CBDT has vide Notification No. 11 /2021/F. No. 370142/52/2020-TPL dated 5-3-2021 has inserted a new Rule 3B to the Income Tax Rules, 1962 to provide formula for Annual accretion of perquisite u/s 17(2)(viia) i.e. contribution by employer exceeding Rs. 7.50 Lacs u/s 17(2)(vii).
The Finance Act, 2020 had in section 17 of the Income-tax Act, in clause (2), for sub-clause (vii), had substituted the following sub-clauses with effect from the 1st day of April, 2021, namely:––
(vii) the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer––
(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of section 80CCD; and
(c) in an approved superannuation fund,
to the extent it exceeds seven lakh and fifty thousand rupees in a previous year;
(viia) the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred to in sub-clause (vii) to the extent it relates to the contribution referred to in the said sub-clause which is included in total income under the said sub-clause in any previous year computed in such manner as may be prescribed. (now prescribed through new Rule 3B inserted).
For ready reference of our readers the new inserted Rule is reproduced below:
“3B. Annual accretion referred to in the sub-clause (viia) of clause (2) of section 17 of the Act.
For the purposes of sub-clause (viia) of clause (2) of section 17 of the Act, annual accretion by way of interest, dividend or any other amount of similar nature during the previous year (hereinafter in this rule referred to as the current previous year) to balance to the credit of the fund or scheme referred to in sub-clause (vii) of clause (2) of section 17 of the Act shall be the amount or aggregate of amounts computed in accordance with the following formula, namely:—
TP= (PC/2)R + (PC1+ TP1)R
Where,
TP= Taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the current previous year;
TP1 = Aggregate of taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the previous year or years commencing on or after 1st day April, 2020 other than the current previous year (See Note);
PC= Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakh to the specified fund or scheme during the previous year;
PC1 = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakh to the specified fund or scheme for the previous year or years commencing on or after 1st day April, 2020 other than the current previous year (See Note);
R= I/ Favg ;
I=Amount or aggregate of amounts of income accrued during the current previous year in the specified fund or scheme account;
Favg = (Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous Year + Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the last day of the current previous year)/2.
Explanation. — For the purposes of this rule, “specified fund or scheme” shall mean a fund or scheme referred to in sub-clause (vii) of clause (2) of section 17 of the Act.
Note: Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year, then the amount in excess of the amount or aggregate of amounts of the said balance shall be ignored for the purpose of computing the amount or aggregate of amounts of TP1 and PC1.”.
Also Read: Taxability of Interest on Employee Contribution to PF over Rs 2.5 Lacs in a Financial Year
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