Income of Funds established for welfare of employees of which such employees are members [Section 10(23AAA)] :
A number of funds have been established for the welfare of employees or their dependents in which such employees themselves are members. These funds are utilised to provide cash benefits to a member on his superannuation, or in the event of his illness or illness of any member of his family, or to the dependents of a member on his death.
Example: XYZ Ltd. has an employee welfare fund. Employees, who are members of the fund, contribute a portion of their salary to the fund. The company makes an annual contribution equal to the employees‘ contribution. The funds thus made availab le are utilised by the fund to provide benefits to the members or their dependents in case of illness etc. The surplus fund may be invested in bonds, Government securities or deposited with banks. Essentially, these funds are in the nature of mutual benefit funds. Hence, their income does not qualify for exemption under section 10(23C)(iv). Since they are not charitable institutions they cannot also claim exemption under section 11 in respect of their income. They are now entitled for exemption under section 10(23AAA).
Accordingly, in exercise of the powers conferred by section 10(23AAA), the CBDT has notified the following purposes –
(1) cash benefits to a member of the fund –
(a) on superannuation, or
(b) in the event of his illness or illness of his spouse or dependent children, or
(c) to meet the cost of education of his dependent children or
(2) cash benefits to the dependents of a member of the fund in the event of the death of such member.
(3) cash benefits to a member of the fund to meet the cost of annual medical tests or medical check-ups of a member, his spouse and dependent children as one of the purposes of the fund.
The exemption will be available only if the following conditions are fulfilled:
(i) the fund should have been established for the welfare of employees or their dependents and for such purposes as may be notified by the Board;
(ii) such employees should be the members of the fund;
(iii) the fund should apply its income, or accumulate it for application, wholly and exclusively to the objects for which it is established;
(iv) the fund shall invest its fund and contributions made by the employees and other sums received by it in any one mode specified under section 11(5);
(v) the fund should be approved by the Principal Commissioner or Commissioner in accordance with the prescribed rules. The approval shall have effect for such assessment year or years not exceeding three assessment years as may be specified in the order of approval.
Note:
1. There are no conditions regarding accumulation towards the object of the fund.
2. There is no requirement of application of any minimum percentage of the income towards the object of the fund.
3. No time limit has been prescribed within which the fund must exercise the option of accumulation.
4. Any contribution made by an employer to this approved welfare fund would also not be allowed as a deduction.