds - recognised provident funds, approved superannuation funds, approved gratuity funds, and the pension scheme (NPS) referred to in section 124 - along with employee contributions the employer collects and passes on in time.
What an employer can deduct
Section 29(1) allows the following as deductions in computing income under section 26:
- Contributions towards a recognised provident fund or approved superannuation fund, subject to prescribed limits/conditions for the fund's recognition/approval
- Contributions towards the section 124 pension scheme (NPS) for an employee, up to 14% of the employee's salary for the tax year (salary here includes dearness allowance if the employment terms provide for it, but excludes other allowances/perquisites)
- Contributions towards an approved gratuity fund created for the exclusive benefit of employees under an irrevocable trust
- Provisions made for contribution to an approved gratuity fund, or for gratuity that has become payable during the tax year
- Employee contributions (of the kind referred to in section 2(49)(o)) that the employer credits to the employee's account in the relevant fund on or before the due date for filing the employer's return of income under section 263(1) for that tax year
Restrictions on gratuity provisioning
No deduction is allowed for a general provision made for gratuity payable to employees on retirement/termination, except to the extent specifically permitted under section 29(1)(d) (section 29(2)(a)).
If a deduction has already been allowed for a provision under section 29(1)(d), no further deduction is allowed when the actual payment is later made from that provision (section 29(2)(b)).
General bar on other employee-welfare-fund payments
No deduction is allowed for any sum paid by the employer towards setting up, forming, or contributing to any other fund, trust, company, AOP, BOI, registered society, or other institution for any purpose - except where such payment falls within section 29(1)(a), (b) or (c), or is otherwise required by any other law in force (section 29(3)).
Frequently asked questions
What is the maximum deductible employer contribution to NPS for an employee?
14% of the employee's salary for the tax year, as per section 29(1)(b).
Can an employer deduct a general provision for future gratuity payments?
Only to the extent permitted under section 29(1)(d) - a general, unrestricted gratuity provision is not deductible under section 29(2)(a).
Is a deduction allowed twice - once for the provision and again when gratuity is actually paid?
No - section 29(2)(b) specifically bars a further deduction on actual payment if a deduction was already allowed for the provision.
Related sections
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Talk to our tax team about this sectionLast updated 9 September 2026