Rules 1 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Environmental (Protection) Fund Rules, 2026 say where penalty money under the Environment, Air and Water Acts goes and what it can be spent on. Rules 1 to 5 cover the commencement and definitions, the permitted uses of the Fund, what is credited to it, and how payments are made and shared between the Centre and the States and Union territories.
These rules are current as amended up to their notification on 15 January 2026 (G.S.R. 35(E)); no amendment found to 3 October 2026, and later amendments and notifications should be checked. A company that pays an adjudicating officer's penalty is the person who meets these rules in practice; for help in planning such a payment, see our compliance advisory service.
The Fund is constituted in the Public Account of India under section 16 of the EP Act. Penalties imposed under the Air Act, the Water Act and the EP Act are credited to it (rule 4). Payment is made through the online Bharatkosh portal (rule 5(1)). Seventy-five per cent of the penalty collected is remitted to the concerned State or Union territory and twenty-five per cent is retained by the Centre (rule 5(2)). The money can be used only for the purposes in rule 3.
Rule 1 and rule 2: commencement and definitions
The rules were made by the Central Government, in consultation with the Comptroller and Auditor-General of India, under sections 6 and 25 of the Environment (Protection) Act, 1986, by G.S.R. 35(E) of 15 January 2026, and "shall come into force on the date of their notification in the official Gazette". The Fund itself comes from section 16 of the Act, explained in sections 15E to 16B.
Rule 2 gives the defined terms:
| Term | Meaning in the rules |
|---|---|
| Administrator | The Ministry of Environment, Forest and Climate Change, or any body notified by the Central Government |
| Competent Authority | The Minister for Environment, Forest and Climate Change |
| Form | A Form appended to the rules |
| Fund | The Environmental Protection Fund constituted in the Public Account of India under section 16 of the Act |
| Year | The financial year from 1 April to 31 March |
Words used but not defined take the meaning given in the Act.
Rule 3(1): what the Fund may be used for
The Fund "shall be utilized" for these purposes:
- installation, operation and maintenance of environmental monitoring equipment for strengthening the monitoring network;
- development and upgrading of environmental laboratories, including buildings and research infrastructure;
- research relating to clean technologies;
- assessment and remediation of environmental damage, including remediation of contaminated sites;
- capacity building and strengthening of the State Environment Impact Assessment Authority, the State Level Expert Appraisal Committee, the Central Pollution Control Board, State Pollution Control Boards, Pollution Control Committees, the Commission for Air Quality Management and Urban Local Bodies;
- information-technology-enabled systems and related equipment;
- studies directed by courts and tribunals;
- awareness projects, including through eco-clubs;
- demonstration projects involving innovative technologies for environment protection;
- measures for prevention, control and mitigation of environmental pollution;
- administrative expenses for contractual staff and consultants in the project management unit, necessary office equipment and furniture for that unit, and auditors and legal or other professional services, capped at five per cent of the amount available in the Fund in a financial year with the Central Government or State Government or Union territory Administration, as the case may be; and
- any other purpose the Central Government considers necessary, as approved by the Competent Authority, for the protection and betterment of the environment.
The administrative-expenses clause has a proviso: until sufficient funds accrue in the Fund, administrative expenses are met through the respective government budgets.
Rule 3(2) and (3): what the Fund may not be used for
The Fund shall not be used for payment of medical expenses, foreign visits, construction of buildings for officers and offices, or purchase of furniture, office equipment, vehicles and fixtures (including air conditioners and generator sets) for Government offices. The sanctioning authority is the Central Government, or the State Government or Union territory Administration for their respective shares.
Rule 4: what is credited
Two kinds of money are credited to the Fund:
| Clause | Source |
|---|---|
| (a) | The amount of penalty imposed under the Air Act, 1981, the Water Act, 1974 and the EP Act, 1986 |
| (b) | Any other income, as per section 16(2) of the Act and approved by the Competent Authority, received in the Fund |
The penalty provisions are explained in the sister articles on sections 15 to 15B of the EP Act, sections 39 to 39C of the Air Act and sections 45A to 45D of the Water Act. The Water Act provisions operate where the Water (Prevention and Control of Pollution) Amendment Act, 2024 applies. The amount is that fixed by the adjudicating officer's order; these rules do not set penalty amounts.
