Schedule XI 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.
Part B of Schedule XI to the Income-tax Act, 2025 deals with approved superannuation funds and gratuity funds: how they are approved and the approval withdrawn, the conditions for approval, the tax consequences of repayments and payments, and appeals. Part C gives the Board power to make rules for provident, superannuation and gratuity funds. Part A, on recognised provident funds, is in our notes on paragraphs 1 to 6 and paragraphs 7 to 14.
This explanation is as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026. In Part C, clause 1(d) is omitted and clause 1(e) substituted by the Finance Act, 2026, with effect from 1 April 2026; this note explains the text as it now stands, and the wording replaced is not law. Under section 1(3) the Act came into force on the 1st April, 2026, save as otherwise provided. Later amendments, rules and notifications should be checked. The Schedule is brought in by section 2(91).
The approving authority may approve a superannuation or gratuity fund that meets the conditions in paragraph 3 (an irrevocable trust, at least 90% of employees employed in India, a sole purpose of providing annuities or gratuity, employer contributions, benefits payable only in India) and may withdraw approval, but never without giving the trustees a reasonable opportunity of being heard. Contributions repaid to an employer are the employer's income. An employer can appeal to the Board within sixty days. Part C lets the Board make rules on matters listed in clause 1, and those rules are subject to section 534. For retirement-benefit planning see tax planning advisory.
Part B, paragraph 1: interpretation
For this Part, "approving authority", "employer", "employee", "contribution" and "salary", in relation to superannuation and gratuity funds, have the meanings given in paragraph 2(a), (b), (c), (d) and (i) of Part A for provident funds. In short, the approving authority is the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner.
Paragraph 2: approval and its withdrawal
- (1) The approving authority may grant approval to any superannuation fund or its part, or any gratuity fund, which in his opinion satisfies the conditions in paragraph 3, and may withdraw approval at any time if, in his opinion, the circumstances cease to warrant it.
- (2) He informs the trustees in writing of the grant, the date on which approval takes effect and any conditions.
- (3) He informs the trustees in writing of any withdrawal, with the reasons and the date on which it takes effect.
- (4) He shall not refuse or withdraw any approval without giving the trustees a reasonable opportunity of being heard.
Paragraph 3: conditions for approval
To receive and retain approval, a superannuation fund or a gratuity fund shall satisfy these conditions and any other prescribed conditions:
| Clause | Condition |
|---|---|
| (a) | The fund is established under an irrevocable trust in connection with a trade or an undertaking carried on in India, with at least 90% of employees employed in India |
| (b) | The sole purpose of the fund is to provide annuities or gratuity, as the case may be, for employees in the trade or undertaking (i) upon retirement at or after a specified age; (ii) upon incapacitation before retirement; (iii) on termination of employment after a minimum period of service specified in the rules of the gratuity fund; or (iv) for the widows, children or dependants of such employees on their death |
| (c) | The employer in the trade or undertaking contributes to the fund |
| (d) | All annuities, pensions and other benefits granted from the fund are payable only in India |
Paragraph 4: application for approval
- (1) The trustees apply in writing to the Assessing Officer by whom the employer is assessable, with (a) a copy of the instrument establishing the fund and two copies of its rules; and (b) two copies of the accounts of the fund for such earlier year or years (not more than three years immediately preceding the year of application) for which accounts have been made up, if the fund existed before the financial year of application.
- (2) The approving authority may require further information.
- (3) If the rules, constitution, objects or conditions are altered after the date of application, (a) the trustees immediately inform the Assessing Officer; and (b) failure to do so may result in the approval, if any, being deemed withdrawn from the date on which the alteration took effect, unless the approving authority orders otherwise.
Paragraphs 5 to 8: tax consequences
| Paragraph | Provision |
|---|---|
| 5 | Gratuity paid to an employee during his lifetime is treated as salary paid to the employee for the purposes of the Act |
| 6 | When contributions by an employer (including interest, if any) are repaid to the employer, the amount repaid is deemed to be the income of the employer of the tax year in which they are repaid |
| 7(1) | When contributions made by an employer to an approved superannuation fund, including interest, are paid to an employee during his lifetime under conditions other than those in Schedule II (Table: serial number 8), tax on the amounts so paid is deducted at the average rate of tax applicable to the employee (a) during the previous three years, or (b) during the period he was a member of the fund, if less than three years |
| 7(2) | The trustees pay the tax so deducted to the Central Government within the time and in the manner prescribed |
| 8 | When an employer deducts contributions from an employee's emoluments or pays on his behalf to an approved superannuation fund, all such deductions or payments are included in the statement required under section 397(3)(b) |
The conditions under which payments from an approved superannuation fund are excluded are in our note on Schedule II, serial numbers 3 to 17 (serial number 8).
