Formula to compute Annual Accretion related to excess contribution made by employer to assessee’s account

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The CBDT vide Notification No. 11 /2021, dated March 5, 2021 issued ‘Income-tax (1st Amendment) Rules, 2021’ amending the Income-tax Rules, 1962 (“Income-tax Rules”) to insert Rule 3B in Income-tax Rules which prescribes the formula to compute annual accretion related to excess contribution made by employer to the assessee’s account in funds or scheme referred to in Section 17(2)(viia) of the Income-tax Act, 1961 (“Income-tax Act”).

Rule 3B in Income-tax Rules reads as below:

“3B. Annual accretion referred to in the sub-clause (viia) of clause (2) of section 17 of the Act.

For the purposes of sub-clause (viia) of clause (2) of section 17 of the Act, annual accretion by way of interest, dividend or any other amount of similar nature during the previous year (hereinafter in this rule referred to as the current previous year) to balance to the credit of the fund or scheme referred to in sub-clause (vii) of clause (2) of section 17 of the Act shall be the amount or aggregate of amounts computed in accordance with the following formula, namely:-

TP= (PC/2)*R + (PC1+ TP1)*R

Where,

TP= Taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the current previous year;

TP1 = Aggregate of taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the previous year or years commencing on or after 1st day April, 2020 other than the current previous year (See Note);

PC= Amount or aggregate of amounts of principal contribution made by the employer in excess of ₹ 7.5 lakh to the specified fund or scheme during the previous year;

PC1 = Amount or aggregate of amounts of principal contribution made by the employer in excess of ₹ 7.5 lakh to the specified fund or scheme for the previous year or years commencing on or after 1st day April, 2020 other than the current previous year (See Note);

R= I/ Favg ;

I=Amount or aggregate of amounts of income accrued during the current previous year in the specified fund or scheme account;

Favg = (Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous Year + Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the last day of the current previous year)/2.

Explanation. – For the purposes of this rule, “specified fund or scheme” shall mean a fund or scheme referred to in sub-clause (vii) of clause (2) of section 17 of the Act.

Note: Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year, then the amount in excess of the amount or aggregate of amounts of the said balance shall be ignored for the purpose of computing the amount or aggregate of amounts of TP1 and PC1.”

Section 17(2)(viia) of the Income-tax Act reads as below:

“17. “Salary”, “perquisite” and “profits in lieu of salary” defined.

(2) “perquisite” includes-

(viia) 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 the fund or scheme referred to in sub-clause (vii) to the extent it relates to the contribution referred to in the said sub-clause which is included in total income under the said sub-clause in any previous year computed in such manner as may be prescribed;”

The ‘Income-tax (1st Amendment) Rules, 2021’ shall be effective from April 1, 2021

The Notification can be accessed at: http://egazette.nic.in/WriteReadData/2021/225670.pdf

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