AIBOC CIRCULAR NO. 60 DATED 10.05.2010

AIBOC issued its circular No. 60 on Income Tax Exemption on contribution towards pension fund. We are reproducing the same here with our readers.

CIRCULAR NO.60                                                            10.05.2010

TO ALL AFFILIATES/MEMBERS:

INCOME TAX EXEMPTION ON CONTRIBUTION TOWARDS PENSION FUND

On account of IBA agreeing to extend 2^nd Option on Pension to CPF Optees, funding of pension gap by Optees at 2.8 times of revised pay as on 01.11.2007, a question has arisen as regards tax on the amount to be recovered, out of arrears of salary and allowances payable on account of 9^th Bipartite settlement. According to Income tax rules, the gross arrears receivable on account of salary revision is taxable. A portion of arrears is invested in Pension fund towards future liability of Banks who have agreed to extend pension to CPF Optees. Therefore, the contribution has to be treated as investment in Superannuation Schemes and the amount to be exempted from payment of tax.

We have today sent a communication to the IBA to issue necessary guidelines to the member Banks to treat the contribution to the pension fund out of arrears payable as investment in superannuation schemes and be exempted from payment of income tax on the same.

A copy of the communication is enclosed.  We shall advise the outcome later.

With greetings,

Sd/-

(G.D.NADAF)

GENERAL SECRETARY

No./1452/145/10                                                  10.05.2010

To, 

The Chairman,

The Indian Banks’ Association,

World Trade Centre,

MUMBAI – 400 020.

Dear Sir,

2^ND OPTION ON PENSION

CONTRIBUTION TOWARDS PENSION FUND BY CPF OPTEES

As per pension settlement, the employees and Officers are eligible to exercise one more option towards the Pension Scheme, in lieu of the Contributory Provident Fund. The agreement also refers to the funding of the Pension Fund gap by way of contribution by the employees and Officers who are in service, out of the arrears payable to them on account of the 9^th Bipartite settlement; apart from surrendering of Bank’s Contribution of PF accumulated in their respective accounts.

The contributions made by the employees towards the Superannuation Benefits; such as Provident Fund, Pension Fund etc., are eligible for the 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 towards pension fund in Bank is liable to be exempted from the payment of Income tax by the Tax authorities. It is in this background, there is a need to issue proper instructions to all the Banks at the time of sending guidelines for the implementation of the 9^th Bipartite settlement as well as the payment of arrears to cover inter-alia:

The amount contributed from the CPF Optees towards their part of contribution for the Pension Fund in view of the 2^nd Option on Pension extended to them should be treated on par with their contributions towards the superannuation benefits and necessary exemption should be extended at the time of deduction of tax at source.  Thus, the recovery made out of arrears for the purpose of payment towards Pension Fund to the extent of 2.8 times of the revised Pay for the month of Nov.2007 should be treated as investment towards the superannuation benefits and necessary exemption should be allowed for the purpose of calculation of Income tax.  In other words, the payment made towards Pension Fund on account of the 2^nd Option on Pension should not be treated as taxable at the hands of the Officers.

The Bank Managements, while furnishing Form – 16 as well as the statement of arrears paid to the Officers should make necessary entry to this effect to enable the Officers’ concerned to utilize the same at the time of submission of their returns.

In view of the fact that the tax on the income for the year 2007-2008, 2008-2009, 2009-2010 have already been deducted at source, the Officers’ should also become eligible to apportion this amount as investment in the next three years’ income, since the money contributed is very substantial and they may have already exceeded their entitlement for such investments. 

We therefore, request you to obtain special permission from the CBDT to exempt the entire contribution towards pension fund, from payment of tax. Please therefore look into the matter and take necessary action without further delay.

Thanking you,

Yours faithfully,

Sd/-

(G.D.NADAF)

GENERAL SECRETARY