CHAPTER XIII DETERMINATION OF TAX IN SPECIAL CASES A.—Determination of tax in certain special cases
Determination of tax where total income includes income on which no tax is payable.
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Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income, owing to the provisions of paragraph 8 of Part A of Schedule XI not being applicable, the Assessing Officer shall calculate the total of the various sums of tax as per the provisions of paragraph 9 thereof.
Section Summary:
Section 190 of the Income Tax Act deals with the determination of tax in cases where an employee's total income includes the accumulated balance from a recognised provident fund (RPF). This balance is included in the total income because the conditions specified in Paragraph 8 of Part A of Schedule XI are not met. The Assessing Officer is required to calculate the tax liability based on the provisions of Paragraph 9 of Schedule XI.
Key Changes:
This section is not new but clarifies the process for calculating tax when the accumulated balance from a recognised provident fund is taxable. It ensures that the tax calculation aligns with the rules specified in Schedule XI, particularly when the conditions for tax exemption under Paragraph 8 are not satisfied.
Practical Implications:
- Employees: If an employee withdraws the accumulated balance from a recognised provident fund and the withdrawal does not meet the conditions for tax exemption (e.g., the employee has not completed the required years of service), the amount becomes taxable. The Assessing Officer will calculate the tax on this amount as per Paragraph 9 of Schedule XI.
- Employers: Employers must ensure that the provident fund contributions and withdrawals are properly documented and reported to avoid discrepancies during tax assessments.
- Tax Authorities: The Assessing Officer must apply the rules under Paragraph 9 to determine the tax liability accurately.
Critical Concepts:
- Recognised Provident Fund (RPF): A provident fund that is approved by the Income Tax Department. Contributions to and withdrawals from an RPF are subject to specific tax rules.
- Paragraph 8 of Part A of Schedule XI: This paragraph outlines the conditions under which the accumulated balance from an RPF is exempt from tax. If these conditions are not met, the balance becomes taxable.
- Paragraph 9 of Schedule XI: This paragraph provides the method for calculating tax on the taxable portion of the accumulated balance from an RPF.
Compliance Steps:
- For Employees: Ensure that the withdrawal from the RPF meets the conditions for tax exemption under Paragraph 8. If not, be prepared to include the amount in your total income and pay tax as calculated by the Assessing Officer.
- For Employers: Maintain accurate records of employee contributions and withdrawals from the RPF. Report these amounts correctly in Form 16 and other relevant documents.
- For Assessing Officers: Apply the provisions of Paragraph 9 of Schedule XI to calculate the tax on the taxable portion of the RPF balance.
Example:
Suppose an employee, Mr. A, withdraws ₹10 lakh from his recognised provident fund after working for only 3 years (less than the 5 years required for tax exemption under Paragraph 8). Since the withdrawal does not meet the exemption conditions, the entire ₹10 lakh is included in his total income. The Assessing Officer will calculate the tax on this amount using the method specified in Paragraph 9 of Schedule XI. The tax liability will depend on Mr. A's applicable tax slab and other income.
This section ensures that the tax treatment of RPF withdrawals is consistent and aligns with the rules specified in Schedule XI.