Circular No. 188

Fourth Schedule - Part A l Recognised Provident Fund

What this is

Circular No. 188 was issued by the Central Board of Direct Taxes on 6 January 1976. Its subject is Fourth Schedule - Part A l Recognised Provident Fund.

This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.

What it does

Holds that a notification fixing the rate of interest under rule 6 of Part A of the Fourth Schedule operates prospectively only. Rule 6(b) exempts interest credited on an employee's recognised provident fund balance so far as it does not exceed one-third of his salary for the year and is not at a rate above that fixed by the Central Government by notification. Notification S.O. 225(E) dated 30-3-1974 raised the rate from 6 per cent to 6.5 per cent with effect from 1-4-1974, and Notification S.O. 153(E) dated 25-3-1975 raised it from 6.5 per cent to 7.5 per cent with immediate effect. The Board is advised that the benefit of exemption at an enhanced rate is available only for amounts credited to the employee's individual account on or after the date the relevant notification came into force.

Why it was issued

The question was whether the enhanced rates could be applied to interest credited before the notification raising them took effect.

Who it reaches

Employees participating in a recognised provident fund
Trustees of recognised provident funds crediting annual interest
Employers computing the taxable excess in salary
Assessing Officers testing interest credits against the notified rate

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.58F	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

FOURTH SCHEDULE - PART A l RECOGNISED PROVIDENT FUND
1331. Whether notifications fixing rate of interest issued under rule 6 have only prospective effect
1. Under rule 6(b ) of Part A of the Fourth Schedule interest credited on the balance to the credit of an employee participating in a recognised provident fund is exempt from income-tax, to the extent it does not exceed one-third of the employee’s salary for the relevant year or is not allowed at a rate exceeding that fixed by the Central Government in this behalf by notification in the Official Gazette. Under Notification No. SO 225(E), dated 30-3-1974 [printed here as Annex I] the rate of interest specified in this behalf was increased from 6 per cent to 6.5 per cent with effect from April 1, 1974. Under Notification No. SO 153(E), dated 25-3-1975 [printed here as Annex II] the rate of interest was further increased from 6.5 per cent to 7.5 per cent with immediate effect.
2. The Board are advised that a notification fixing the rate of interest issued under rule 6 of Part A of the Fourth Schedule will have only prospective effect. In this view of the matter, the benefit of exemption from tax in respect of interest credited at the enhanced rates would be available only in respect of amounts credited to the individual account of employees on or after the date on which the relevant notification came into force.
Circular : No. 188 [F. No. 142/(7)/74-TPL], dated 6-1-1976.
ANNEX I - NOTIFICATION NO. SO 225(E), DATED 30-3-1974 REFERRED TO IN CLARIFICATION
In pursuance of clause (b) of rule 6 of Part A of the Fourth Schedule and in supersession of the notification No. 10, dated March 3, 1974 issued under section 58F(2) of the 1922 Act, the Central Government has fixed, with effect from April 1, 1974, 6½ per cent as the rate referred to in the said clause (b).
ANNEX II - NOTIFICATION NO. SO 153(E), DATED 25-3-1975 REFERRED TO IN CLARIFICATION
In pursuance of clause (b) of rule 6 of Part A of the Fourth Schedule to the Income-tax Act, 1961 (43 of 1961), and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. SO 225(E), dated March 30, 1974, the Central Government hereby fixes with immediate effect 7½ per cent as the rate referred to in the said clause (b).

What to watch

The date of credit to the individual account decides the rate, so a credit made before the notification's date takes the old rate however the fund computed it.
The one-third of salary ceiling in rule 6(b) applies independently of the rate ceiling; both have to be satisfied.
The rates named here have been changed by later notifications.

Where you meet it

On a salary assessment where excess provident fund interest is added as taxable under rule 6 of Part A of the Fourth Schedule.

What it names

Rules it names. Rule 6 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.