Rule 298: Withdrawal of recognition of a provident fund
Rule 298 lets the approving authority withdraw recognition of a provident fund if the fund fails to meet the conditions in Part A of the Fourth Schedule to the Income-tax Act, 1961 (as it stood before repeal), or Parts A and C of Schedule XI to the Act, or later conditions. Recognition may also be withdrawn if the exemption under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 is withdrawn. The employer and trustees must first get an opportunity to show cause. Rules 292 to 300 deal with recognised provident funds under Part A of Schedule XI to the Act.
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Bare law
Rule 298 - Withdrawal of recognition
(1) The approving authority has the right to revoke recognition given to a provident fund if it fails to meet the conditions outlined in Part A of the Fourth Schedule to the Income-tax Act, 1961, as it existed prior to its repeal, or Part A and Part C of Schedule XI to the Act or subsequent conditions set after recognition was granted under the said Act of 1961 and the Act and if the exemption granted under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) is withdrawn under sub-section (4) of section 17 of the same Act, the recognition may be withdrawn.
(2) Before withdrawing recognition, the approving authority shall give an opportunity to the employer and the trustees of the fund to show cause why recognition should not be withdrawn.
Rule breakdown
Grounds: Rule 298(1)
Failure to meet conditions under Part A of the Fourth Schedule to the 1961 Act, or Parts A and C of Schedule XI, or conditions set after recognition.
Withdrawal of the EPF Act section 17 exemption under section 17(4) of that Act.
Safeguard: Rule 298(2)
Opportunity to the employer and trustees to show cause why recognition should not be withdrawn.
Effect
See Rule 299 for tax treatment of balances.
Key takeaways
Compliance
Recognition depends on meeting Schedule XI conditions.
EPF exemption
Loss of EPF Act exemption can lead to withdrawal.
Show cause
Employer and trustees are heard first.
Practical checklist
- Monitor compliance with Schedule XI conditions and the EPF exemption.
Avoid
- Do not ignore a show-cause notice.
FAQs
Why can recognition be withdrawn?
Failure to meet Schedule XI (or old Fourth Schedule) conditions, or withdrawal of the EPF Act section 17 exemption (Rule 298(1)).
Is notice given?
Yes, the employer and trustees get an opportunity to show cause (Rule 298(2)).
What happens to balances?
Rule 299 explains the tax treatment.
Glossary
- Approving authority
- The authority that grants or withdraws recognition.
- Section 17 exemption
- Exemption under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.