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Employee Contribution to Provident Fund is more than 2.50 Lakhs: How to Calculate Taxable Portion (Rule 9D)

There are complexities in the Calculation of Taxable Portion where contribution of Employee in Provident Fund is more than Rs. 2.50 Lakhs in a Financial Year. Therefore for the ease of readers, we have presented the Calculation Methodology with the help of illustration.


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Actually, from the Financial Year 2021-22, in case total Contribution by Employee is more than Rs. 2.50 Lakhs in Provident fund, 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.


Illustration to Compute Taxable Portion as per Rule: 9D

(Legal Text of Rule 9D is provided in the last of the Article)


Illustration-1 (Normal Scenario)


Mr. A is a salaried employee who makes monthly contribution of Rs. 30,000 to EPF. 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

           2,50,000

           1,10,000

Interest on Opening Balance

405000

0

Interest on Monthly Contribution (As per Details Below)

            14,023

                 1,735

Less: TDS

 

               173.54

Closing Balance

56,69,023

     1,11,561.86

Period

Monthly Contribution

Accumulated Balance at the End of the Month

Interest Accrued @8.1%





Non-Taxable

Taxable

Non-Taxable

Taxable

Apr-21

               30,000

               30,000

 

                   200

 

May-21

               30,000

               60,000

 

                   413

 

Jun-21

               30,000

               90,000

 

                   599

 

Jul-21

               30,000

           1,20,000

 

                   826

 

Aug-21

               30,000

           1,50,000

 

               1,032

 

Sep-21

               30,000

           1,80,000

 

               1,198

 

Oct-21

               30,000

           2,10,000

 

               1,445

 

Nov-21

               30,000

           2,40,000

 

               1,598

 

Dec-21

               30,000

           2,50,000

         20,000

               1,720

                 138

Jan-22

               30,000

           2,50,000

         50,000

               1,720

                 344

Feb-22

               30,000

           2,50,000

         80,000

               1,553

                 497

Mar-22

               30,000

           2,50,000

     1,10,000

               1,720

                 757

At the End

Total

           2,50,000

     1,10,000

             14,023

             1,735


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. 2,75,000/- from his account (Employee Share) as advance during Jan-23. The calculation of Taxable & Non-Taxable Portion of Contribution will be calculated as follows:


Particulars

Non-Taxable

Taxable

Closing Balance of Contribution

58,65,585

0

Interest

           4,72,328

                 8,057

Less: TDS

 

               805.74

Closing Balance

63,37,913

           7,251.65


Period

Monthly Contribution

Cummulative Balance at the End of the Month

Interest Accrued @8.1%





Non-Taxable

Taxable

Non-Taxable

Taxable

Opening Balance

 

         56,69,023

     1,11,562

 

 

Apr-22

               30,000

         56,99,023

     1,11,562

             37,941

                 743

May-22

               30,000

         57,29,023

     1,11,562

             39,413

                 767

Jun-22

               30,000

         57,59,023

     1,11,562

             38,341

                 743

Jul-22

               30,000

         57,89,023

     1,11,562

             39,825

                 767

Aug-22

               30,000

         58,19,023

     1,11,562

             40,032

                 767

Sep-22

               30,000

         58,49,023

     1,11,562

             38,940

                 743

Oct-22

               30,000

         58,79,023

     1,11,562

             40,444

                 767

Nov-22

               30,000

         59,09,023

     1,11,562

             39,340

                 743

Dec-22

               30,000

         59,19,023

     1,31,562

             40,720

                 905

Jan-23

               30,000

         59,19,023

     1,61,562

             40,720

             1,111

Withdrawal

         -2,75,000

         -1,13,438

    -1,61,562

                      -  

                    -  

Feb-23

               30,000

         58,35,585

                  -  

             36,261

                    -  

Mar-23

               30,000

         58,65,585

                  -  

             40,352

                    -  

At the End

Total

         58,65,585

                  -  

         4,72,328

             8,057

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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