In this edition, learn about key legislative updates including:

  • Clarification on calculation of tax on income out of excess employer contribution to specified funds under Income Tax rule

    • As per Budget 2020, employer’s contribution which is more than INR. 7.5 Lakhs in a year towards a specified fund (PF/NPS/Superannuation Fund) is to be calculated as perquisite under section “17(2)(vii) of the IT Act 1961”.

    In addition to above, the annual accretion by way of interest, dividend etc. to the specified funds attributable to such excess employer contribution is also a taxable perquisite under section “17(2)( viia ) of the IT Act 1961”

    The formula to capture this new perk value is as below:

    **Taxable perk for the year = [(Amount more than 7.5 Lakh for the year / 2) X Average rate of interest] + [(Aggregate value of contribution perks under 17(2) in previous years + Total Taxable perk u/s 17(2) in previous years) X Average rate of interest]

    Average rate of interest = Amount of income earned for the year / (opening balance of PF+NPS+ Superannuation Fund + Closing balance of PF+NPS+ Superannuation Fund/2)

    Taking a hypothetical example, wherein the employer contribution is 10 Lakh for the year:

    • Income earned under PF + NPS+ Superannuation Fund = Rs.3.5 Lakh
    • Opening Balance for PF + NPS+ Superannuation Fund = Rs.10 Lakh
    • Closing Balance for PF + NPS+ Superannuation Fund = Rs. 22 Lakh

    Let us calculate the average rate of interest based on above formula = 3.5 Lakh / (10 Lakh+22Lakh/2) = 20.90

    Average rate of interest = Amount of income earned for the year / (opening balance of

    PF+NPS+ Superannuation Fund + Closing balance of PF+NPS+ Superannuation Fund/2 )

    As per perk formula = (2.5 lakh/2)*20.90% = 26,125

    Taxable perk for the year = [(Amount more than 7.5 Lakh for the year / 2) X Average rate of interest]

The newsletter also covers some other topics: 

  • New formats for Form 12BA, Form 16 (Part – B) and TDS Annexure II Returns
  • Clarification on Provident Fund Employee Contribution
  • Reduced period for claiming Maternity benefit under ESIC
  • EPFO extends social security benefits to the subscribers of Jammu & Kashmir and Ladakh
  • Draft Code on Wages Karnataka Rules, 2021
  • Due Date amended under Maharashtra Professional Tax Enrollment Certificate (PTEC) Renewal Payment
  • KYC Mandatory for contribution of PF