Income Tax Act, 1961
Sch. IV Part A Rule 14. TREATMENT OF FUND TRANSFERRED BY EMPLOYER TO TRUSTEE.
(1) Where an employer, who maintains a provident fund (whether recognised or not) for the benefit of his employees and has not transferred the fund or any portion of it, transfers such fund or portion to trustees in trust for the employees participating in the fund, the amount so transferred shall be deemed to be of the nature of capital expenditure.
(2) When an employee participating in such fund is paid the accumulated balance due to him therefrom, any portion of such balance as represents his share in the amount so transferred to the trustees (without addition of interest, and exclusive of the employee’s contribution and interest thereon) shall, if the employer had made effective arrangements to secure that tax shall be deducted at source from the amount of such share whenpaid to the employee, be deemed to be an expenditure by the employer within the meaning of section 37, incurred in the previous year in which the accumulated balance due to the employee is paid.