Rule 309 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.
Rule 309 of the Income-tax Rules, 2026 gives a beneficiary no interest in the insurance policy and the employer no lien or charge on the fund; rule 310 taxes an assigned interest not cancelled in two months; rules 311 to 315 require prior approval and supply Forms No. 188 and 187.
The two rule 309 protections
| Sub-rule | Protection |
|---|---|
| (1) | No beneficiary shall have any interest in any insurance policy taken out by the trustees under the rules of a fund; he shall be entitled only to an annuity from the fund |
| (2) | No money belonging to the fund shall be receivable by the employer under any circumstances, nor shall the employer have any lien or charge on the fund |
The 1962 parallel is rule 91.
Sub-rule (1) of rule 309 keeps the beneficiary away from the policy: his right is against the fund, for an annuity, and not against the insurer. That preserves the trustees' freedom to manage, switch or surrender policies without every member having a proprietary claim over a particular contract.
Sub-rule (2) keeps the employer away from the money, and the drafting is emphatic — "under any circumstances", plus an express bar on any lien or charge. Contributions to an approved superannuation fund are deductible precisely because they are irrevocably gone. An arrangement letting the employer recover surplus, or offer the fund as security, defeats that and puts approval at risk.
Rule 310 — assigning or charging the interest
Where an employee assigns or creates a charge upon his beneficial interest in a fund, the Assessing Officer shall give notice that if he does not secure the cancellation of the assignment or charge within two months of the date of receipt of the notice, the consideration received shall be deemed to be income received by him in the tax year in which the fact became known to the Assessing Officer, and assessed accordingly. The 1962 parallel is rule 92.
This is the same mechanism rule 295 applies to a recognised provident fund — the same two months, the same deemed-income year keyed to the officer's knowledge. Read together with rule 309(1), the scheme is consistent: the beneficiary's interest is an annuity entitlement, and turning it into present cash by assignment is discouraged by taxing the proceeds.
Winding up — rules 311 and 312 alongside rule 309
| Rule | Event | Requirement |
|---|---|---|
| 311 | The employer's business is to be closed or discontinued | The trustees shall, with the prior approval of and subject to conditions imposed by the approving authority, make suitable arrangements for providing annuities to current employees, or to their widows, children or dependents on death |
| 312 | Winding up of the fund, or its amalgamation with another fund | Subject to the prior approval of, and such conditions as may be imposed by, the approving authority |
The 1962 parallels are rules 93 and 94.
Rule 311 is the provision to reach for in any closure, sale or restructuring. When the employer's business is closed or discontinued, the trustees do not simply distribute and wind up — they must make suitable arrangements for providing annuities, and those arrangements need prior approval. The obligation extends to widows, children and dependents in the event of death, so it looks past the employees themselves. Rule 312 then requires separate prior approval for winding up or amalgamating the fund. A transaction plan that treats the superannuation trust as something to be dealt with after completion has the sequence wrong: both approvals are prior.
Approval and amendment — rules 313 and 314
- Rule 313 — every application for approval of a superannuation fund under paragraph 4(1) of Part B of Schedule XI shall be made in Form No. 188, verified in the manner indicated in it. The 1962 parallel is rule 95.
- Rule 314 — no alteration in the rules, constitution, objects or conditions of an approved fund shall be made without the prior approval of the approving authority. The 1962 parallel is rule 96.
Rule 314's four words — rules, constitution, objects or conditions — cover essentially every change a trust might make. A change of trustees under rule 302, a change in contribution rates, a change in the annuity provider arrangement: if it alters any of the four, prior approval is needed.
Rule 315 — the appeal
An appeal under paragraph 9(1) of Part B of Schedule XI shall be made in Form No. 187, verified in the manner indicated, and accompanied by a fee of Rs 1,000. The 1962 parallel is rule 97.
That is the same form and the same fee as the provident fund appeal under rule 300, which sits under paragraph 13(1) of Part A of the same Schedule. What differs is the paragraph appealed under, so the form must identify it correctly.
The scheme end to end
- Rule 313 — apply for approval in Form No. 188.
- Rules 301 to 308 — constitute, invest, contribute and provide annuities.
- Rule 309 — neither the beneficiary nor the employer may reach the fund's assets.
- Rule 310 — nor may the employee turn his interest into cash without a tax consequence.
- Rules 311, 312 and 314 — prior approval for closure, winding up, amalgamation and any amendment.
- Rule 315 — appeal in Form No. 187 with a Rs 1,000 fee.
Worked example
| Facts | Position under rules 309 to 315 |
|---|---|
| Member claims the surrender value of a policy on the trustees' books | No interest in the policy — only an annuity from the fund |
| Employer proposes to recover a fund surplus | Barred — no money receivable under any circumstances |
| Bank asks for a charge over the fund as loan security | Barred — no lien or charge |
| Employee assigns his annuity interest for a lump sum | Notice; two months to cancel |
| Assignment cancelled in time | No deemed income |
| Business sold and discontinued | Trustees must arrange annuities with prior approval |
| Two group superannuation funds merged | Prior approval under rule 312 |
| Contribution rate changed by trustee resolution | Alters the rules — prior approval needed |
| Approval sought on a covering letter | Must be in Form No. 188 |
| Appeal filed citing Part A paragraph 13(1) | A superannuation appeal is under Part B paragraph 9(1) |
Compliance checklist
- Ensure the trust deed reflects rule 309 — an annuity right against the fund, not an interest in any policy.
- Remove any provision letting the employer recover fund money or take a lien or charge.
- Tell members that assigning or charging the interest triggers rule 310.
- On a notice, cancel within two months and evidence it.
- Obtain prior approval before closing the business arrangements under rule 311.
- Obtain prior approval before winding up or amalgamating the fund.
- Obtain prior approval for any change to rules, constitution, objects or conditions.
- Use Form No. 188 for approval and Form No. 187 with a Rs 1,000 fee for an appeal under Part B paragraph 9(1).
Common mistakes
- Treating a fund surplus as the employer's.
- Offering the fund as security for the employer's borrowing.
- Letting the two months run after a rule 310 notice.
- Winding up first and seeking approval afterwards.
- Amending the trust deed by resolution alone.
- Citing the Part A appeal paragraph on a superannuation fund appeal.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallels are rule 91 for rule 309, rule 92 for rule 310, rules 93 and 94 for rules 311 and 312, rule 95 for rule 313, rule 96 for rule 314 and rule 97 for rule 315, given for tracing only. Verify the current text and Schedule XI Part B before acting.