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**Policy Analysis Report: Income-tax 1st Amendment Rules, 2021**
**1. Executive Summary:**
This report analyzes the Income-tax 1st Amendment Rules, 2021, as notified by the Central Board of Direct Taxes on March 5, 2021. This amendment introduces Rule 3B to the Income-tax Rules, 1962, providing a formula for calculating the annual accretion to employee funds or schemes, which will be considered as a taxable perquisite. The key finding is the introduction of a specific calculation formula intended to clarify the taxation of employer contributions exceeding a certain threshold.
**2. Introduction:**
This report aims to provide an informative overview of the Income-tax 1st Amendment Rules, 2021, based exclusively on the provided official gazette notification. The report will analyze the changes introduced by the amendment and their potential impact.
**3. Policy Overview:**
* **Amendment To:** The Income-tax Rules, 1962.
* **Core Objective(s):** As inferred from the text, the core objective of this amendment is to provide a specific method for calculating the "annual accretion" to a fund or scheme that is subject to income tax under section 17(2)(viia) of the Income-tax Act, 1961. This clarifies how such accretion is to be treated as a taxable perquisite.
**4. Background and Rationale:**
This amendment likely aims to address ambiguity or lack of clarity in the existing Income-tax Rules, 1962, regarding the computation of taxable perquisites arising from employer contributions to specific employee funds or schemes exceeding Rs. 7.5 lakh. The new rule provides a formulaic approach to determine the taxable amount, suggesting a need for a more precise and standardized method. The amendment addresses how the annual accretion (interest, dividend, or similar amounts) is calculated and taxed when employer contributions exceed the specified limit.
**5. Key Provisions / Changes:**
This amendment *specifically* introduces Rule 3B into the Income-tax Rules, 1962.
* **Specific Part of Original Policy Changed:** The amendment introduces a *new* rule (Rule 3B) *after* Rule 3A in the Income-tax Rules, 1962.
* **New Rule/Provision:** Rule 3B provides a formula for calculating the "Taxable perquisite" (TP) arising from the annual accretion to the specified fund or scheme. The formula is:
```
TP = (PC2 + TP1) * R / Favg
```
Where:
* TP = Taxable perquisite for the current previous year.
* TP1 = Aggregate of taxable perquisite for the 1st previous year or years commencing on or after 1st day April, 2020 other than the current previous year.
* PC2 = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 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 Rs. 7.5 1 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
* 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.
It also includes an Explanation defining "specified fund or scheme" as one referred to in section 17(2)(vii) of the Act. A note clarifies how to handle situations where TP1 and PC1 exceed the balance in the fund on the first day of the current previous year.
* **Difference/Effect of the Change:** The amendment provides a concrete and standardized methodology for calculating the taxable component of employer contributions exceeding Rs. 7.5 lakh to employee funds or schemes. This should lead to greater clarity and consistency in the tax treatment of such contributions. Without this rule, the calculation of the taxable perquisite may have been subject to interpretation, potentially leading to disputes.
**6. Target Audience and Stakeholders:**
Based on the text, the primary target audience and stakeholders are:
* **Employers:** Specifically, those who contribute to employee funds or schemes beyond Rs. 7.5 lakh annually.
* **Employees:** Whose funds or schemes receive contributions from their employers beyond the specified limit.
* **Tax Professionals:** Responsible for calculating and reporting income tax.
* **The Income Tax Department:** Responsible for administering and enforcing the Income-tax Act, 1961, and its associated rules.
**7. Implementation Aspects (Inferred):**
* **Responsible Agency/Bodies:** The Central Board of Direct Taxes (CBDT) is the responsible body, as it issued the notification.
* **Timelines/Procedures:** The amendment comes into force from April 1, 2021. The procedure involves using the provided formula to calculate the taxable perquisite related to annual accretion in the specified funds or schemes.
* **Implementation aspects related specifically to the changes:** Employers and tax professionals will need to incorporate the new formula into their tax calculations starting from April 1, 2021. This will likely require adjustments to payroll systems and tax reporting processes.
**8. Expected Outcomes / Impact of Changes:**
The likely intended outcome of this amendment is to:
* **Provide Clarity and Certainty:** Reduce ambiguity in the tax treatment of employer contributions exceeding Rs. 7.5 lakh.
* **Standardize Calculation:** Ensure a consistent and uniform method for calculating the taxable perquisite across different organizations and individuals.
* **Improve Tax Compliance:** Facilitate accurate tax reporting and reduce the potential for disputes or litigation.
* **Increased Tax Revenue:** Increased tax revenue from employer contribution exceeding a certain threshold.
