Section 40A(7) of the Income-tax Act, 1961, deals with the disallowance of deductions for provisions made by an employer for the payment of gratuity to employees. This section specifies that any provision made for the payment of gratuity to employees is not deductible in computing the income chargeable under the head 'Profits and gains of business or profession', except in certain circumstances. The exceptions include provisions made for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund or for the purpose of payment of any gratuity that has become payable during the previous year. The significance of this section lies in its aim to prevent tax avoidance through the creation of excessive provisions for gratuity. The statutory test requires that the provision must be for an approved gratuity fund or for actual gratuity payments due. The burden of proof lies on the taxpayer to demonstrate compliance with these conditions. In practice, this section ensures that only genuine gratuity liabilities are recognized for tax deduction purposes.