Actually, from the Financial Year 2021-22, in case total Contribution by Employee is more than Rs. 5 Lakhs in a Financial Year in General Provident fund (GPF), interest income on such excess amount will be Taxable in the Hands of Employees in terms of Section 10(11) & 10(12) computed in such manner as may be prescribed in Rule 9D.
Further, Department of Pension vide OM 3/6/2021-P&PW(F) dated 02.05.2024 has clarified that in case Employee contributes more than Rs. 5 Lakhs in a Financial Year in GPF, interest will also be payable on amount in excess of Rs. 5 Lakhs but it will be subject to Income Tax.
Therefore, in this article, we will discuss with the help of illustration, how to compute interest income that will be subject to income tax as per Rule-9D. (Legal Text of Rule 9D can be read at the end of the Article).
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Illustration-1 (Normal Scenario)
Mr. A is a Government employee who makes monthly contribution of Rs. 60,000 to GPF. Balance of Employee Share as on 01.04.2021 is Rs. 50,00,000. The calculation of Taxable & Non-Taxable Portion of Contribution will be calculated as follows:
Particulars | Non-Taxable | Taxable |
Opening Balance | 50,00,000 | 0 |
Monthly Contribution in a Year | 5,00,000 | 2,20,000 |
Interest on Opening Balance | 3,55,000 | 0 |
Interest on Monthly Contribution (As per details Below) | 24,584 | 3,042 |
Less: TDS (As Applicable*) | 0 | 304 |
Closing Balance | 58,79,584 | 2,22,738 |
Here, 10% has been assumed for convenience and calculation purpose.
Period | Monthly Contribution | Accumulated Balance at the End of the Month | Interest Accrued @7.1% | ||
Non-Taxable | Taxable | Non-Taxable | Taxable | ||
Apr-21 | 60,000 | 60,000 |
| 350 |
|
May-21 | 60,000 | 1,20,000 |
| 724 |
|
Jun-21 | 60,000 | 1,80,000 |
| 1,050 |
|
Jul-21 | 60,000 | 2,40,000 |
| 1,447 |
|
Aug-21 | 60,000 | 3,00,000 |
| 1,809 |
|
Sep-21 | 60,000 | 3,60,000 |
| 2,101 |
|
Oct-21 | 60,000 | 4,20,000 |
| 2,533 |
|
Nov-21 | 60,000 | 4,80,000 |
| 2,801 |
|
Dec-21 | 60,000 | 5,00,000 | 40,000 | 3,015 | 241 |
Jan-22 | 60,000 | 5,00,000 | 1,00,000 | 3,015 | 603 |
Feb-22 | 60,000 | 5,00,000 | 1,60,000 | 2,723 | 871 |
Mar-22 | 60,000 | 5,00,000 | 2,20,000 | 3,015 | 1,327 |
At the End | Total | 5,00,000 | 2,20,000 | 24,584 | 3,042 |
Similarly, for subsequent Years, Calculations will be made considering Taxable & Non-Taxable Portions respectively.
Illustration-2 (Scenario of Withdrawal)
In Continuity of Above Illustration, He makes a withdrawal of Rs. 5,00,000/- from his GPF account during Jan-23. The calculation of Taxable & Non-Taxable Portion of Contribution will be calculated as follows:
Period | Monthly Contribution | Accumulated Balance at the End of the Month | Interest Accrued @7.1% | ||
Non-Taxable | Taxable | Non-Taxable | Taxable | ||
Opening Balance |
| 58,79,584 | 2,22,738 |
|
|
Apr-22 | 60,000 | 59,39,584 | 2,22,738 | 34,661 | 1,300 |
May-22 | 60,000 | 59,99,584 | 2,22,738 | 36,178 | 1,343 |
Jun-22 | 60,000 | 60,59,584 | 2,22,738 | 35,361 | 1,300 |
Jul-22 | 60,000 | 61,19,584 | 2,22,738 | 36,902 | 1,343 |
Aug-22 | 60,000 | 61,79,584 | 2,22,738 | 37,264 | 1,343 |
Sep-22 | 60,000 | 62,39,584 | 2,22,738 | 36,412 | 1,300 |
Oct-22 | 60,000 | 62,99,584 | 2,22,738 | 37,987 | 1,343 |
Nov-22 | 60,000 | 63,59,584 | 2,22,738 | 37,112 | 1,300 |
Dec-22 | 60,000 | 63,79,584 | 2,62,738 | 38,470 | 1,584 |
Jan-23 | 60,000 | 63,79,584 | 3,22,738 | 38,470 | 1,946 |
Withdrawal | -5,00,000 | -1,77,262 | -3,22,738 | - | - |
Feb-23 | 60,000 | 62,62,322 | - | 34,108 | - |
Mar-23 | 60,000 | 63,22,322 | - | 38,124 | - |
At the End | Total | 63,22,322 | - | 4,41,050 | 14,102 |
Particulars | Non-Taxable | Taxable |
Closing Balance of Contribution | 63,22,322 | 0 |
Interest | 4,41,050 | 14,102 |
Less: TDS |
| 1,410.23 |
Closing Balance | 67,63,372 | 12,692.09 |
Note: With regards to Withdrawal, there is no much clarity, therefore in our opinion, Taxpayer can always take a stand that He has withdrawn first from Taxable Portion and remaining from Non-Taxable Portion.
Similarly, Calculation for subsequent years can be made.
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Legal Text of Rule-9D
9D. Calculation of Taxable Interest relating to contribution in a Provident Fund or Recognised Provided Fund, exceeding specified limit.-
(1) For the purposes of the first and second provisos to clauses (11) and (12) of section 10 , income by way of interest accrued during the previous year which is not exempt from inclusion in the total income of a person under the said clauses (hereinafter in this rule referred to as the taxable interest), shall be computed as the interest accrued during the previous year in the taxable contribution account.
(2) For the purpose of calculation of taxable interest under sub-rule (1), separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person.
Explanation: For the purposes of this rule,-
(a) Non-taxable contribution account shall be the aggregate of the following, namely:-
(i) closing balance in the account as on 31st day of March 2021;
(ii) any contribution made by the person in the account during the previous year 2021-2022 and subsequent previous years, which is not included in the taxable contribution account; and
(iii) interest accrued on sub- clause (i) and sub- clause (ii), as reduced by the withdrawal, if any, from such account;
(b) Taxable contribution account shall be the aggregate of the following, namely:-
(i) contribution made by the person in a previous year in the account during the previous year 2021-2022 and subsequent previous years, which is in excess of the threshold limit;
and
(ii) interest accrued on sub- clause (i), as reduced by the withdrawal, if any, from such account; and
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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
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