Scenario Analysis: Employee NPS Contributions
Please consider a scenario where an employee joins the firm on 01-04-2010. The employer does not demand NPS payments until 31-03-2012, as employees on probation were not required to remit the PF as per the old scheme. However, the employer starts deducting NPS from 01-04-2012 and demands the payment of arrears from 01-04-2010. The employee remits the arrears on 01-04-2012, with equal contributions made by the employer.
Contribution Towards NPS: FY 2012-2013 (Imaginary Figures)
- Employee's (10% of Basic + DA) = 40,000/-
- Employer's (10% of Basic + DA) = 40,000/-
Arrears in NPS from 01-04-2010 to 31-03-2012 - Remitted on 01-04-2012
- Employee's = 60,000/-
- Employer's = 60,000/-
Tax Implications
Now, from the tax angle, if we see, the employer's contribution to NPS in FY 2012-2013 (10% Basic + DA) is a part of the taxable income of the employee. Further, the employer's contribution to the arrears in the NPS (contribution from 01-04-2010 to 31-03-2012) is also a taxable portion for the employee since the
From India, Kochi
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Please consider a scenario where an employee joins the firm on 01-04-2010. The employer does not demand NPS payments until 31-03-2012, as employees on probation were not required to remit the PF as per the old scheme. However, the employer starts deducting NPS from 01-04-2012 and demands the payment of arrears from 01-04-2010. The employee remits the arrears on 01-04-2012, with equal contributions made by the employer.
Contribution Towards NPS: FY 2012-2013 (Imaginary Figures)
- Employee's (10% of Basic + DA) = 40,000/-
- Employer's (10% of Basic + DA) = 40,000/-
Arrears in NPS from 01-04-2010 to 31-03-2012 - Remitted on 01-04-2012
- Employee's = 60,000/-
- Employer's = 60,000/-
Tax Implications
Now, from the tax angle, if we see, the employer's contribution to NPS in FY 2012-2013 (10% Basic + DA) is a part of the taxable income of the employee. Further, the employer's contribution to the arrears in the NPS (contribution from 01-04-2010 to 31-03-2012) is also a taxable portion for the employee since the
From India, Kochi
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The amount was remitted in the FY 2012-13.
Taxable Income Calculation
Taxable Income = Income of the employee + Employer's contribution (10% of Basic + DA) + Employer's contribution of arrears.
- Now, if we see, the employee's contribution of (10% of Basic + DA) = ₹40,000 can be included in (Sec 80CCD (1)). However, the arrears contributed by the employee (Employee's = ₹60,000) cannot be included under (Sec 80CCD (1)) as only a maximum of 10% of Basic + DA can be allowed in (Sec 80CCD (1)) and it has already been deducted.
- Further, the taxable component of the salary of the employee includes the Employer's contribution (10% of Basic + DA) = ₹40,000 as well as arrears contributed by the employer (₹6,000). However, the deduction permissible under Sec 80CCD(2) is up to 10% of Basic + DA received during the year, and hence the arrears contributed by the employer cannot be included.
Summary
1. The arrears contributed by the employee cannot be claimed as a deduction (in the overall limit of ₹1 Lakh).
2. The arrears contributed by the employer are taxable for the employee.
Is there a way out, or is there anything left out in the above calculations?
From India, Kochi
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Taxable Income Calculation
Taxable Income = Income of the employee + Employer's contribution (10% of Basic + DA) + Employer's contribution of arrears.
- Now, if we see, the employee's contribution of (10% of Basic + DA) = ₹40,000 can be included in (Sec 80CCD (1)). However, the arrears contributed by the employee (Employee's = ₹60,000) cannot be included under (Sec 80CCD (1)) as only a maximum of 10% of Basic + DA can be allowed in (Sec 80CCD (1)) and it has already been deducted.
- Further, the taxable component of the salary of the employee includes the Employer's contribution (10% of Basic + DA) = ₹40,000 as well as arrears contributed by the employer (₹6,000). However, the deduction permissible under Sec 80CCD(2) is up to 10% of Basic + DA received during the year, and hence the arrears contributed by the employer cannot be included.
Summary
1. The arrears contributed by the employee cannot be claimed as a deduction (in the overall limit of ₹1 Lakh).
2. The arrears contributed by the employer are taxable for the employee.
Is there a way out, or is there anything left out in the above calculations?
From India, Kochi
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1. The taxation implications of NPS arrears can indeed be complex and require careful consideration. In the scenario described, it is crucial to note that the arrears contributed by both the employee and the employer have specific tax implications.
2. The employee's contribution towards NPS arrears, even though remitted in FY 2012-13, cannot be claimed as a deduction under Sec 80CCD (1) since it exceeds the permissible limit of 10% of Basic + DA. On the other hand, the employer's contribution towards arrears is considered a part of the taxable income for the employee.
3. Regarding the tax calculation, the employee's contribution of Rs. 40,000 can be included under Sec 80CCD (1), while the arrears of Rs. 60,000 cannot. Similarly, the employer's contribution of Rs. 40,000 and arrears of Rs. 60,000 are taxable components for the employee, with limitations on deductions under Sec 80CCD (2).
4. To summarize, the arrears contributed by the employee cannot be claimed as a deduction within the overall limit, and the arrears contributed by the employer are taxable. It is essential to adhere to the specific provisions of the Income Tax Act and NPS regulations to ensure compliance and accurate tax treatment in such cases.
From India, Gurugram
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1122. The employee's contribution towards NPS arrears, even though remitted in FY 2012-13, cannot be claimed as a deduction under Sec 80CCD (1) since it exceeds the permissible limit of 10% of Basic + DA. On the other hand, the employer's contribution towards arrears is considered a part of the taxable income for the employee.
3. Regarding the tax calculation, the employee's contribution of Rs. 40,000 can be included under Sec 80CCD (1), while the arrears of Rs. 60,000 cannot. Similarly, the employer's contribution of Rs. 40,000 and arrears of Rs. 60,000 are taxable components for the employee, with limitations on deductions under Sec 80CCD (2).
4. To summarize, the arrears contributed by the employee cannot be claimed as a deduction within the overall limit, and the arrears contributed by the employer are taxable. It is essential to adhere to the specific provisions of the Income Tax Act and NPS regulations to ensure compliance and accurate tax treatment in such cases.
From India, Gurugram
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