Indian Income Tax | Employee Benefit Funds
Section 10(25) Income Tax Exemption for Provident, Superannuation and Gratuity Funds
Section 10(25) of the Income-tax Act, 1961 excludes specified income of qualifying provident funds, superannuation funds and gratuity funds from total income, subject to the statutory classification of each fund.
Meaning and scope of Section 10(25)
Section 10(25) sets out exemptions for specified retirement-benefit and employee-welfare funds. Its sub-clauses distinguish between certain statutory provident funds, recognised provident funds, approved superannuation funds and approved gratuity funds. The legal status of the fund and the category of income determine the exemption.
Eligible funds and nature of exempt income
| Provident funds governed by the Provident Funds Act, 1925 | Interest on securities and capital gains arising from the sale, exchange or transfer of such securities held by a provident fund to which that Act applies, as provided by Section 10(25)(i). |
|---|---|
| Recognised provident fund | Income received by trustees on behalf of a recognised provident fund, subject to the statutory meaning of recognition. |
| Approved superannuation fund | Income received by trustees on behalf of an approved superannuation fund. |
| Approved gratuity fund | Income received by trustees on behalf of an approved gratuity fund. |
| Coal mines provident fund | Income received by the trustees of the fund constituted under the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948. |
| Employees' Provident Fund | Income received by the Board of Trustees constituted under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. |
How much income is exempt?
Where the relevant sub-clause applies, the income identified by that sub-clause is excluded from total income. For the fund governed by the Provident Funds Act, 1925, the exemption is specifically framed around interest on securities and gains from dealing in those securities. For the other listed qualifying funds, the exemption generally addresses income received by the relevant trustees or statutory board. Therefore, the description "entire income" should be understood in the context of the applicable statutory wording, rather than as an unconditional exemption for every fund.
Conditions for claiming exemption
- Correct fund classification: Determine whether the entity is a statutory provident fund, a recognised provident fund, an approved superannuation fund or an approved gratuity fund.
- Recognition or approval: For recognised or approved funds, verify that the relevant recognition or approval is valid for the period concerned and that governing requirements are met.
- Eligible recipient: For trustee-based exemptions, the income must be received by trustees on behalf of the qualifying fund; the EPF provision concerns the statutory Board of Trustees.
- Specified income: Apply the narrower description of income in the sub-clause covering funds under the Provident Funds Act, 1925.
- Recordkeeping: Maintain fund constitution documents, approval or recognition records, accounts and details of the receipts for which exemption is claimed.
Definitions and related legislation
Recognised provident fund
A provident fund recognised in accordance with the relevant income-tax provisions and applicable rules, rather than merely a fund described as a provident fund by its employer or administrator.
Approved superannuation fund
A superannuation fund that meets the applicable statutory requirements for approval. Such funds are generally established to provide retirement-related benefits under their governing rules.
Approved gratuity fund
A gratuity fund approved under the relevant income-tax framework for providing gratuity benefits under its governing conditions.
The India Code repository provides access to the Provident Funds Act, 1925; the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948; and the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The Employees' Provident Fund Organisation provides official EPF information.
Fund-level exemption versus employee-level taxation
Section 10(25) is not a substitute for provisions dealing with the taxation of salary, employer contributions, annual accretions or retirement payments. For example, separate statutory rules govern the treatment of recognised provident fund accumulations, superannuation benefits and gratuity payments received by employees. Those rules may impose eligibility requirements, limits or exceptions. Assess an employee's tax position separately from the fund's exemption.
Law applicable from 1 April 2026
The Income-tax Act, 2025 took effect from 1 April 2026. Section 10(25) refers to the Income-tax Act, 1961, and remains important for periods governed by that legislation. For later periods, refer to the corresponding provisions of the Income-tax Act, 2025 and applicable transitional rules before relying on the older section numbering.
Official sources
- Income Tax Department: income-tax legislation
- India Code: central legislation
- Employees' Provident Fund Organisation
- Income Tax Department e-Filing portal
Frequently asked questions
Is all provident fund income exempt under Section 10(25)?
No. The clause applies to income of specified funds and trustees under the conditions in the law. It does not automatically exempt every provident fund or every withdrawal received by an employee.
Which funds are covered by Section 10(25)?
The provision covers specified statutory provident funds, recognised provident funds, approved superannuation funds and approved gratuity funds, subject to the wording of the applicable sub-clause.
Are employees taxed under the same exemption?
Section 10(25) primarily addresses income of qualifying funds or trustees. Tax treatment of employer contributions, interest accruals and payments to employees is governed by separate provisions and limits.
What changes from April 2026?
The Income-tax Act, 2025 applies from 1 April 2026. Check its applicable provisions for the relevant tax year; Section 10(25) is the numbering under the Income-tax Act, 1961.
This article provides general information about the statutory exemption. The applicable legislation, fund approval status and tax year should be checked before making a tax determination.