Paragraphs 9 to 12: appeal, cessation and information
| Paragraph | Provision |
|---|---|
| 9 | An employer objecting to an order of the approving authority refusing to grant approval, or withdrawing it, may appeal to the Board within sixty days of the order, in the prescribed form, verified in the prescribed manner and with the prescribed fee |
| 10 | If a fund or part of a fund ceases to be an approved superannuation fund, the trustees remain liable to tax on any sum paid as returned contributions (including interest, if any), so far as paid in respect of contributions made before it ceased to be approved |
| 11 | If a gratuity fund ceases to be an approved gratuity fund, the trustees remain liable to tax on any gratuity paid to any employee |
| 12 | The trustees of an approved superannuation or gratuity fund and any employer who contributes must furnish returns, statements, particulars or information as required by notice from the Assessing Officer within the specified period, not being less than twenty-one days from the date of the notice |
Part C: power to make rules
Paragraph 1
In addition to the powers in Parts A and B, the Board may make rules for a fund (provident, superannuation or gratuity) on:
- (a) the statements and information to be submitted with an application for approval or recognition;
- (b) the returns, statements, particulars or information the Assessing Officer may require from the trustees of an approved superannuation fund or from the employer;
- (c) limits on the ordinary annual and other contributions of an employer to the gratuity fund or an approved superannuation fund;
- (d) omitted by the Finance Act, 2026, with effect from 1 April 2026 (printed as "[***]");
- (e) the regulation of investment or deposit of the moneys of a recognised or an approved fund (as substituted by the Finance Act, 2026, with effect from 1 April 2026);
- (f) the assessment by way of penalty of any consideration received by an employee for an assignment of, or creation of a charge upon, his beneficial interest in a recognised or an approved fund;
- (g) the extent and manner of exemption from tax on contributions and interest credited to an employee's individual account in a provident fund from which recognition has been withdrawn;
- (h) the extent and manner of exemption from tax on any payment from a superannuation fund from which approval has been withdrawn;
- (i) the withdrawal of approval of a superannuation fund or gratuity fund which ceases to satisfy the requirements of the Part or the rules; and
- (j) carrying out any other purpose of the Part and securing further control over recognition or approval of the funds and their administration as the Board deems requisite.
Paragraph 2
All rules made under the Part are subject to section 534, on laying before Parliament; see our note on sections 532 to 535. The rules themselves are not in the text consulted, and the detail is left to the Income-tax Rules, 2026.
A worked example (names and facts assumed)
Orbit Components Limited sets up the Orbit Employees Gratuity Fund. (All names and facts are assumed.)
- Condition 3(a): the fund is established under an irrevocable trust in connection with the company's undertaking in India. The company has 400 employees (assumed), of whom 380 are employed in India: 380 ÷ 400 = 95%, which is at least 90%. Met.
- The trustees apply under paragraph 4(1) to the Assessing Officer by whom the employer is assessable, enclosing the trust instrument, two copies of the rules and two copies of accounts for earlier years (not more than three years before the application) if the fund existed earlier.
- After approval, the rules of the fund are altered but the trustees do not inform the Assessing Officer. Under paragraph 4(3)(b), the approval may be deemed withdrawn from the date of the alteration, unless the approving authority orders otherwise.
- If approval is later refused or withdrawn by order, the company may appeal to the Board within sixty days (paragraph 9). If the fund ceases to be an approved gratuity fund, the trustees remain liable to tax on any gratuity paid to an employee (paragraph 11).
Need help with a retirement fund?
Setting up or restructuring a superannuation or gratuity fund involves approval, conditions, notices and the Board's rules. Our tax planning advisory team can help you check a fund against Parts B and C.
Key takeaways
- The approving authority grants and withdraws approval, and must hear the trustees before refusing or withdrawing it (Part B, paragraph 2).
- The fund must be an irrevocable trust with at least 90% of employees employed in India, a sole purpose of annuities or gratuity, employer contributions, and benefits payable only in India (paragraph 3).
- Gratuity paid during the employee's lifetime is salary; contributions repaid to the employer are the employer's income (paragraphs 5 and 6).
- An appeal against refusal or withdrawal lies to the Board within sixty days (paragraph 9).
- Trustees remain liable to tax after approval ceases, on returned contributions or gratuity paid (paragraphs 10 and 11).
- Part C lets the Board make rules on listed matters, subject to section 534.
Read next
- Schedule XI, Part A, paragraphs 7 to 14: accumulated balance and tax on withdrawal
- Schedule XI, Part A, paragraphs 1 to 6: recognition conditions
- Schedule VII, serial numbers 1 to 24: persons exempt from tax
- Section 392: tax deduction from salary
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.