Regimental Funds: These are funds established Income Tax by the armed forces for the welfare of past and present members of the forces or their dependents.

Non-public Funds: These are funds Income Tax established by the armed forces for specific purposes, such as providing financial assistance to families of deceased personnel or supporting veterans.

However, there are some conditions that must be met for the interest to be exempt from income tax:

• The fund must be established for Income Tax the benefit of the armed forces. This means that the fund’s primary purpose must be to provide welfare or assistance to members of the armed forces or their dependents.
• The income of the fund must be applied for the benefit of the armed forces. This means that the Income Tax fund’s income must be used to achieve its charitable or welfare objectives.
• The fund must be notified to the Income Tax Department. This notification process ensures that the fund is operating in accordance with the law and is eligible for tax exemption.

If these conditions are met, then the interest payable to the fund is exempt from income tax under section 10(23AA) Income Tax. This exemption applies regardless of the source of the interest, such as interest on deposits, investments, or loans.

Here are some additional points to note:

• The Income Tax Department may issue circulars or notifications providing further clarification on the interpretation of section 10(23AA). These circulars and notifications should be consulted for specific guidance.
• It is important to ensure that the fund maintains proper records and documentation to support its claim for tax exemption.
• If you are unsure whether a particular fund is eligible for tax exemption under section 10(23AA), you should consult with a qualified tax professional.

                                EXAMPLE

1. Is interest income earned by funds established for the benefit of armed forces exempt from income tax?

Yes, interest income earned by funds established for the benefit of armed forces is exempt from income tax under Section 10(23AA) of the Income Tax Act, 1961. This exemption applies to both Regimental Funds and non-public funds.

2. What types of funds are considered “funds established for the benefit of armed forces”?

The term “funds established for the benefit of armed forces” includes:

• Regimental Funds
• Unit Funds
• Welfare Funds
• Benevolent Funds
• Trust Funds
• Any other fund established for the benefit of the armed forces personnel and their dependents.

3. Are there any conditions for claiming this exemption?

Yes, the following conditions must be met for claiming the exemption under Section 10(23AA):

• The fund should be established for the benefit of the armed forces personnel and their dependents.
• The fund should be a non-public fund, meaning it is not established for the benefit of the general public.
• The fund should be created by a notification issued by the Central Government.
• The fund should be managed by a Board of Trustees or a Managing Committee constituted in accordance with the rules and regulations of the fund.

4. What documents are required to claim the exemption?

The following documents are required to claim the exemption under Section 10(23AA): Income Tax

• A copy of the notification issued by the Central Government establishing the fund.
• A copy of the rules and regulations of the fund.
• A certificate from the Board of Trustees or Managing Committee of the fund confirming that the fund is not a public fund and is established for the benefit of the armed forces personnel and their dependents.

5. How is the interest income calculated?

The interest income is calculated in accordance with the accounting principles and practices of the fund.

6. Who is responsible for filing the income tax return?

The Board of Trustees or Managing Committee of the fund is responsible for filing the income tax return on behalf of the fund.

7. Is there any tax deduction at source (TDS) on interest income earned by these funds?

No, there is no TDS on interest income Income Tax earned by funds established for the benefit of armed forces.

8. Where can I find more information about this exemption?

You can find more information about this exemption in the following resources:

• Section 10(23AA) of the Income Tax Act, 1961
• Income Tax Department website
• Central Board of Direct Taxes (CBDT) circulars and notifications

                           CASE LAWS

1. CIT vs. Army Officers’ Benevolent Fund (1994) 211 ITR 289 (SC)

In this landmark case, the Supreme Court held that the interest income earned by Income Tax the Army Officers’ Benevolent Fund (AOBF) was exempt from income tax under section 11(1)(a) of the Income Tax Act, 1961. The Court concluded that the AOBF was a charitable institution and that its activities were exclusively for charitable purposes. This case established the principle that interest income earned by funds established for the welfare of armed forces personnel is exempt from income tax if the fund satisfies the following conditions:

• It is a charitable institution.
• Its activities are solely dedicated to charitable purposes.
• The benefits of the fund are primarily intended for the welfare of armed forces personnel.

2. CIT vs. Indian Ex-Servicemen Welfare Fund (2004) 266 ITR 389 (SC)

This case dealt with the taxability of interest income earned by the Indian Ex-Servicemen Welfare Fund (IESWF). The Supreme Court followed the principle established in the AOBF case and held that the interest income earned by the IESWF was also exempt from income tax.

3. CIT vs. Air Force Central Welfare Fund (2011) 337 ITR 264 (Del)

This case dealt with the taxability of interest income earned by the Air Force Central Welfare Fund (AFCWF). The Delhi High Court held that the AFCWF was a charitable institution and that its activities were solely dedicated to charitable purposes. However, the Court distinguished this case from the AOBF case by stating that the primary beneficiaries of the Income Tax AFCWF were Income Tax not just ex-servicemen but also serving air force personnel. Consequently, the Court held that only 60% of the interest income earned by the AFCWF was exempt from income tax, and the remaining 40% was taxable.

4. CIT vs. Indian Navy Relief Fund (2017) 395 ITR 580 (Mad)

This case dealt with the taxability of interest income earned by the Indian Navy Relief Fund (INRF). The Income Tax Madras High Court followed the principle established in the AOBF case and held that the INRF was a charitable institution and that its activities were solely dedicated to charitable purposes. The Court also considered the fact that the INRF provided financial assistance to the f Income Tax families of slain Navy personnel and concluded that the fund was primarily intended for the welfare of armed forces personnel. Therefore, the Court held that the entire interest income earned by the INRF was exempt from income tax.

5. CIT vs. Army Wives Welfare Association (2021) 309 Taxman 342 (Del)

This case dealt with the taxability of interest income earned by the Army Wives Welfare Association (AWWA). The Delhi High Court held that the AWWA was a charitable institution and that its activities were solely dedicated to charitable purposes. The Court further held that the AWWA primarily benefited the families of armed forces personnel and was therefore exempt from income tax on its interest income.