This Article is aimed at providing knowledge about the treatment of RPF/Annuity/Gratuity in the hands of Employee and also discuss the treatment of income in the hands of approved recognized Provident Fund Trust/ Provident Fund to which PF Act, 1925 applies / approved Superannuation fund Trust/ Approved Gratuity Fund.
TREATMENT OF RECOGNIZED PROVIDENT FUND / PROVIDENT FUND TO WHICH THE PROVIDENT FUND ACT, 1925 APPLIES
FOR EMPLOYEE
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Particulars
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Recognized Provident Fund
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Statutory Provident Fund/ PF to which PF Act 1925 applies/GPF
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EXEMPTION
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The accumulated balance in RPF A/c payable to employee is exempt u/s 10(12)
Except interest which is taxable if exceeding the specified limits below:
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Any payment from a Provident Fund to the employee is exempt u/s 10(11).
Except interest which is taxable if exceeding the specified limit below:
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TAXABILITY
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(i) Interest on PF taxability
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Interest accrued on “Taxable Contribution account” shall be taxable in the hands of employee.
What is “Taxable Contribution account” (Rule 9D)
It consist of :
(i) Contribution made by the person in the account during P.Y. 2021-22 and subsequent PYs which is exceeding the threshold limit :
Threshold limit
- Where contribution includes Employer’s contribution- Rs. 2,50,000 (interest accrued on contribution in excess of Rs. 2,50,000 is taxable)
- Where contribution doesn’t include employer’s contribution- Rs. 5,00,000 (interest accrued on contribution in excess of Rs. 5,00,000 is taxable)
(ii) interest earned on above contribution which is in excess of threshold limit
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(ii) Taxability of Excess Contribution by Employer
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Employer’s Annual contribution in excess of 10% of the Salary of the employee in a recognized Provident Fund and interest credited on the balance is taxable as “ Salary” u/s 17(1)(vi).
Further, where the employer’s contribution exceed Rs. 7,50,000 in aggregate to the RPF, NPS & superannuation fund (herein referred as “ specified fund”) shall be taxable as perquisite (Sec 17(2)(vii)
Further, the annual accretion by way of interest, dividend etc. to the specified funds attributable to such excess employer contribution is also a taxable perquisite.
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Not applicable
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- TREATMENT OF APPROVED SUPERANNUATION FUND/ APPROVED GRATUITY FUND
For Employee
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Particulars
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Approved Superannuation fund
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Approved Gratuity Fund
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Exemption
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Any payment from superannuation received
(i) on the death of beneficiary
(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapa-citated prior to such retirement;
(iii) by way of refund of contributions on the death of a beneficiary (iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon;
or
(v) by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD and notified by the Central Government;
Shall be exempt u/s 10(13)
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Payment of Gratuity
Gratuity shall be payable to an employee -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Exemption on Gratuity
Gratuity received by following will be fully exempt u/s 10(10)-
(i) Retirement gratuity received by members of the Defence Service under the Pension Code Regulations,
(ii) Employees of Central and State Government/local authority or Members of Civil Services:
(iii) Other employees
(a) If Covered under Payment of Gratuity Act, 1972
Any death and retirement gratuity is exempt from tax to the extent of least of the following:
(a) Rs. 20 lakhs
(b) Actual gratuity amount received
(c) last drawn Salary* completed years of services*15/26
(b) Not covered under payment of Gratuity Act
Tax exemption limit for such employees is the least of the following:
a. Rs.10 lakhs
b. Actual gratuity amount received
c. The formula: ½ * (last 10 months average salary)/10 * number of years of Employment
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Taxability of excess Employer’s Contribution
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Where the employer’s contribution exceed Rs. 7,50,000 in aggregate to the RPF, NPS & superannuation fund (herein referred as “ specified fund”) shall be taxable as perquisite (Sec 17(2)(vii)
Further, the annual accretion by way of interest, dividend etc. to the specified funds attributable to such excess employer contribution is also a taxable perquisite.
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Not applicable
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TREATMENT OF RECOGNISED PROVIDENT FUND TRUST/ PROVIDENT FUND TO WHICH PF ACT 1925 APPLIES/APPROVED SUPERANNUATION FUND TRUST/ APPROVED GRATUITY FUND TRUST
Sec 10(25) of the Income Tax act provides that any income received by the trustee on behalf of Recognized provident Fund, Approved superannuation Fund and Approved gratuity fund is exempt from tax.
It states that:
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PF to which PF act 1925 applies (Sec 10(25)(i)
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Recognized Provident Fund (Sec 10(25)(ii)
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Approved Superannuation Fund (Sec 10(25)(iii)
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Approved Gratuity Fund (Sec 10(25)(iv)
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Interest on securities which are held by, or are the property of, any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies, and any capital gains of the fund arising
from the sale, exchange or transfer of such securities;
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Any income received by the trustees on behalf of a recognized provident fund;
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Any income received by the trustees on behalf of an approved superannuation fund;
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Any income received by the trustees on behalf of an approved gratuity fund;
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Exempt
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Exempt
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Exempt
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Exempt
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ITR FILING & TDS PROVISIONS
Sec 139 of the Income-tax Act, provides that any person, other than a company or a firm is required to File ITR, if its Total income during the previous year exceed the maximum exemption limit.
Considering the above, total income of RPF, ASF and gratuity fund is exempt from tax and hence, these funds are not required to file return of income. Still if anyone wants to file ITR, they can file ITR-5 and claim exemption u/s 10(25).
TDS provisions
Income Tax Department has issued Circular no.18/2017 dated 29th May 2017 wherein it was provided that
“It has been decided that in case of below mentioned funds or authorities or Boards or bodies, by whatever name called, referred to in section 10 of the Income-tax Act, whose income is unconditionally exempt under that section and who are also statutorily not required to file return of income as per section 139 of the Income-tax Act, there would be no requirement for tax deduction at source, since their income is anyway exempt under the Income-tax Act “
Refer point No (xi) of said circular
(xi) Provident fund to which the Provident Funds Act, 1925 (19 of 1925) referred to in sub-clause (i), recognized provident fund referred to in sub-clause (ii), approved superannuation funds referred to in sub-clause (iii), approved gratuity fund referred to in sub-clause (iv) and funds referred to in sub-clause (v) of clause (25);
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