21 July 2022
While Filling ITR 2 for AY 2022-2023, in Income From Other Sources schedule, there is section to be filled for Income Taxed at Special Rates. This section includes the field "Accumulated balance of recognized provident fund taxable u/s 111".
What is this section about, who is it for and how to fill this section. It would be very helpful if the same could be demonstrated by taking an example.
10 July 2024
The section you're referring to in ITR 2 for AY 2022-2023 regarding "Accumulated balance of recognized provident fund taxable u/s 111" deals with the tax treatment of accumulated balances in recognized provident funds under Section 111 of the Income Tax Act, 1961. Here's an explanation of what this entails:
### Understanding Section 111:
**Recognized Provident Fund (RPF)**: This refers to a provident fund that meets certain criteria and is recognized by the Commissioner of Income Tax under the Income Tax Act.
**Taxability under Section 111**: Section 111 of the Income Tax Act pertains to the tax treatment of accumulated balances in recognized provident funds. It states that if an employee receives a lump sum payment from a recognized provident fund and certain conditions are met (like the employee not having rendered continuous service of five years or more), the entire amount or a part of it may be taxable.
### How to Fill the Section in ITR 2:
1. **Accumulated Balance**: This refers to the total amount received from the recognized provident fund during the financial year.
2. **Taxable Amount**: The taxable portion depends on the conditions specified under Section 111. Generally, if the conditions for tax exemption (like minimum service period of five years) are not met, the entire amount received may be taxable. If some conditions are met partially, only a part of the amount might be taxable.
### Example Scenario:
Let's consider an example to illustrate this:
- Mr. X has been a member of a recognized provident fund for 4 years. - During the financial year, he received a lump sum amount of Rs. 6,00,000 from the provident fund. - According to the rules of the provident fund and Section 111, since Mr. X has not completed 5 years of continuous service, the entire amount of Rs. 6,00,000 is taxable.
### How to Report in ITR 2:
1. **Income from Other Sources Schedule**: In ITR 2, go to the Income from Other Sources schedule.
2. **Income Taxed at Special Rates**: Under this section, enter the amount of the accumulated balance of recognized provident fund taxable u/s 111.
- In our example, you would enter Rs. 6,00,000 in the field provided.
3. **Verification and Calculation**: The ITR 2 form will automatically calculate the tax payable on this income based on your total income and applicable tax rates.
### Final Steps:
- Ensure that you accurately enter the taxable amount from your recognized provident fund under the specified section. - Verify all details before submitting your ITR to avoid errors or discrepancies.
This section is crucial as it ensures that income from recognized provident funds, which may be taxable under Section 111, is properly reported and taxed as per the provisions of the Income Tax Act. If you have specific concerns or complex scenarios, consulting with a tax advisor or chartered accountant would be advisable for precise guidance tailored to your situation.
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