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Provision for Calculation of Taxable Interest on contribution in a Provident Fund exceeding Specified Limit notified by CBDT

1. The Central Board of Direct Taxes (CBDT) has notified the  Provision for Calculation of taxable interest relating to contribution in a Provident Fund (PF) exceeding the specified limit, which will be effective from 1st April 2022.

2. The Board has notified the Income-tax (25th Amendment) Rules, 2021 which seeks to further amend the Income-tax Rules, 1962. The notification seeks to insert Rule 9D which prescribed calculation of taxable interest relating to contribution in a provident fund or recognized provident fund, exceeding the specified limit, which reads, “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. 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.”

3. The non-taxable contribution account shall be the aggregate of the closing balance in the account as of 31st day of March 2021; 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 interest accrued thereon as reduced by the withdrawal, if any, from such account.

4. The taxable contribution account shall be the aggregate of the 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 interest accrued as reduced by the withdrawal, if any, from such account. The threshold limit shall mean Rs. 5 lakhs, if the second proviso to clause (11) or clause (12) of section 10 is applicable; and Rs. 2.5 lakhs in other cases.

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