What the courts have decided on section 10(11), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Statutory position — s.17(3): what "profits in lieu of salary" includes, the exemption receipts it carves out, and the limb that catches money paid before employment begins or after it ends
CBDT Circulars & InstructionsCuts both ways
My client received a payment from a former employer that is not gratuity, not retrenchment compensation and not under any VRS. The Assessing Officer says it is profits in lieu of salary. What exactly does s.17(3) cover, and what does it not?
Section 17(3) has three limbs. Clause (i) covers the amount of any compensation due to or received from an employer or former employer at or in connection with the termination of employment or the modification of its terms and conditions. Clause (ii) covers any payment due to or received from an employer, a former employer or a provident or other fund, but expressly excludes any payment referred to in clause (10), (10A), (10B), (11), (12), (13) or (13A) of section 10, and excludes so much of the payment as consists of the employee's own contributions or interest on them or any sum received under a Keyman insurance policy including bonus allocated on it. Clause (iii) covers any amount due to or received, whether in lump sum or otherwise, by any assessee from any person before his joining any employment with that person or after cessation of his employment with that person.
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Statutory position — s.10(11) and s.10(12) with Rule 9D: interest on the employee's own provident fund contribution above the annual threshold, why there are TWO thresholds, and the two-account mechanism from previous year 2021-22
CBDT Circulars & InstructionsCuts both ways
My client's EPF interest certificate now shows a taxable interest figure and the return utility is picking it up. Where does that come from, is the threshold two and a half lakhs or five lakhs for him, and from when does it apply?
It comes from the two provisos added to each of s.10(11) and s.10(12). The exemption does not apply to interest accrued during the previous year on so much of the person's own contribution as exceeds two lakh and fifty thousand rupees in any previous year in that fund, made on or after 1 April 2021; and the second proviso substitutes five lakh rupees for that figure where the contribution is to a fund in which there is NO contribution by the employer. So an ordinary EPF member whose employer contributes is on the Rs. 2,50,000 threshold, and a member of a fund to which the employer does not contribute — the General Provident Fund pattern — is on the Rs. 5,00,000 threshold. The computation is prescribed by Rule 9D, which requires separate taxable and non-taxable contribution accounts to be maintained within the provident fund account during previous year 2021-22 and all subsequent previous years, and which was inserted by the Income-tax (Twenty-fifth Amendment) Rules, 2021 with effect from 1 April 2022. Both provisos were inserted by clause (d) of section 6 of the Finance Act, 2021, with effect from 1 April 2022, so they first bite in assessment year 2022-23 even though the contributions they reach are those made on or after 1 April 2021.
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Statutory position — s.10(13) on the approved superannuation fund, and s.17(2)(vii)/(viia): the Rs. 7,50,000 AGGREGATE ceiling on the employer's contribution to provident fund, NPS and superannuation taken together, and the annual accretion on it
CBDT Circulars & InstructionsCuts both waysNo later treatment found
My client's Form 16 now shows a perquisite for the employer's contribution to the superannuation fund and to NPS. Is there a separate limit for each fund, and what is the extra line for annual accretion?
There is one limit, not three. Section 17(2)(vii) makes the amount or the aggregate of amounts of any contribution made to the assessee's account by the employer in a recognised provident fund, in the scheme referred to in s.80CCD(1) and in an approved superannuation fund a perquisite to the extent it exceeds seven lakh and fifty thousand rupees in a previous year — a single aggregate figure across all three. Section 17(2)(viia) then makes 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 those funds a further perquisite, to the extent it relates to the contribution already taxed under sub-clause (vii), computed in the manner prescribed. Separately, s.10(13) exempts payments out of an approved superannuation fund on the death of a beneficiary, to an employee in lieu of or in commutation of an annuity on retirement at or after a specified age or on incapacity, by way of refund of contributions on death, by way of refund of contributions on leaving service otherwise than by such retirement or incapacity to the extent the payment does not exceed the contributions made before the commencement of the Act and interest on them, and by way of transfer to the employee's account under a pension scheme referred to in s.80CCD and notified by the Central Government. Both sub-clauses date from 1 April 2021: section 13 of the Finance Act, 2020 substituted sub-clause (vii) and inserted sub-clause (viia) with effect from that date, so the aggregate ceiling first applies for assessment year 2021-22. Before that, sub-clause (vii) reached only the employer's contribution to an approved superannuation fund and only above one lakh and fifty thousand rupees, and there was no sub-clause (viia) at all.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
