Manner of computation of taxable perquisite u/s 17(2)(viia) [Notification no. 11/2021]
As per section 17(2)(vii) if the total amount of contribution made by the employer to the account of the employee in recognized provident fund, national pension scheme of Central Government and in an approved superannuation fund in excess of Rs 7,50,000 will be treated as taxable perquisite from assessment year 2021-2022.
As per section 17(2)((viia) the 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 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 a previous year.
Both the sub clauses are applicable from assessment year 2021-22.
CBDT, vide its Notification No. 11 of 2021 dated 5th March, 2021 came out with rule 3B Annual Accretion referred to in sub clause (viia) of Clause 2 of Section 17 of the Act which prescribed formula to calculate perquisite value on accretion to the funds. The said Rule is applicable from Assessment Year 2021-22.
Determination of Taxable Perquisite
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
PC= Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakhs 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 Rs. 7.5 lakhs 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
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.
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.”
Example:
XYZ Ltd contributed Rs 9,50,000 towards RPF A/c of Mr Jack during the year 2020-2021. Mr Jack have made same amount of contribution. On 1.04.2020, the balance of RPF a/c was Rs 45,00,000. Interest accrued during the year is Rs 481401. Now to compute the taxable perquisite u/s 17(2)(viia) we will use the formula discussed :-
Taxable Perquisite = (PC/2)*R + (PC1+ TP1)*R
=(2,00,000/2)*0.1399 + (Nil+Nil)*0.1399 = Rs 13,990
PC= Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakhs = 9,50,000-7,50,000= Rs 2,00,000
TP1 and PC1 will be NIL as FY is 20-21 is the first year commencing on or after 1st April 2020.
R= I/ Favg = 4,81,401/ 34,40,700.5 = 0.1399
- I= Amount or aggregate of amounts of income accrued during the current previous year in the specified fund or scheme account = 4,81,401
- 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.= (45,00,000+9,50,000+9,50,000+4,81,401)/2
= 68,81,401/2 = Rs 34,40,700.50.