| Question And Answer | |
|---|---|
| Subject: | Gratuity and LE in case of transfer in group entities |
| Category: | Income-Tax |
| Querist: | Abhishek Agarwal |
| Answered by: | Law Intern |
| Tags: | Section 43B |
| Date: | October 9, 2025 |
A company has transferred certain employees to another group entity along with the related Gratuity and Leave Encashment provisions.
The receiving company has increased its provision by debiting the transferring company, and the transferring company has reduced its provision by crediting the receiving company. No actual payment has been made to the employees so far.
As per my understanding, the amount transferred should be allowed to the transferring company by treating it as a paid amount, and disallowed for the receiving company as an expense not actually paid under Section 43B of the Income-tax Act, 1961.
Kindly clarify whether this interpretation is correct and how the transaction should be treated for tax purposes under Section 43B in such inter-company employee provision transfers.
The transaction is merely a book entry. There is no “actual payment”. So, neither Co will get a deduction until the amount is actually paid.