TaxTMI 
TaxTMI 
Modernising Provident, Superannuation, and Gratuity Fund Regulation and Taxation : SCHEDULE-XI of the Income Tax Bill, 2025 Vs. SCHEDULE 04 (the Fourth Schedule) of the Income-tax Act, 1961
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....ion from the 1961 Act to the proposed 2025 Bill reflects both continuity and evolution in legislative intent, with a focus on modernization, clarity, and alignment with contemporary employment practices. This commentary provides a detailed analysis of each substantive area of SCHEDULE-XI, followed by a comparative assessment with the existing Fourth Schedule, highlighting key similarities, differences, and potential implications for stakeholders. --- Objective and Purpose The primary objective of both SCHEDULE-XI (2025) and SCHEDULE 04 (1961) is to regulate the recognition, administration, and tax treatment of provident, superannuation, and gratuity funds. The legislative intent is to: * Provide tax incentives to promote long-term savings among employees; * Ensure the integrity and soundness of such funds through regulatory oversight; * Prevent abuse or misuse of tax-exempt status; * Harmonize the operation of these funds with broader social security and labor law frameworks (e.g., the Employees' Provident Funds and Miscellaneous Provisions Act, 1952). The 2025 Bill continues these objectives, with certain refinements aimed at modernizing definitions, clarifying proc....
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....vice may continue contributions. * Retention of accumulated balances post-employment is permitted on employee request, with continued interest accrual. * Larger employer contributions or contingent bonuses are permitted for employees with salaries not exceeding Rs. 500 per month. * Withdrawal from the fund is permitted for payment of tax assessed on transferred balances. 5. Taxation Provisions * Employer contributions exceeding 12% of salary and interest credited above a notified rate are deemed income of the employee and taxed accordingly. * Employee contributions are eligible for deduction as per section 123. * Accumulated balances payable to employees are excluded from total income if: * The employee has served for five years or more; * Service is terminated due to ill-health, closure, or other uncontrollable cause; * Balances are transferred to another RPF or a notified pension scheme. * Where these conditions are not met, the accumulated balance is taxed retroactively as if the fund had not been recognized. * Tax deduction at source is mandated on such taxable accumulated balances. 6. Transitional and Administrative Provisions * - Procedures are set f....
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.... unchanged in substance. * SCHEDULE-XI uses slightly modernized language ("fixed proportion" instead of "definite proportion"; "credited by the employer from each periodical payment" instead of "deducted by the employer from the employee's salary"). * The provision for employer recovery from the fund is harmonized, with SCHEDULE-XI adding explicit reference to "the regulations of the fund" and slightly reworded exceptions. * The salary threshold for higher employer contributions (Rs. 500 per month) is retained. D. Taxation Provisions * The threshold for taxable employer contributions (12% of salary) and the interest rate cap for tax exemption are unchanged. * The exclusion of accumulated balances from total income upon five years of service, or in cases of ill-health, closure, or uncontrollable circumstances, is preserved. SCHEDULE-XI clarifies that transfer to a notified pension scheme u/s 124 (vs. section 80CCD in 1961) is also covered. * The mechanism for retroactive taxation of accumulated balances where exemption conditions are not met is the same, including the calculation of tax as if the fund had not been recognized. * The requirement for tax deduction at....
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....excluding personal or domestic servant" in the definition of "employee," aligning with modern employment practices. --- Comparative Table Provision SCHEDULE-XI of the Income Tax Bill, 2025 SCHEDULE 04 of the Income-tax Act, 1961 Remarks Application Excludes funds under Provident Funds Act, 1925 Same No change Definitions Modernized, explicit reference to "approving authority" Similar, less explicit Minor update Employee Contribution Fixed proportion of salary Definite proportion of salary Terminology updated Employer Contribution Not exceeding employee contribution Same No change Trust Structure Irrevocable trust, two or more trustees Same No change Fund Assets Contributions, accumulations, interest, securities, capital gains Same Capital gains more explicitly included Employer Recovery Limited to employer contributions and related interest/accumulations Same No change Taxable Employer Contribution Above 12% of salary Same No change Interest Rate for Exemption Above notified rate Same No change Exemption on Accumulated Balance 5 years' service, ill-health, closure, transfer to RPF/pension ....