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 A of Schedule XI to the Income-tax Act, 2025 deals with recognised provident funds. This article covers paragraphs 1 to 6: the application of the Part, definitions, how an approving authority grants and withdraws recognition, the conditions a fund must satisfy, relaxations, and the tax treatment of interest credited above a rate fixed by notification. Paragraphs 7 to 14 are in our note on Schedule XI, Part A, paragraphs 7 to 14, and Parts B and C in our note on approved superannuation funds and gratuity funds.
This explanation is as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026. Paragraphs 4(c), 4(f), 5(4) and 6 of Part A carry footnotes of the Finance Act, 2026, effective from 1 April 2026 (clause (c) and sub-paragraph (4) omitted; clause (f) and paragraph 6 substituted); this note explains the text as it now stands, and the wording they 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 (a Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner) may grant recognition to a provident fund that satisfies paragraph 4 and the Board's rules, and withdraw it if the conditions are violated. A fund must be vested in two or more trustees (or the Official Trustee) under an irrevocable trust, and may be recognised for an employer based outside India if employees outside India do not exceed 10%. Under paragraph 6, interest credited above the rate fixed by the Central Government by notification is deemed received by the employee and taxed. For planning on provident fund and retirement benefits see tax planning advisory.
Paragraph 1: application of the Part
This Part does not apply to any provident fund to which the Provident Funds Act, 1925 (19 of 1925) applies. That Act is another law; check it separately.
Paragraph 2: definitions
| Expression | Meaning in paragraph 2 |
|---|---|
| (a) Approving authority | The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner |
| (b) Employer | Any person who maintains a provident fund for the benefit of his or its employees, being (i) a Hindu undivided family, company, firm or other association of persons, or (ii) an individual engaged in a business or profession whose profits and gains are assessable under "Profits and gains of business or profession" |
| (c) Employee | An employee participating in a provident fund, excluding a personal or domestic servant |
| (d) Contribution | Any sum credited by or on behalf of any employee out of his salary, or by an employer out of his own funds, to the individual account of an employee, excluding any sum credited as interest |
| (e) Balance to the credit of an employee | The total amount to the credit of his individual account in a provident fund at any time |
| (f) Annual accretion | The increase to such balance, in any year, arising from contributions and interest |
| (g) Accumulated balance due to an employee | The balance to his credit, or portion thereof claimable by the employee under the regulations of the fund, on the day he ceases to be an employee of the employer maintaining the fund |
| (h) Regulations of a fund | The specific regulations governing the constitution and administration of a particular provident fund |
| (i) Salary | Includes dearness allowance, if provided for in the terms of employment, but excludes all other allowances and perquisites |
Paragraph 3: recognition and its withdrawal
- (1) The approving authority may grant recognition to a provident fund which, in his opinion, satisfies the conditions in paragraph 4 and the rules made by the Board, and may at any time withdraw recognition if, in his opinion, the fund violates any of those conditions.
- (2) An order granting recognition takes effect on the date specified by the approving authority as per any rules of the Board, not later than the last day of the tax year in which the order is made.
- (3) An order withdrawing recognition takes effect from the date on which it is made.
- (4) Unless the approving authority otherwise directs, an order according recognition is not affected by the fact that (a) the fund is subsequently amalgamated with another provident fund on an amalgamation of the undertakings; or (b) the fund subsequently absorbs the whole or part of another provident fund belonging to an undertaking wholly or partly transferred to or merged in the employer's undertaking.
Paragraph 4: conditions for recognition
To receive and retain recognition, a provident fund shall, subject to paragraph 5, satisfy the following and any other prescribed conditions:
| Clause | Condition |
|---|---|
| (a) | All employees are employed in India, or employed by an employer whose principal place of business is in India |
| (b) | An employee's contributions in any year are a fixed proportion of his salary for that year, deducted by the employer from each periodical payment of salary and credited to his individual account |
| (c) | Omitted by the Finance Act, 2026, with effect from 1 April 2026 (printed as "[***]") |
| (d) | The fund is vested in two or more trustees or the Official Trustee under a trust which is not revocable except with the consent of all the beneficiaries |
| (e) | The fund consists only of (i) contributions received by the trustees, (ii) accumulations, (iii) interest credited on contributions and accumulations, (iv) securities purchased therewith, and (v) capital gains from transfer of capital assets of the fund |
| (f) | The fund is of an establishment to which section 1(3) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) applies, or one notified by the Central Provident Fund Commissioner under section 1(4) of that Act, and the establishment obtains exemption under section 17 of that Act from the operation of all or any of the provisions of any scheme referred to there (as substituted by the Finance Act, 2026) |
| (g) | The employer, subject to clause (h), is not entitled to recover any sum from the fund, except when the employee (i) is dismissed for misconduct, or (ii) voluntarily leaves employment otherwise than due to ill-health or other unavoidable cause before the end of the term of service specified in the fund's regulations |
| (h) | For clause (g), the employer's recovery is limited to (i) the contributions made by him to the employee's individual account, (ii) interest credited on them as per the fund's regulations, and (iii) the accumulations |
| (i) | The accumulated balance due to an employee is payable on the day he ceases to be an employee |
| (j) | Except as provided in clause (i) or as per prescribed conditions and restrictions, no portion of the balance to the credit of an employee is payable to him |
The Act of 1952 is another law; check it separately.
