The Punjab Municipal Fund Act 2006

GOVERNMENT OF PUNJAB 
 
DEPARTMENT OF LEGAL AND LEGISLATIVE AFFAIRS  
 
THE PUNJAB MUNICIPAL FUND ACT, 2006 
 
(PUNJAB ACT 27 OF 2006) 
(As amended upto the 30th June, 2025) 
 
 
 
 
 
 
 
 
2025 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

THE PUNJAB MUNICIPAL FUND ACT, 2006 
 
Section                               CONTENTS 
 
1. Short title and commencement 
2. Definitions 
3. Constitution of the Fund 
4. Object and administration of the Fund 
4-A. Compensation to Cantonment Boards  
5. Collection and deposit of tax 
6. Distribution of amount of tax 
7. Maintenance of accounts  
8. Audit 
9. Submission of annual report 
10. Grant 
11. Power to make rules 
12. Protection of actions taken in good faith 
13. Power to remove difficulties 
14. Repeal and saving 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1THE PUNJAB MUNICIPAL FUND ACT, 2006 
(Punjab Act No. 27 of 2006) 
 [Received the assent of the Governor of Punjab on the 10th 
October, 2006, and was first published for general information in 
the Punjab Government Gazette (Extraordinary), Legislative 
Supplement, dated the 16thOctober, 2006.]  
 
1 2 3 4 
Year No. Short title Whether repealed or 
otherwise affected by the 
legislation 
2006 27 The Punjab 
Municipal Fund 
Act, 2006 
 
 Amended by Punjab Act 
No. 17 of 2008 
Amended by Punjab Act 
No. 10 of 2012 
Amended by Punjab Act 
No. 41 of 2013 
 
 
An Act to assign to the Municipalities an amount of tax, levied 
and collected under the Punjab Value Added Tax Act, 2005, and 
to provide for the constitution of the Punjab Municipal Fund 
with a view to compensate the Municipalities for the loss of 
revenue, suffered due to the abolition of octroi in the State of 
Punjab and for the matters connected therewith or incidental 
thereto. 
BE it enacted by the Legislature of the State of Punjab in the 
Fifty- seventh Year of the Republic of India as follows: - 
1. (1) This act may be called the Punjab Municipal Fund 
Act, 2006. 
(2) It shall be deemed to have come into force on and 
with effect from the first day of September, 2006. 
2. In this Act, unless the context otherwise requires - 
(a) "Director" means the Director, Local Government, 
Punjab; 
(b) "Fund" means the Punjab Municipal Fund, constituted 
under section 3 of this Act; 
                                                   
1 For Statement of Objects and Reasons, see Punjab Government Gazette(Extraordinary), 
dated the 8th September, 2006, page 1739. 
Short title and 
commencement. 
Definitions. 
(c) "Municipality" means an institution of self -
government constituted under Article 243Q  of the 
constitution of India; 
(d) "prescribed" means prescribed by rules made under 
this Act; 
(e) "State Government" means the Government of the 
State of Punjab in the Department of Local 
Government; and 
(f) "tax" means a tax levied and collected under th e 
Punjab Value Added Tax Act, 2005 (Punjab Act No. 8 
of 2005). 
3. (1) There shall be constituted a Fund, to be called the 
Punjab Municipal Fund, which shall vest in the State Government.  
(2) 1[Eleven per cent] of the amount of tax collected, shall 
be credited direct to the Fund: 
Provided that the amount, so credited to the Fund, shall not 
be less than Rs. 550 crores (Rupees five hundred fifty crores only) 
per annum or proportion thereof: 
Provided further that in the event of the amount credited to 
the Fund under sub -section (2) falling short of Rs. 550 crores 
(Rupees five hundred fifty crores only) or a proportion thereof, the 
State Government shall make it up by giving the amount so fail ing 
short as grant-in-aid. 
4. (1) The Fund shall be utilised to compensate the 
Municipalities for the loss of revenue, suffered by them due to the 
abolition of octroi, levied and collected under the Punjab 
Municipal Act, 1911 and the Punjab Municipal Corporation Act, 
1976. 
(2) The Fund shall be administered by the Director under 
the superintendence and control of the State Government.  
 
2[4-A.  Notwithstanding anything contained in Section 4, the 
Fund shall also be utilized to compensate the Cantonment Board, 
Jalandhar and Cantonment Board, Ferozepur for the loss of 
revenue, suffered by them due to the abolition of octroi, levied and 
collected by  them, if the cantonment authorities enter into an 
                                                   
