Forums
Back
Sec. 40(a)(iv)
Direct Taxation
As per â?? Sec. 40(a)(iv) Payment from provident fund or any other fund without deducting tax. If the employee resigns from the firm after 5 years, then there is the P.F amount is wholly exempt from tax. In that case, TDS deduction is mandatory u/s 192 A?. And preparing financials every year. Assessee can add the PF amount paid as an expense yearly basis, how it disallowed u/s Sec. 40(a)(iv) earlier. And the tax deduction is done at the time of resigning/retiring?
Answers (21)
Best Answer
Thread Starter
Balamurali Unnithan M SThat "amount" Means? every month deducted amount is paid at the time of resigning/retiring? Every year it's claimed by the employer/assessee, a lump sum of the amount is paid at the time of resigning. So how can disallow the yearly claimed expense of the employer?
Both of you are getting confused here. Murali I want you to first understand that when an organisation joins a fund for the benefit of its employees, as per regulations the organisation has to comply with rules which requires it to maintain adequate records of the employees such as PAN, date of joining, attendance, completed years of service, etc. Such records would enable the trustee of the provident fund to deduct approprate amount of tds. By maintaining proper records the organisation has done its part of legal obligation. Section 40(a)(iv) talks about that. You dont have to see it like debitting expense every year and disallowing it at the time of retirement. The incidence would occur right at the beginning, when employee joins the organisation. For the organisation to claim expenses, it has to maintain records. If records are not maintained then section 40 would come into play.
Yoga Vishnu
TDS on PF will be deducted only if it is withdrawn before 5 years of service.
Sir doubt is only in that case disallowance is applied? Sir, are you understand my query?
Thread Starter
Balamurali Unnithan M SSir doubt is only in that case disallowance is applied? Sir, are you understand my query?
yes. Only in that case, disallowance is applied
Thread Starter
Balamurali Unnithan M SBut we have taken as an expense in every year?
Expense will be there every year for the employer. TDS will be deducted only when the employee withdraws the money from the fund within 5 years of service. If employer does not deduct TDS at the time of withdrawal, that amount is disallowed. For more clarification, kindly listen to the classes in detail,
That "amount" Means? every month deducted amount is paid at the time of resigning/retiring? Every year it's claimed by the employer/assessee, a lump sum of the amount is paid at the time of resigning. So how can disallow the yearly claimed expense of the employer?
veerendar singh
Both of you are getting confused here. Murali I want you to first understand that when an organisation joins a fund for the benefit of its employees, as per regulations the organisation has to comply with rules which requires it to maintain adequate records of the employees such as PAN, date of joining, attendance, completed years of service, etc. Such records would enable the trustee of the provident fund to deduct approprate amount of tds. By maintaining proper records the organisation has done its part of legal obligation. Section 40(a)(iv) talks about that. You dont have to see it like debitting expense every year and disallowing it at the time of retirement. The incidence would occur right at the beginning, when employee joins the organisation. For the organisation to claim expenses, it has to maintain records. If records are not maintained then section 40 would come into play.
I agree with you veerendar . Section 40 (a) (iv) says that assessee must make effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head "Salaries"
Thread Starter
Balamurali Unnithan M SThank you both of you, I'm also confused. but thank you very much both of you. More appreciatable the section is explained with an example. My doubt is when disallowed, what amount is disallowed.?
Its clearly explained in the video when it would be disallowed. You need to complete salaries chapter as well to understand this. Employer must make arrangement to ensure that when an employee is withdrawing accumulated balance in pf which is chargeable to tax, appropriate tax is deducted at source. Generally this is taken care by the EPF office or by the trust which has been created. If this is done, there is no disallowance. If an employee withdraws within 3 years, it will be the duty of the trust/fund to deduct tax. This can be proven by way of the arragement/deed between employer and trust. In case of EPFO, the authorities will take care of TDS.
CA Suraj Lakhotia Admin
Its clearly explained in the video when it would be disallowed. You need to complete salaries chapter as well to understand this. Employer must make arrangement to ensure that when an employee is withdrawing accumulated balance in pf which is chargeable to tax, appropriate tax is deducted at source. Generally this is taken care by the EPF office or by the trust which has been created. If this is done, there is no disallowance. If an employee withdraws within 3 years, it will be the duty of the trust/fund to deduct tax. This can be proven by way of the arragement/deed between employer and trust. In case of EPFO, the authorities will take care of TDS.
Within 3 years or 5 years? U/s 192 A states that PF amount exceeds Rs.50000,10% Tax applicable. There is no condition there, within 5 years or more!
Thread Starter
Balamurali Unnithan M SWithin 3 years or 5 years? U/s 192 A states that PF amount exceeds Rs.50000,10% Tax applicable. There is no condition there, within 5 years or more!
192A - if amount withdrawn (which is taxable) is 50,000 or more - TDS required. So if amount withdrawn is less than 50,000 no TDS Amount taxable - if withdrawn before continuous service of 5 years. (As per provisions of Salary) 3 years above - is for example purpose.
veerendar singh
I did not intend to demean the moderator. I apologise if my comments have hurt him. I was just concerned for the fellow student who was trying so hard to explain and rexplain his query but in vail could not get an effective and specific answer.
Thank you very much sir for your concern. I'm trying to cover the section with the help of the text also. Yoga Vishnu Sir is also helping for the past so many months, he gives the fastest response. I'm also thankful to him and the Indigo Learn era. I'm expecting satisfactory answers from you also sir.
CA Suraj Lakhotia Admin
192A - if amount withdrawn (which is taxable) is 50,000 or more - TDS required. So if amount withdrawn is less than 50,000 no TDS Amount taxable - if withdrawn before continuous service of 5 years. (As per provisions of Salary) 3 years above - is for example purpose.
Fine Sir. Withdrawn before 5 years, amount less than 50000, TDS applicable?
Your Reply