The Central Board of Direct Taxes (CBDT) prescribed the manner to compute annual accretion related to the excess contribution made by employers to welfare funds.
The Board notified the Income-tax (1st Amendment) Rules, 2021 which seeks to amend Income-tax Rules, 1962.
“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,” the amendment said.
Where, TP means Taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the current previous year; TP1 means 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 means Amount or aggregate of amounts of the principal contribution made by the employer in excess of Rs. 7.5 lakh to the specified fund or scheme during the previous year; PC1 means Amount or aggregate of amounts of the 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 stands for I/ Favg; I stands for Amount or aggregate of amounts of income accrued during the current previous year in the specified fund or scheme account; Favg means 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.
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.
It is noteworthy that 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.”
Subscribe Taxscan Premium to view the Judgment
Support our journalism by subscribing to Taxscan AdFree. We welcome your comments at info@taxscan.in