1 Substituted for words “Ten per cent” by Punjab Act No.10 of 2012, Section 2 
2 Inserted by Punjab Act No. 17 of 2008, Section 2 
Constitution of the 
Fund. 
Object and 
administration of 
the Fund. 
Compensation to 
Cantonment 
Boards. 
agreement with the State Government, not to levy and collect 
octroi in these cantonments. 
Explanation. - For the purpose of this Section, the Cantonment 
Board shall have the same meaning as has been assigned to it in the 
Cantonments Act, 2006 (Central Act 41 of 2006).]  
5. (1) 1[Eleven per cent] of the amount of tax referred to in 
sub-section (2) of section 3, shall be collected by the Department 
of Excise and Taxation in th e manner, prescribed by that 
department for collection of the tax. 
(2) The proceeds of the tax collected under sub -section 
(1), shall be caused to be deposited by the Department of Excise 
and Taxation direct to the Fund in such manner and within such 
period, as may be prescribed. 
6. The amount of tax credited to the Fund, shall be distributed 
amongst the Municipalities inproportion t o their ratios of annual 
collection of octroi from the goods, on which octroi was being 
levied before coming into force of the Punjab Municipal Fund Act, 
2006, to the total collection of octroi made from such goods during 
the financial year of 2005-06 in the State of Punjab: 
 2[Provided that the State Government may, by an order, 
decide the distribution of the amount of tax credited to the Fund 
amongst the Municipalities, which are constituted or which may be 
constituted on or after the commencement of the principal Act:] 
 3[Provided further that  two over eleven per cent (2/11x 100) 
of the amo unt of tax credited to the Fund and coming to the share 
of a Municipality, whose water supply and sewerage operations 
and maintenance works are assigned to the Punjab Water Supply 
and Sewerage Board under the provisions of the Punjab Water 
Supply and Sewer age Board Act, 1976 (Punjab Act 28 of 1976), 
shall be kept reserved by the Director: 
 Provided further that the Director shall provide such sum of 
money, out of the aforesaid amount kept reserved by him, to the 
Punjab Water Supply and Sewerage Board for un dertaking the 
water supply and sewerage operations and maintenance works in a 
                                                   
1Substituted for words “Ten per cent” by Punjab Act No.10 of 2012, Section 3 
2 Added by Punjab Act No.10 of 2012, Section 4 
3 Inserted by Punjab Act No. 41 of 2013, Section 2 
 
Collection and 
deposit of tax. 
Distribution of 
amount of tax. 
Municipalities including the establishment and miscellaneous 
expenditure, which he may, from time to time, consider necessary:  
 Provided further that if any money remains surplu s out of 
the amount kept by the Director, then the State Government shall 
decide the purpose for its utili sation and direct him to act 
accordingly: 
 Provided further that in case there is any deficiency in the 
amount kept reserved by the Director, notwiths tanding the 
percentage fixed up in the second proviso, the State Government 
may increase the percentage of the amount of tax credited to the 
Fund for this purpose.]  
7. The Director shall maintain accounts of the amount credited  
to the Fund and the expenditure made out of the Fund, and shall 
quarterly reconcile such amount and expenditure with the District 
Treasury Officer, Punjab, Chandigarh and submit quarterly report 
in this regard to the State Government. 
8. The amount of Fund shall be audited by the Comptroller and 
Auditor-General of India in accordance with the provisions of the 
Comptroller and Auditor -General's (Duties, Powers and conditions 
of Service) Act, 1971 (Central Act 56 of 1971). 
9. The annual report in respect of the receipts into the Fund and 
distribution made out of the Fund to the  1[Municipalities and the 
Cantonment Board, Jalandhar and the Cantonment Board, 
Ferozepur], shall be prepared by the State Government and be 
submitted to the State Legislature. 
10. The Government in the Department of Finance, immediately 
after the commencement of the Punjab Municipal Fund Act, 2006, 
shall give an amount of rupees one hundred crores as a one-time 
grant to the Department  of Local Government, which shall be 
deposited in the Fund to meet and expenditure, to be incurred by 
the Municipalities during the interregnum period i.e. the period 
commencing from the date of abolition of octroi to the date of 
actual receipts in the Fund. 
11. (1) The State Government may, by notification in the 
Official Gazette, make rules for carrying out the purposes of this 
Act. 
                                                   
1 Substituted for word “Municipalities” by Punjab Act no.17 of 2008, Section 3 
Maintenance of 
accounts. 
Audit. 
Submission of 
annual report. 
Grant. 
Power to make 
rules. 
(2) In particular and without prejudice to the generality of 
the foregoing power, such rules may pro vide for all or any of the 
following matters, namely: - 
(i) the manner for transferring and depositing the 
proceeds of tax under sub -section (2) of section 5 of 
the Act; and 
(ii) the period within which, tax is to be deposited under 
sub- section (2) of section 5 of the Act. 
(3) Every rule made under this Act, shall be laid, as soon 
as may be, after it is made, before the House of the State 
Legislature while it is in session for a total period of ten days, 
which may be comprised in one session or in two or m ore 
successive sessions and if, before the expiry of the session in which 
it is so laid or the successive sessions as aforesaid, the House 
agrees in making any modification in the rule of the House agrees 
that the rule should not be made, the rule shall th ereafter have 
effect only in such modified form or be of no effect, as the case 
may be, so however that any such modification or annulment shall 
be without prejudice to the validity of anything previously done or 
omitted to be done under that rule. 
12. No suit, prosecution or other legal proceedings shall lie 
against the State government or any officer or employee of the 
State Government or any other person or authority, authorised by 
the State Government for anything, which is done or intended to be 
done in good faith under this Act or the rules made thereunder.  
13. (1) If any difficulty arises in giving effect to any of the 
provisions of this Act, the State Government may, by an order 
published in the Official Gazette, make such provision, not 
inconsistent with the provisions of this Act, as may appear to it to 
be necessary for removing the difficulty. 
(2) Every order made under this section, shall be laid, as 
soon as m ay be, a fter it is made before the Punjab State 
Legislature. 
14. (1) The Punjab Municipal Fund Ordinance, 2006 (Punjab 
Ordinance No. 6 of 2006), is hereby repealed. 
(2) Notwithstanding such repeal, anything done or any 
action taken under the Ordinance referred to in sub -section (1), 
Protection of 
actions taken in 
good faith. 
Power to 
remove 
difficulties. 
Repeal and 
saving. 
shall be deemed to have been done or taken under the 
correspondingprovisions of this Act. 
 

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