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CA Final · Direct Tax Laws & International Taxation · Miscellaneous Provisions

Rohan Textiles Ltd.'s employee, Mr. Arvind, resigned after 3 years of service in a recognised provident fund. Because the conditions for exemption of the accumulated balance (rule 8 of Part A of the Fourth Schedule) are not satisfied, the balance is includible in his total income. The trustees of the Employees' Provident Funds Scheme, 1952 pay him an accumulated balance of Rs. 4,80,000 in a single payment. What tax must be deducted at source under section 192A?

TDS of Rs. 48,000 must be deducted. Where the accumulated provident fund balance is taxable because rule 8 conditions are not met, section 192A requires deduction at 10%, and the payment of Rs. 4,80,000 is above the Rs. 50,000 threshold, so 10% of it is deducted.

  1. ARs. 48,000, being 10% of the paymentCorrect
  2. BRs. 24,000, being 5% of the payment
  3. CNil, since the payment is of a provident fund
  4. DRs. 96,000, being 20% of the payment

Explanation

Section 192A requires deduction at the rate of ten per cent when the accumulated balance is includible in total income owing to rule 8 not being applicable. The payment of Rs. 4,80,000 exceeds the Rs. 50,000 threshold, so TDS = 10% x 4,80,000 = Rs. 48,000. Nil TDS would apply only if the payment were below Rs. 50,000.

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