Rule 5: how payment is made and shared
Rule 5 has three sub-rules.
Rule 5(1) says payment of penalty imposed under the three Acts, and "any other amount", is made into the Fund "through the online Bharatkosh portal of the Central Government by crediting into the Consolidated Fund of India (CFI) and thereafter transferred to the Public Account of India under the Environmental Protection Fund as per the approved accounting procedure". A payer therefore pays once, online, and the transfer to the Fund is an accounting step.
Rule 5(2) says the Administrator shall remit seventy-five per cent of the penalty collected in the Fund to the Consolidated Fund of the State or Union territory concerned, and twenty-five per cent shall be retained by the Centre.
Rule 5(3) says that on receipt, the department dealing with environment issues in each State or Union territory credits the amount in a reserve fund under the Public Accounts of the State. The amount in that reserve fund can be used only as prescribed under rule 3 and section 16 of the Act.
| Step | Who | Rule |
|---|---|---|
| Penalty paid online through Bharatkosh | The person penalised | 5(1) |
| Credited to Consolidated Fund of India, then transferred to the Fund in the Public Account | The Government, by approved accounting procedure | 5(1) |
| Seventy-five per cent remitted to the concerned State or Union territory; twenty-five per cent retained by the Centre | The Administrator | 5(2) |
| Credited to a reserve fund in the State's Public Account, used only under rule 3 | State environment department | 5(3) |
Who is affected
A payer sees little of rules 3 and 5(2), but Form I (explained in the next article in this series) accompanies the payment. Businesses should expect the adjudicating officer's order to name the Act and rule under which the penalty is imposed, so that the payment can be matched to the right Fund head. State departments, Boards and urban local bodies are the recipients and users of the money. The specific list in rule 3(1) is helpful for those who apply for support: monitoring, laboratories, clean technology research and contaminated-site remediation are all named.
Example
An adjudicating officer imposes a penalty on Himgiri Alloys Private Limited under the Air Act. The company's finance head pays it online through Bharatkosh, quoting the order details in Form I, and files the acknowledgement with the legal record. Later, the Administrator remits seventy-five per cent of the amount collected to the State and the department credits it to the State's reserve fund, to be spent only on activities such as monitoring stations or laboratory upgrades under rule 3.
Need help with a penalty payment?
Penalty orders come with deadlines and consequences for non-payment. Our compliance advisory team can help you read the order, choose the correct payment head and keep the records the rules call for.
Key takeaways
- The Fund is constituted in the Public Account of India under section 16 of the EP Act; the rules came into force on 15 January 2026.
- Penalties under the Air, Water and EP Acts are credited to it.
- Payment is online through Bharatkosh; seventy-five per cent goes to the State or Union territory and twenty-five per cent stays with the Centre.
- Rule 3 lists twelve permitted uses and four prohibited ones; administrative expenses are capped at five per cent.
- State shares sit in a reserve fund in the State's Public Account.
Read next
- Rules 6-9: administration, accounts, audit and portal
- Rules 1-4 of the EP Inquiry and Penalty Rules, 2024: complaint and holding of inquiry
- Sections 15E to 16B of the EP Act: the Environmental Protection Fund
- Section 15 to 15B of the EP Act: residuary penalty
Disclaimer: Based on the environment rules, guidelines and notifications named above as published in the Gazette of India, read with every amendment notified up to 3 October 2026 that the article names (consolidated reading texts from the CPCB 2021 compilation and the Goa State Pollution Control Board 2025 compilation were checked against the amending notifications), as consulted on 3 October 2026. Later amendments, CPCB guidelines, State Board orders and fees should be checked. This article is general information, not legal advice; check the official text before acting.