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Tax Treatment of Employer’s Contribution to the account of an Employee from Assessment Year 2021-22 (Financial Year 2020-21)

Under the existing provisions of the Act, the contribution by the  employer to the account of an employee in a recognized provident  fund is chargeable to tax if such contribution exceeds 12% of  salary.

Further, the amount of any contribution to an Approved  Superannuation Fund by the employer exceeding Rs. 1,50,000 is treated as perquisite in the hands of the employee.

Similarly, the  assessee is allowed a deduction under National Pension Scheme  (NPS) for 14% of the salary contributed by the Central Government and 10% of the salary contributed by any other employer. 

Presently, there is no combined upper limit for the purpose of  deduction on the amount of contribution made by the employer.  The Finance Bill proposes a upper limit of Rs. 7,50,000 per annum  for deduction in respect of employer’s contribution to NPS,  superannuation fund and recognized provident fund and any  excess contribution above Rs. 7,50,000 is chargeable to tax in the  hands of the employee.

Consequently, it is also proposed that  any annual accretion by way of interest, dividend or any other  amount of similar nature during the previous year to the balance  at the credit of the fund or scheme may be treated as perquisite  to the extent it relates to the employer’s contribution which is  included in total income.
Implications of this New Tax Regime of Section 115BAC in case of ‘Individuals’ or ‘HUFs’ if eligible for Deduction U/s 80C , 80D , Standard Deduction U/s 16 and Deduction for Interest on Housing Loan U/s 24(b) from the Assessment Year 2021-22 Tax Amendments in Finance Bill 2020 Whether ‘Individuals or HUFs’ should opt for New Tax Regime of Section 115BAC from Assessment Year 2021-22
Income Tax Slab for Financial Year 2020-21 (AY : 2021-22)

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