Is Gratuity provision made yearly basis i.e on 31st March on closing of books
This query is : Resolved
19 May 2025
is Gratuity provision made yearly basis and Gratuity allowable on Paid basis under section 43B before filing of ITR of income Tax.
12 August 2025
Is Gratuity Provision Made Yearly (As on 31st March)?
Yes, companies generally make a provision for gratuity on a yearly basis as on the balance sheet date (31st March).
This provision is an estimate of the gratuity liability based on actuarial valuation or a formula, reflecting the company’s obligation towards employees for gratuity payable in future.
The provision is a liability and shown under “Provision for Gratuity” in financial statements.
2. Is Gratuity Allowable on Accrual or Paid Basis for Income Tax (Section 43B)?
Under Section 43B of the Income Tax Act, certain expenses are only deductible when actually paid.
Gratuity is one such expense. So,
Provision made during the year (accrual basis) is NOT allowable as deduction for tax purposes.
Only the gratuity amount actually paid to employees during the financial year is allowed as deduction under Section 43B.
Yes, companies generally make a provision for gratuity on a yearly basis as on the balance sheet date (31st March).
This provision is an estimate of the gratuity liability based on actuarial valuation or a formula, reflecting the company’s obligation towards employees for gratuity payable in future.
The provision is a liability and shown under “Provision for Gratuity” in financial statements.
2. Is Gratuity Allowable on Accrual or Paid Basis for Income Tax (Section 43B)?
Under Section 43B of the Income Tax Act, certain expenses are only deductible when actually paid.
Gratuity is one such expense. So,
Provision made during the year (accrual basis) is NOT allowable as deduction for tax purposes.
Only the gratuity amount actually paid to employees during the financial year is allowed as deduction under Section 43B.
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