Rule 323 - Assigning or creating a charge on beneficial interest in a gratuity fund Full text
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Use the Gratuity Payable and Tax Exemption Calculator — 2026 to apply these points to your figures.
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For the connected rule or filing step, see Form IV — Application for gratuity by employee, nominee or legal heir.
Primary authority: Notification No. 22/2026 / G.S.R. 198(E)
For the connected rule or filing step, see Form 184.
Currentness control: Base Rules effective 1 April 2026. Check later amendments, corrigenda and portal implementation before action.
When you are ready for the next step, see Rule 329 - Appeal under Paragraph 9(1) of Part B of Schedule XI to the Act in case of gratuity fund.
Rule text held in the production corpus
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Finin2min implementation framework
Trigger and scope
Rule 323 applies the moment an employee assigns or CREATES A CHARGE on their beneficial interest in a gratuity fund - for example, pledging the future gratuity payout as security for a loan, or assigning it to a third party. It is not triggered by the gratuity payment itself, only by an act that encumbers the employee’s beneficial interest before that payment falls due.
Evidence and control
Once the Assessing Officer becomes aware of an assignment or charge, the Rule requires a formal NOTICE to the employee, giving a fixed 2-month window from the date of receipt of that notice to secure cancellation of the assignment or charge. Preserve the notice, its receipt date, and any cancellation evidence - the 2-month clock runs from receipt, not from the date the assignment was created.
Consequence
If the assignment or charge is NOT cancelled within the 2-month window, the consideration received for it is deemed to be the employee’s income - not in the year the assignment was made, but in the tax year in which the fact BECAME KNOWN to the Assessing Officer, and is assessed accordingly. This timing rule (deemed income dated to discovery, not to the original act) is the operative detail most easily missed.
Transaction application
Identify who created the charge or assignment (the employee, not the fund trustee), the date the Assessing Officer’s notice was received, whether cancellation was secured within 2 months, and the tax year in which the assignment or charge first became known to the Assessing Officer - that year, not the year of assignment, governs the deemed-income assessment.
Authority, consent and execution
The notice under this Rule is issued by the Assessing Officer, not the gratuity-fund trustee or employer. Confirm the notice was validly served on the employee and that the 2-month cure period was correctly computed from the receipt date before treating the deemed-income consequence as final.
Evidence and retention checklist
Retain the assignment/charge document, the Assessing Officer’s notice and its proof of receipt, any cancellation instrument obtained within the 2-month window, and the assessment record showing the tax year in which the fact became known to the Assessing Officer.
Limitation, forum and remedies
The 2-month cure period is fixed by this Rule, not a general limitation period - it runs from receipt of the Assessing Officer’s notice. Check the applicable appeal route under the governing Income-tax provision if the deemed-income assessment is disputed.
Cross-law overlays
Check the Payment of Gratuity Act, 1972 for whether the underlying assignment or charge was itself valid or restricted, alongside the Income-tax Act, 2025 transition rules and the notified Income-tax Rules, 2026 provisions governing gratuity fund recognition.
Finin2min Q&A
Is this page the notified Rule?
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What should be verified immediately before use?
Effective date, amendment history, forms or utilities, filing channel, authentication method, due date, fees, transition from the 1962 Rules and any judicial interpretation.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Official starting point
- www.incometaxindia.gov.in