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New ITR Form – What you need to know?

The Income Tax Department has introduced the new Income tax return form with some major changes in the form. The new ITR forms for the assessment year 2018-19 mandate the taxpayers to provide detailed information about their incomes including their GST number and turnover and the salaried class assesses to provide their salary breakup.

 For the first time, a penalty will be levied on returns filed after the due date. The new Income Tax Returns have been uploaded on the official website of the income tax department (www.incometaxindia.gov.in). To help an employee cope with change in the new income tax returns (ITR­1) form, the assessee will have to give a breakup of his income, including basic salary, house rent allowance, bonus, and professional tax. This is done to assure that the amount of Provident Fund withdrawn by a person is taxable or not.

What does the law say?

According to the laws made by the Income-tax department, if any amount is withdrawn by an employee from the Provident Fund account before the expiry of 5 years, it is taxable in the hands of the assessee irrespective of the fact that the amount was accumulated by a single or multiple employers.

The taxation of employee’s contribution depends on the fact whether the deduction is claimed under section 80C or not in the ITR of the previous assessment years. Also, the taxability of the withdrawal amount differs in the case of withdrawing the amount before 5 years of continuous service and after 5 years of continuous service. If the amount of PF is withdrawn after 5 years of continuous service, the entire amount is exempt from tax and if the amount is withdrawn before the expiry of 5 years of continued service, the withdrawal amount is taxable in the year of withdrawal.

If the deduction under section 80C is not claimed at the time of filing the ITR in the previous years, then that amount will not be taxable in the hands of employee at the time of withdrawal from the PF and only the employer’s contribution and the interest earned on both the employee’s and employer’s contributions will be taxable.

However, if the employee has claimed deduction under section 80C in the previous years of the amount contributed by him to PF, then the amount withdrawn in respect of employee’s contribution, to the extent of Section 80C deduction claimed earlier, will be taxable in the hands of the employee along with the employer’s contribution and the interest earned on both the contributions.

In all the above cases, the rate of income tax applicable will be the applicable income slab rate in the year in which actual PF contributions were made and not the tax rate of the year in which the withdrawal was made.

The revision of ITR-2 and 3 was required for the purpose of providing year-wise details of respective contributions made to PF and amount of tax to be paid in case of withdrawal of PF amount before the expiry of 5 years period by the assessee.

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Income tax treatment for different types of Provident funds

Any contribution in the provident fund is made for the welfare of the employee. The contribution is made by both employee and the employer and deduction for the same is available under section 80C. In the provident fund, a part of the salary of the employees is contributed and the other part is contributed by the employer on the behalf of their employees. As per the section 10(11) and 10(12) of the Income Tax Act, the definition of the exemption on the amount added to the provident fund has been mentioned. Also, the amount deducted on contribution to the provident fund comes under the purview of 80C of the Income Tax Act. Provident fund is categorized into four types namely :

Income TaxIncome Tax

Recognized Provident fund – It is recognized by the commissioner of Income Tax under EPF and Miscellaneous Provision Act, 1952. Recognized provident fund is applicable to at least 20 employees.

Unrecognized Provident Fund – It is not recognized by the commissioner of Income Tax and started by the employers and employees.

Public Provident Fund – Under the PPF Act 1968, it is yet another way of contributing to the provident fund. It is basically suitable for the self-employed people wherein the minimum contribution limit is set at Rs 500 per annum and a maximum of 150000 per annum.

Statutory Provident Fund – It is meant for the Government employees or the employees of Universities or Education Institutes affiliated to university.

Here are the tax treatment for different type of Provident Fund:

ParticularsRecognized PFUnrecognized PFStatutory   PFPublic PF
 

 

Employer’s Contribution

Contribution to 12% of salary does not attract tax and above that is added to the salary income of the employee. 

 

 

Not taxable

 

 

 

Not taxable

 

 

 

Not taxable

Employee’s ContributionSection 80C Deduction 

Not taxable

Section 80C DeductionSection 80C Deduction
 

 

Interest on PF

If the interest is over 9.5%, it is added to Income from Salaries. Until 9.5% interest is exempt. 

 

 

Not taxable

 

 

Exempt

 

 

Exempt

 

 

 

 

 

Amount withdrew at retirement time

 

 

 

 

 

Exempt subject to certain conditions*

Contribution from employer and interest on that is taxable under the head Income from Salaries; Contribution by an employee is not taxable, and employee’s contribution interest is taxable under the head Income from Other Sources. 

 

 

 

 

 

Exempt

 

 

 

 

 

 

Exempt

*Conditions:-

  • In case the employee has quit the job after five years of employment
  • The RPF balance is reassigned to RPF with a new employer in the case of re-employment
  • If the service period is less than five years the reason for termination is the health of the employer or his business
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