**9. Conclusion:**
The Income-tax 1st Amendment Rules, 2021, introduces a significant change by providing a specific formula for calculating the taxable component of annual accretion in employee funds or schemes, where employer contributions exceed Rs. 7.5 lakh. This amendment aims to bring clarity, standardization, and improved compliance to the tax treatment of such contributions, impacting employers, employees, and tax authorities alike. The amendment is significant as it addresses a specific aspect of income tax calculation related to employer contributions to employee funds, affecting a potentially large segment of the industry.
Key Entities Referenced
Income-tax Act, 1961: The primary legislation being amended. It is referred to with its Act number 43 of 1961.
Central Board of Direct Taxes: The issuing authority for the notification, under the Department of Revenue, Ministry of Finance.
Incometax Rules, 1962: The rules being amended by this notification.
Incometax 1st Amendment Rules, 2021: The title of the amendment rules introduced by this notification.
Ministry of Finance: The government ministry under which the Central Board of Direct Taxes operates.
Department of Revenue: The department within the Ministry of Finance that the Central Board of Direct Taxes is part of.
New Delhi: The location where the notification was issued.
G.S.R. 155E: The official gazette notification number.
S.O. 969: Earlier notification number which the principle rules were published in.
G.S.R. No. 664E: Notification number of the last amendment to the principle rules.
26th March, 1962: Date of the original publication of the amended rules
22nd October, 2020: Date of the last amendment to the amended rules
रजिस्ट्री स.ं डी.एल.- 33004/99 REGD. No. D. L.-33004/99
सी.जी.-डी.एल.-अ.-05032021-225670
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CG-DL-E-05032021-225670
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असाधारण
EXTRAORDINARY
भाग II—खण् ड 3—उप-खण्ड (i)
PART II—Section 3—Sub-section (i)
प्राजधकार स ेप्रकाजित
PUBLISHED BY AUTHORITY
स.ं 114] नई दिल्ली, िुक्रिार, मार् ड5, 2021/फाल्ग नु 14, 1942
No. 114] NEW DELHI, FRIDAY, MARCH 5, 2021/PHALGUNA 14, 1942
जित्त मत्रं ालय
(रािस्ट्ि जिभाग)
(केन्द रीय प्रत्य क्ष कर ोरडड)
अधिसचू ना
नई दिल् ली, 5 मार्,ड 2021
सा.का.जन. 155(अ).—केन्दरीय प्रत्यक्ष कर ोरड,ड आय-कर अजधजनयम 1961 (1961 का 43) की धारा 295 के
साथ पठित धारा 17 के खंड (2) के उपखंड (viiक) द्वारा प्रित्त िजियों का प्रयरग करते हुए आय-कर जनयम, 1962 का और
संिरधन करने के जलए जनम्नजलजखत जनयम ोनाता ह,ै-
(1) संजक्ष प्त नाम और प्रारंभ.- (1) इन जनयमों का संजक्ष प्त नाम आय-कर (पहला संिरधन) जनयम, 2021 ह।ै
(2) य े1 अप्रलै , 2021 स े प्रभािी होंगे।
(2) आय-कर जनयम, 1962 के जनयम 3क के पश्चात,् जनम्नजलजखत जनयम अंत:स्ट्थाजपत दकया िाएगा, अथाडत, -
3ख. अजधजनयम की धारा 17 के खडं (2) के उपखडं (vii क) म ेंजनर्िष्टड िार्षकड अजभिजृ ि ।
अजधजनयम की धारा 17 के खडं (2) के उपखंड (vii क) के प्रयरिनों के जलए िार्षडक अजभिृजि पूिडिती िष ड के
िौरान ब्याि, लाभांि अथिा अन्दय करई रकम िर समरूप प्रकृजत की हर (जिसे इस जनयम म ेंइसके पश्चात ् र्ाल ू पूिडिती िष ड
कहा गया ह)ै , अजधजनयम की धारा 17 के खंड (2) के उपखडं (vii) म ें जनर्िष्टड जनजध या स्ट्कीम के िमा िेष िह रकम अथिा
रकमों का यरग हरगा जिसकी गणना जनम्नजलजखत सूत्र के अनुसार की िाएगी:—
1407 GI/2021 (1)2 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]
टीपी = (पीसी/2)*आर + (पीसी1+ टीपी 1)*आर
