Rule 322: Limit on initial contributions to a gratuity fund for past service
Rule 322 caps the deduction for an employer's initial contribution to a gratuity fund for past services of an employee admitted to the fund. Rules 316 to 329 govern approved gratuity funds under Part B of Schedule XI to the Act. It cannot exceed 8 1/3% of the employee's salary for each year of past service with the employer.
Official notified Income-tax Rules, 2026Need advice on Rule 322?
This article is for general information. Read the official Rules and applicable Act amendments, including the Taxation and Other Laws (Amendment) Act, 2026. If you need professional advice for your situation, contact Bizeneed.
On this page
Bare law
Rule 322 - Initial contributions
The amount to be allowed as a deduction on account of an initial contribution, which an employer may make in respect of the past services of an employee admitted to the benefits of a fund, shall not exceed 8 1/3% of the salary of the employee for each year of his past service with the employer.
Rule breakdown
Cap
8 1/3% of salary for each year of past service.
Applies to the amount allowed as a deduction.
Text note
The notified text prints the figure as a stacked fraction, which appears as 8 1/3%.
Key takeaways
Past service
For service before admission to the fund.
8 1/3% per year
Of salary for each year.
Deduction limit
Caps the deductible amount.
Practical checklist
- Keep salary records for each year of past service.
Avoid
- Do not include service with other employers.
FAQs
What is the limit for initial contribution?
8 1/3% of salary for each year of past service (Rule 322).
Does it cover service with another employer?
The rule refers to past service with the employer.
What about annual contributions?
See Rule 321.
Glossary
- Initial contribution
- Contribution for past services.
- Past service
- Service with the employer before admission to the fund.