[Opinion] Contribution made by employer to recognised PF in excess of 12% of the salary

Mukesh Kohli – [2023] 147 taxmann.com 87 (Article)

Now a days, there is a discussion among the highly paid salary employees whether there will be any relaxation from the double taxation in the current budget which was imposed by Finance Act, 2020 by substituting sub clause (vii) of clause (2) of section 17 to provide a composite ceiling of Rs 7,50,000/= for a previous year in respect of employer’s contribution to recognized provident fund, scheme referred to in section 80CCD and approved superannuation fund.

Now let us see whether there is double taxation on this perquisite:

Section 17 (1) defines salary which, inter alia, includes contribution made by employer to recognized provident fund in excess of 12 % of the salary.

Whereas section 17(2)(vii) provides a composite ceiling of Rs 7,50,000 for a previous year in respect of employer’s contribution to recognized provident fund, scheme referred to in section 80CCD and approved superannuation fund.

For example, salary of an employee is say Rs 100 Lacs, then to the extent of Rs 12,00,000/= (being 12% of 100 lacs) contributed by the employer in recognized provident fund would not be treated as SALARY under section 17(1)(vi) of the Income Tax Act, 1961. However, as it exceeds Rs.7,50,000, the amount in excess of Rs 7,50,000 i.e., Rs 4,50,000/= (12,00,000– 7,50,000) will be treated as perquisite under section 17(2)

Click Here To Read The Full Article