िहा,ं
टीपी = र्ालू पूिडिती िषड के जलए अजधजनयम की धारा 17 के खडं 2 के उपखडं (vii क) के अधीन कर यरग्य
पठरलजब्धया;ं
टीपी = र्ालू पूिडिती िष ड स े जभन्न, पूिडिती िषड या 1 अप्रलै , 2020 स े आरंभ हरने िाल े िषों के जलए अजधजनयम
1
की धारा 17 के खंड 2 के उपखडं (vii क) के अधीन कर यरग्य पठरलजब्धयों का यरग (ठटप्पण िेखें) ;
पीसी = पूिडिती िषड के िौरान जनयरिा द्वारा जिजनर्िष्टड जनजध या स्ट्कीम म ें 7.5 लाख रुपए स े अजधक के मलू
अंििान की रकम अथिा रकमों का यरग;
पीसी = पूिडिती र्ालू िषड स े जभन्न 1 अप्रैल, 2020 कर या उसके पश्चात ् आरंभ हरने िाले पूिडिती िषड अथिा
1
िषों के जलए जनयरिा द्वारा जिजनर्िष्टड जनजध या स्ट्कीम म ें 7.5 लाख रुपए स े अजधक के मलू अिं िान की रकम अथिा रकमों
का यरग (ठटप्पण िेख)ें ;
आर = आई/ एफ.ए.िी.िी.;
आई = र्ालू पूिडिती िषड के िौरान जिजनर्िष्टड जनजध या स्ट्कीम खाते म ें प्ररिभूत आय की रकम अथिा रकमों का
यरग;
एफ.ए.िी.िी. = (र्ाल ू पूिडिती िष ड के पहल े दिन जिजनर्िष्टड जनजध अथिा स्ट्कीम म ें िमा िेष की रकम या रकमों
का यरग + र्ाल ू पूिडिती िष ड के अंजतम दिन जिजनर्िष्टड जनजध अथिा स्ट्कीम म ें िमा िेष की रकम या रकमों का यरग)/2.
स्ट्पष्टीकरण :— इस जनयम के प्रयरिनर के जलए “जिजनर्िष्टड जनजध अथिा स्ट्कीम” से अजधजनयम की धारा 17 के
खंड (2) के उपखंड (vii) म ें जनर्िष्टड जनजध अथिा स्ट्कीम अजभप्रते हरगी।
ठटप्पण : यदि र्ाल ू पूिडिती िष ड के पहल े दिन पर टीपी तथा पीसी की रकम या रकमों का यरग जिजनर्िष्टड जनजध अथिा
1 1
स्ट्कीम की रकम या रकमों के यरग के िमा िषे स े अजधक हर तर रकम या रकमों के यरग के िषे कर टीपी1 तथा
पीसी1 के रकम या रकमों के यरग की गणना हते ु उपेजक्ष त दकया िाएगा।
[अजधसूर्ना 11 /2021/F. No. 370142/52/2020-टीपीएल]
गुडरुन नेहर, जनिेिक (टीपीएल-II)
ठटप्प्ण : मूल जनयम, भारत के रािपत्र, असाधारण, भाग II, खंड 3, उपखंड (ii) म ें अजधसूर्ना संखयांक का. आ. 969 ,
तारीख 26 मार्,ड 1962 द्वारा प्रकाजित दकए गए थ े तथा उनका अंजतम संिरधन अजधसूर्ना संखयां सा.का.जन.
664(अ), तारीख 22 अिूोर, 2020 द्वारा दकया गया।
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 5th March, 2021
G.S.R. 155(E).—In exercise of the powers conferred by sub-clause (viia) of clause (2) of section 17 read
with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the
following rules further to amend the Income-tax Rules, 1962, namely: -
1. Short title and commencement. — (1) These rules may be called the Income-tax (1st Amendment) Rules, 2021.
(2) They shall come into force from the 1st day of April, 2021.
2. In the Income-tax Rules, 1962, after the rule 3A, the following rule shall be inserted, namely: ‒[भाग II—खण् ड 3(i)] भारत का रािपत्र : असाधारण 3
“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;
TP = Aggregate of taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the
1
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 Rs. 7.5
lakh to the specified fund or scheme during the previous year;
PC = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5
1
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 TP and PC .”.
1 1
[Notification No. 11 /2021/F. No. 370142/52/2020-TPL]
GUDRUN NEHAR, Director (TPL-II)
Note: The principle rules were published in the Gazette of India, Extraordinary, Part II, Section 3,sub-section (ii) vide
notification number. S.O. 969 dated the 26th March, 1962 and lastly amended vide notification number
G.S.R. No. 664(E) dated the 22nd October, 2020.
Uploaded by Dte. of Printing at Government of India Press, Ring Road, Mayapuri, New Delhi-110064
and Published by the Controller of Publications, Delhi-110054.