EN 
Section 17(2)(vii) of the Income-tax Act, 1961 (‘ITA’) provides that employer’s contribution to the account of an employee in a recognized provident fund, national pernsion scheme and superannuation fund in excess of ? 750,000 in aggregate for all the three funds shall be treated as perquisite in the hands of the employee and accrodingly, chargeable to tax. Section 17(2)(viia) of the ITA provides that any annual accretion by way of interest, dividend or any other amount of similar nature to the balance at credit of fund or scheme to the extent it relates to the employer’s contribution in excess of ? 750,000 shall also be treated as as perquisite in the hands of the employee, computed in the manner as may be prescribed.
Central Board of Direct Taxes (‘CBDT’) by way of Notification No. 11 /2021 has prescribed the method of computation of perquisite under section 17(2)(viia). 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 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 ? 750,000 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 ? 750,000 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
Copy of the Notification is enclosed herewith.
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