Taxability of Perquisite under Section 17(2)(viia)
Introduction
Employer contributions exceeding Rs. 7,50,000 annually to Recognized Provident Fund (PF), National Pension Scheme (NPS), and Superannuation Fund, along with annual accretion on such excess, are taxable as perquisites.
Applicability
- Contributions by the employer across all welfare funds exceeding 7,50,000 are taxable.
- Annual accretion, such as interest, dividends, or similar income on excess contributions, is also taxable.
Computation of Taxable Perquisite (Rule 3B)
Taxable accretion (TP) is calculated using the formula:
TP = (PC/2)*R + (PC1+ TP1)*R
Where,
(a) TP = Taxable perquisite under section 17(2)(viia) for the current previous year;
(b) TP1 = Aggregate of taxable perquisite under section 17(2)(viia) for the previous year(s) commencing on or after 01-04-2020 other than the current previous year.
(c) PC = Aggregate of the principal contribution made by the employer in excess of Rs. 7.50 lakh to the employee’s welfare funds during the previous year;
(d) PC1 = Aggregate of the principal contribution made by the employer in excess of Rs. 7.50 lakh to the employee’s welfare funds for the previous year(s) commencing on or after 01-04-2020 other than the current previous year;
(e) R = I/ Favg;
(f) I = Aggregate of income accrued during the current previous year in the employee’s welfare funds;
(g) Favg = (Aggregate of balance to the credit of the employee’s welfare funds on the first day of the current previous Year + Aggregate of balance to the credit of the employee’s welfare funds on the last day of the current previous year)/2
Where the aggregate of TP1 and PC1 exceeds the aggregate 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 aggregate of amounts of the said balance shall be ignored to compute the aggregate of amounts of TP1 and PC1.