Tax on accumulated balance of recognised provident fund
[Section-191 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income, owing to the provisions of paragraph 8 of Part A of Schedule XI not being applicable, the Assessing Officer shall calculate the total of the various sums of tax as per the provisions of paragraph 9 thereof.
FAQs on Section 191 of Income Tax Act 2025
Q1. What does Section 191 deal with?
Section 191 provides for the tax treatment of the accumulated balance in a recognised provident fund when the exemption under paragraph 8 of Part A of Schedule XI does not apply.
Q2. When is the accumulated balance of a recognised provident fund taxable?
The balance becomes taxable when the conditions for exemption under paragraph 8 of Part A of Schedule XI are not fulfilled—typically due to non-completion of the minimum required service period or due to early withdrawal without valid reasons.
Q3. Who determines the tax liability on such accumulated balance?
The Assessing Officer is responsible for determining the total tax liability as per paragraph 9 of Part A of Schedule XI.
Q4. What is paragraph 8 of Part A of Schedule XI?
Paragraph 8 outlines the conditions under which the accumulated balance from a recognised provident fund is exempt from tax—for example, withdrawal after 5 years of continuous service or in specific exempted circumstances like disability or company closure.
Q5. What does paragraph 9 of Part A of Schedule XI specify?
Paragraph 9 prescribes the method for calculating the tax on the accumulated balance when paragraph 8 conditions are not met, essentially treating the employer’s contributions and interest thereon as taxable income in the relevant past assessment years.
Q6. Will the entire accumulated balance be taxed?
No, only the portion attributable to employer’s contributions and interest thereon that were earlier exempt becomes taxable retrospectively.
Q7. In which year is the tax payable?
The tax is payable in the year in which the accumulated balance is withdrawn or becomes payable to the employee.
Q8. Is interest on employee’s own contribution also taxed?
Generally, the interest on the employee’s own contribution is not taxed unless the rate of interest exceeds the statutory limit specified under Schedule XI.
Q9. What action should an employee take if they receive such a taxable balance?
The employee must report the received amount as income in the relevant assessment year and ensure that the correct tax is paid as determined by the Assessing Officer.
Q10. Is there any relief or exemption available if the withdrawal was due to unforeseen circumstances?
Yes, paragraph 8 provides for certain exceptions—such as termination due to ill health, employer’s business closure, or other reasons beyond the employee’s control—which may preserve the exemption.
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