The deduction is for a specified contributor and contribution
For FY 2025–26 / AY 2026–27, section 36(1)(xiv) of the Income-tax Act, 1961 addresses a sum paid by a public financial institution as a contribution to the credit guarantee fund trust for small industries specified by Central Government Gazette notification. A company paying a guarantee fee as a borrower should not assume it qualifies under this particular clause merely because the payment relates to credit support.
Read the applicable text: Income Tax Department: section 36(1)(xiv) and explanation Department earlier-year transition guidance.
Confirm public-financial-institution status
The clause’s explanation refers to the meaning assigned under section 4A of the Companies Act, 1956. Obtain the actual legal basis establishing the contributor’s status. A lender, fintech, bank or government-owned company should not replace this test with its business description. This guide does not certify a named contributor’s eligibility and does not expand the statutory class through a group relationship.
Verify the fund and payment character
Retrieve the Gazette specification of the recipient fund, operative conditions and the actual contribution documents. Distinguish a contribution from a guarantee premium, service charge, refundable deposit or investment. A similar fund name or a general small-industry objective is not enough. All illustrations assume that the stated contributor status, notified fund and contribution character have been independently established.
The word paid requires a payment reconciliation
Maintain approval, contribution obligation, bank debit, recipient acknowledgement and settlement evidence. A Board commitment or unpaid year-end provision is not proof that the sum was paid. If a transfer fails or its status is unresolved, investigate the actual payment facts rather than treating an initiation instruction as conclusive. This article does not invent a return-filing-date payment concession for the clause.
Match the tax working to the book starting point
A contribution already charged to book profit may require a different computation bridge from a sum carried elsewhere in the accounts. Identify the actual qualifying paid amount, amount already reducing the starting profit and any necessary adjustment. Do not deduct it again through two schedules. Review independently applicable computation restrictions and the treatment of subsequent refunds or changes on their own facts.
Close the contributor-to-fund evidence file
The final schedule should identify legal entity, status basis, notified fund, contribution character, payment date and evidence, book treatment and unique tax treatment. Exclusion from this clause does not itself settle whether another provision permits a borrower fee or other expenditure. FY 2025–26 uses the earlier-year framework; do not mechanically apply the 2025 Act’s tax-year section numbering to this return.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Commitment versus amount paid
Assume an eligible PFI approves ₹20 lakh contribution to an independently verified notified fund and actually pays ₹12 lakh during the stated year, leaving ₹8 lakh unpaid. The illustrated clause-specific paid population is ₹12 lakh. Approval of ₹20 lakh does not prove payment of the balance.
Illustrative example 2: Contribution and separate fee
Assume verified transactions comprise ₹10 lakh qualifying contribution and ₹2 lakh separate guarantee service fee. Total outflow is ₹12 lakh, but the illustrated clause (xiv) contribution population is ₹10 lakh. The fee needs its own legal analysis rather than being relabelled.
Illustrative example 3: Several actual contributions
Three independently supported qualifying payments are ₹3 lakh, ₹4.50 lakh and ₹2.50 lakh. Aggregate paid contribution population is ₹10 lakh. Match each to unique bank and recipient records rather than add an aggregate confirmation again.
Illustrative example 4: Failed transfer
Assume a ₹6 lakh intended contribution includes a ₹1.50 lakh transfer established as failed and unpaid, while ₹4.50 lakh is actually paid. Supported paid population is ₹4.50 lakh. Do not infer the result from payment instructions alone.
Illustrative example 5: Expense already deducted in the starting point
A qualifying ₹5 lakh paid contribution already reduces the book profit used in the tax computation. With no other applicable adjustment assumed, additional deduction for the same amount is nil. A further ₹5 lakh deduction would count ₹10 lakh against a ₹5 lakh contribution.
Illustrative example 6: Different legal contributors
PFI A makes an independently qualifying ₹8 lakh contribution. Group company B pays ₹3 lakh but is established as outside this clause’s contributor population. Aggregate group payments are ₹11 lakh, while this illustrated supported population is ₹8 lakh. A’s status cannot simply be lent to B.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the stated period | FY 2025–26 / AY 2026–27. |
| 2 | Identify contributor status | Actual section 4A-based legal evidence. |
| 3 | Identify the notified fund | Gazette specification and operative scope. |
| 4 | Classify payment character | Contribution versus fee, deposit or investment. |
| 5 | Recover approval and obligation | Actual contribution documents. |
| 6 | Prove payment | Bank settlement and recipient acknowledgement. |
| 7 | Resolve failures and unpaid amounts | No assumption from initiation alone. |
| 8 | Reconcile book treatment | Starting-profit impact and necessary tax adjustment. |
| 9 | Check unique deduction | No repeated bank, ledger and schedule amounts. |
| 10 | Retain final support | Entity, fund, payment, exclusions and unresolved questions. |
Sixteen practitioner FAQs
1. Is every company eligible under this clause?
No. The contributor must satisfy the specified PFI status.
2. Which definition does the explanation reference?
Section 4A of the Companies Act, 1956.
3. Does government ownership alone establish that status?
No. Obtain the actual legal basis.
4. Must the fund be specified?
Yes. Verify the relevant Central Government Gazette notification.
5. Is a similar fund name sufficient?
No. Identify the actual notified recipient.
6. Does a borrower’s guarantee fee automatically qualify?
No. It is not automatically the PFI contribution addressed here.
7. Can a refundable deposit be treated as a contribution casually?
No. Establish its actual character.
8. Is an approved commitment proof of payment?
No. Reconcile actual payment evidence.
9. Does the guide give a return-filing-date payment concession?
No. It does not invent one.
10. What if a transfer fails?
Establish the actually paid amount rather than rely on the instruction.
11. Can recipient confirmation and bank debit be added together?
Not when they evidence the same payment.
12. What if the contribution already reduces book profit?
Avoid a second deduction for that same amount.
13. Can group-company status be pooled?
Not merely through common ownership.
14. Does rejection under this clause decide every other deduction?
No. A different provision requires its own analysis.
15. Are the examples certifications of named institutions or funds?
No. They expressly assume independent eligibility verification.
16. Which law applies to FY 2025–26?
The 1961 Act earlier-year framework with applicable amendments.
Official sources
Income Tax Department: section 36(1)(xiv) and explanation Department earlier-year transition guidance