Section 10(23AAA) of the Income Tax Act provides an exemption for income received by any person on behalf of a fund that is:
- Established for the welfare of employees or their dependents, and
- Notified by the Central Board of Direct Taxes (CBDT) in the Official Gazette.
To qualify for exemption, the fund must:
- Apply its income solely for its stated welfare objectives.
- Invest its income and contributions in modes specified under Section 11(5).
- Be approved by the Principal Commissioner or Commissioner of Income Tax.
Example:
Imagine a company sets up the “Sunrise Employees Welfare Fund” to support its staff. The fund is approved by the Commissioner and is used to provide:
- Superannuation benefits,
- Medical aid for employees and their families,
- Education support for employees’ children, and
- Annual health check-ups.
If Mr. Rao, the fund manager, receives ₹15,00,000 in interest and donations on behalf of this fund, that income is fully exempt under Section 10(23AAA), provided all conditions are met.
This provision ensures that genuine welfare funds aren’t taxed, allowing them to serve their purpose more effectively.
