We have transfer employees from one company to sistern concern and provision of Gratuity and LE has been transferred as provision in new company. How the same will be treated in tax audit of both company for Section 43B and 40A(7).
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Gratuity and LE transfer to Sister concern
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Summary: Provisions for gratuity and leave encashment transferred to a sister concern are generally not tax-deductible for the transferor unless they represent an actual discharge of liability. Deduction under Sections 40A(7) and 43B is restricted to actual payments made to employees or approved funds; simple accounting transfers are insufficient for tax purposes. Documentation of business expediency is essential to support any related payments as business expenditure.
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