A- Taxable Portion of Annual Accretion to RPF [ Sec. 17 (1)(vii)]
“That portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognized provident fund as consists of :
(a) Contribution made by the employer in excess of 12% of the salary of the employee ; and
(b) Interest credited on the balance to the credit of the employee is so far as it exceeds the amount allowed at a rate exceeding such rate as may be fixed by the Central Government in this behalf by notification in Official Gazette, shall be deemed to have been received by the employee in that previous year and shall be included in the total income for that previous year and shall be liable to income-tax.
The above-mentioned rule makes it clear that any contribution by employer to RPF in excess of 12% of employee’s salary is to be added in salary.
About interest the taxable potion will be excess of Interest credited to the balance of RPF over a rate of interest to be announced by the Government from time to time.
To simplify the above discussion it can be put in the following manner :
Taxable annual accretion will consist of :
(a) Excess of employer’s contribution to Recognised Provident Fund over 12% of employee’s salary and
(b) Excess of interest credited to RPF over interest calculated at prescribed rate ( i.e. 9.5%) of the balance standing to the credit of employee.
i.e in nut shell
Employer Contribution plus Interest on Employer's Contribution is under the head salary
Interest on Employee's Contribution is under the head income from other source.