Paragraph 5: relaxation of conditions
- (1) Irrespective of paragraph 4(a), the approving authority may, if he thinks fit and subject to such conditions as he thinks proper, record recognition to a fund (a) maintained by an employer whose principal place of business is outside India; and (b) where the proportion of employees employed outside India does not exceed 10%.
- (2) Irrespective of paragraph 4(b), an employee who retains his employment while serving in the armed forces of the Union, or when taken into or employed in the national service under any law in force, may contribute to the fund during that service a sum not exceeding the amount he would have contributed had he continued to serve the employer, whether or not he received salary from the employer.
- (3) Irrespective of paragraph 4(e) or (i): (a) on a written request by an employee who ceases to be an employee, the trustees may agree to retain the whole or part of the accumulated balance, to be drawn on demand; (b) interest may be included on that retained balance; and (c) the fund may include any amount and interest transferred from the employee's individual account in any recognised provident fund of his former employer.
- (4) Omitted by the Finance Act, 2026, with effect from 1 April 2026 (printed as "[***]").
- (5) Irrespective of paragraph 4(j), to allow an employee to pay the tax assessed under paragraph 11(4), he may withdraw from his balance a sum not exceeding the difference between that tax and the amount to which he would have been assessed had the transferred balance referred to in paragraph 11(2) not been included in total income.
Paragraph 6: interest above the notified rate
The heading reads "Employer's annual contributions, when deemed to be income received by employee", as printed. Under the paragraph as it now stands (substituted by the Finance Act, 2026, with effect from 1 April 2026): the portion of the annual accretion in the tax year to the balance of an employee in a recognised provident fund consisting of interest credited on the balance to the credit of an employee in so far as it is allowed at a rate exceeding such rate as fixed by the Central Government by notification is deemed to have been received by the employee, included in his total income for that tax year and liable to income-tax. The rate that has been notified is not in the text consulted. The heading refers to the employer's contributions, but the operative words speak only of interest; the difference is a drafting point to check against the official text.
A worked example (names and numbers assumed)
Delta Engineering Private Limited, whose principal place of business is outside India, maintains a provident fund for 200 employees, of whom 18 are employed outside India. (All facts are assumed.)
- Paragraph 4(a) normally requires all employees to be employed in India or by an employer whose principal place of business is in India. The employer's principal place of business is outside India, so recognition depends on paragraph 5(1).
- Proportion of employees employed outside India = 18 ÷ 200 = 9%, which does not exceed 10% (paragraph 5(1)(b)). The approving authority may, if he thinks fit and subject to conditions, record recognition.
- Suppose the recognition order is made on 10 March of a tax year. Under paragraph 3(2) it takes effect on the date specified, which cannot be later than the last day of that tax year.
- Suppose the fund credits interest at a rate exceeding the notified rate. Under paragraph 6 the portion of the annual accretion consisting of that excess interest is deemed received by the employee and taxed in that tax year.
Need help with provident fund questions?
Whether a fund is recognised, and how interest above the notified rate is taxed, can change an employee's take-home and an employer's compliance. Our tax planning advisory team can review a fund against these paragraphs.
Key takeaways
- Part A does not apply to a provident fund to which the Provident Funds Act, 1925 applies (paragraph 1).
- The approving authority grants and withdraws recognition (paragraph 3).
- A recognised fund must meet the conditions in paragraph 4, including an irrevocable trust with two or more trustees or the Official Trustee.
- An employer based outside India may be recognised if employees employed outside India do not exceed 10% (paragraph 5(1)).
- Interest credited above the rate fixed by the Central Government by notification is deemed received by the employee (paragraph 6).
- Paragraphs 4(c) and 5(4) are omitted, and 4(f) and 6 are substituted, by the Finance Act, 2026.
Read next
- Schedule XI, Part A, paragraphs 7 to 14: accumulated balance, tax on withdrawal and employer duties
- Schedule XI, Parts B and C: approved superannuation funds and gratuity funds
- Schedule VII, serial numbers 1 to 24
- Schedules XI to XIII of the Income-tax Act 2025
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.