CBOA, AP issued its circular No. 010 dated 14.03.2011 on Tax exemption on the amount deducted towards Pension Fund. We are placing the same here for our readers.
CIRCULAR NO.: GS: 2011: 010 Date: 14.03.2011
TO ALL OFFICERS PLEASE CIRCULATE
Dear Friends,
We reproduce hereunder the Circular No. CIRCULAR/GS/2011/07 dated 10-03-2011 received from our Federation for your information.
With best regards
Yours sincerely
Sd/-
(C.A.
GENERAL SECRETARY
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“TAX EXEMPTION ON AMOUNT DEDUCTED TOWARDS PENSION FUND
One of the issues taken up with the IBA is to exempt the contribution of officers’ share towards Pension Fund, from Income Tax payable for the financial year 2010 – 2011. The amount of contribution at 2.8 times of the revised basic pay as on 01.11.2007 from the CPF Optees towards 2nd Option on Pension cost has been adjusted from payment of arrears of salary and allowances. This amount of arrears withheld towards pension cost, has to be exempted from the tax liability.
In accordance with the decision of the Executive Committee, AIBOC has addressed a letter to the Chairman of Central Board of Direct Tax for the exemption. AIBOC is also planning for filing a case in the Court of law for justice, on hearing from CBDT.
TAX EXEMPTION ON AMOUNT - DEDUCTED TOWARDS PENSION FUND
We invite your kind attention to the MOU dated 27.11.2009 and Joint Note dated 27.04.2010 on 2nd option on Pension, signed by IBA and AIBOC where in it was agreed as follows;
(i) Annual wage increase of Rs.4816 crores (Rs.2239/- crores for officers and Rs.2577/- crores for workmen Employees) w.e.f. 01.11.2007.
(ii) The additional cost of Pension on account of wage revision in excess of statutory contribution of 10% of pay will be shared equally between management and employees and the share of employees (at 23% of Pay) will be deducted from the agreed wage increase while revising salary and allowances.
(iii) All the existing employees who are now in CPF scheme (other than SBI) will be given the option to join the existing pension scheme.
(iv) All those who have retired after the date of Pension Regulations to date will also be given an option to join the Pension Scheme.
(v) The additional cost on pension will be shared by the Management and employees in the ratio of 70:30
As per the above understandings:
(i) The existing employees with PF Option, who were in the service of the Bank Prior to 29th September, 1995 in case of Nationalised Banks, 26th March, 1996 in case of Associates of State Bank of India when Pension was introduced in Banks through Pension Regulations i.e 1995/1996 and continue to be in Banks Service as on 27.04.2010 and did not opt for pension during that time, can now exercise the option to join the Pension Scheme by contributing 2.8 times of ‘‘Revised pay” payable as at 01.11.2007 (pay for this purpose means Basic Pay, Professional Qualification Pay, increment portion of Fixed Personal Pay etc).
(ii) The Employees with PF option in the service of the Banks prior to 29th September 1995 in case of Nationalised Banks, 26th March 1996 in case of Associates of State Banks of India, on the date of implementation of Pension Regulations i.e 1995/1996 and have retired thereafter on or before 26.04.2010 or died while in service on or before 26.04.2010 or ceased to be in service under the Special VRS after completing 15 years of service including their spouse, have to refund the PF plus interest received plus 56%.
(iii) The family of those employees who were in the service of the bank prior to 29th September 1995 in case of Nationalised Banks, 26th March 1996 in case of Associates of State Bank of India, retired after that date and had died, will be eligible for family pension by refunding Bank’s Contribution to PF with additional amount of 56% of the amount received.
From the foregoing it is clear that
(i) In case of existing employees, the amount that is receivable on account of Salary Revision settlement by which the employees are permitted the option to join the pension scheme on withholding 2.8 times of their revised basic pay as at 01.11.2007, towards the pension corpus.
(ii) Retired employees and the families of deceased employees, have to refund Provident Fund amount along with additional amount of 56% towards the Pension Fund to be eligible for pension option.
Since the part of arrears of Salary & Allowances is retained towards the pension corpus and not paid to the employees, the question of tax deduction at source does not arise in respect of the amount withheld. As per the prevailing Tax Law, it is only the amount that is due to the employee after the amount appropriated towards pension corpus that can be taken as salary within the definition of Section 17 of the Income Tax Act, 1961.
For the purpose of Tax deduction at source, the law is transparent that tax deduction is required under Section 192 in respect of salary, which has to be made on the income chargeable under the head “salaries” at the time of payment so that even the amount chargeable becomes tax deductible only at the time of payment.
In respect of retired employees or families of employees who died during the relevant period who have to refund P.F. balance along with additional amount of 56%, the amount so refunded should also be treated as Investment in the Pension corpus and the amount should be allowed to be deducted from the arrears of pension payable to this class of employees, for arriving at the taxable income.
It is pertinent to note here that the pension amount paid out of the corpus fund is always taxable in the hands of the pensioner in the respective years.
The contributions made by the employees towards the superannuation benefits, such as Provident Fund, Pension Fund, etc. are eligible for tax exemption as per the Income Tax rules and treated as Investments in the eligible securities for all practical purposes. Thus the money so contributed either 2.8 times or 56% of Bank’s contribution to PF as indicated hereinabove, towards Pension Fund of the Bank, should be exempted from the payment of Income Tax or should be allowed as deduction from the total arrears of Salary & Allowances as the case may be.
Keeping the foregoing in view we request you to advise the Banks to;
(i) exempt 2.8 times of revised Basic Pay as at 01.11.2007 from payment of tax as this amount was not disbursed out of arrears and appropriated towards pension corpus fund;
(ii) permit the retired employees to deduct 56% of the PF amount by way of Bank’s contribution to the fund from the arrears of pension to be received by them, for arriving at the taxable income.
This will go a long way in providing substantial relief to the employees working in the Banking Industry and also the retired employees and families of deceased employees.
We request you to convey your decision at the earliest as the current financial year is fast approaching.”
Yours sincerely,
Sd/-
(D.S. BHADAURIA)
GENERAL SECRETARY
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