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TMI BlogTax treatment of the accumulated balance of recognised provident funds (RPFs) : Clause 191 of the Income Tax Bill, 2025 Vs. Section 111 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... te the tax treatment of the accumulated balance in recognised provident funds (RPFs) when certain prescribed conditions for exemption are not met. This commentary undertakes a detailed statutory analysis of Clause 191, juxtaposing its provisions with the existing Section 111 of the Income-tax Act, 1961 and the relevant rules in Part A of the Fourth Schedule (hereinafter "Schedule 04") to the 1961 Act. The analysis explores legislative intent, operational mechanics, interpretational nuances, and practical implications for stakeholders, culminating in a comprehensive comparative evaluation. Objective and Purpose The legislative intent underpinning Clause 191, as with its predecessor provisions, is to ensure a fair and equitable tax regime f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule: The clause refers to paragraph 8 (conditions for exemption) and paragraph 9 (mechanism for taxation) of Part A of Schedule XI (presumably the new equivalent of Schedule 04 of the 1961 Act). * Role of Assessing Officer: The Assessing Officer is tasked with calculating the aggregate tax liability as per the prescribed mechanism. Interpretational Considerations Clause 191 is succinct, but its operation is contingent on the detailed rules in the relevant schedule (presumably mirroring the structure of the Fourth Schedule of the 1961 Act). The cross-reference system ensures that the provision is not self-contained, but operates in tandem with the detailed eligibility and computational rules set out in the schedule. The phrase "owing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to calculate tax as per the relevant rules in the schedule. * Reference to Schedules: The only material difference is the reference to the specific schedule and paragraphs (Schedule XI in the 2025 Bill versus the Fourth Schedule in the 1961 Act). This is a matter of drafting and reorganization rather than substantive change. * Super-tax: Clause 191 does not explicitly mention super-tax, unlike Section 111(2). This may reflect the obsolescence of super-tax in the current tax regime or a deliberate policy choice to omit it from the new legislation. Schedule 04 (Fourth Schedule), Part A: Recognised Provident Funds - Detailed Analysis Overview of the Schedule Part A of the Fourth Schedule to the 1961 Act sets out the detailed reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the trustees at the time of payment of accumulated balances, treating the payment as salary income for TDS purposes. Practical Implications For Employees * Employees who do not satisfy the exemption conditions (e.g., who resign before five years of service for reasons not covered by the exceptions) will face tax on their accumulated balance. * The tax liability is calculated retrospectively, as if the employer's contributions and interest thereon were taxable each year, thereby neutralizing the benefit of recognition. * This can result in a significant tax outgo in the year of withdrawal, with potential cash flow and planning implications. For Employers and Fund Trustees * Trustees are required to withhold tax at source on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, recalculating tax liabilities as if the fund had not been recognised. * Both rely on the detailed rules in the schedule for operationalization. Key Differences * Super-tax: Section 111(2) and rule 9(2) of the Fourth Schedule deal with super-tax, a concept largely obsolete in the current regime. Clause 191 omits this, potentially reflecting legislative modernization. * Drafting and Structure: Clause 191 is drafted with reference to Schedule XI rather than the Fourth Schedule, indicating a reorganization of the statute in the 2025 Bill. The substantive effect, however, is unchanged. * Terminological Updates: The 2025 Bill may update terminology for clarity or modernization, but the core legal principles remain intact. Potential ..... X X X X Extracts X X X X X X X X Extracts X X X X
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