Taxability of Scrap Sale

This query is : Resolved

CA.Tarun Maheshwari (Querist)
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07 July 2008 Hi. I want to know whether the scrap resulted out of manufacturing process and sold to kabadiwalas is taxable as income under Income Tax. My assessee is claiming Deduction u/s 80IC. Whether Scrap sale can be claimed as income from manufacturing business. Pls send the answer asap

CA BHARATH KUMAR

CA BHARATH KUMAR (Expert)
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11 July 2012 PF withdrawal is not taxable only if a person has been in continuos service for 5 years. (Just for the sake of explaining, in your case if you have had PF balance from your previous employer then such balance should have been transferred from your previous employer to your current employer and the period of service of both employers would need to be aggregated to check if you have completed 5 years of continuous service).

The general perception that whatever is the balance with the Provident Fund is non taxable at the time of withdrawal. However , it is not entirely correct. There are circumstances when even the savings in provident fund (accumulated balance ) becomes taxable.

Section 10(12) of the I T Act exempts all payments from any provident fund set up by Central Government or any provident fund on which Provident Fund Act applies. This means , if you are employees of Central government or State Government or of any employer whose fund are managed by Provident Fund authorities , any payment from such provident fund is total exempt .

Wherever, employer maintains PF of the employees through a trust and gets recognition from Commissioner of Income Tax for such trust, the employee needs to be careful regarding the taxability of accumulated balance because the payments from such recognised PF is taxable in certain circumstances. Section 10(12) of the I T Act gives exemption to payment from recognised provident fund as under

(12) the accumulated balance due and becoming payable to an employee participating in a recognised PF, to the extent provided in rule 8 of Part A of the Fourth Schedule ;
Rule 8 of Part A of the Fourth Schedule of I T Act provides the circumstances under which the accumulated balance payable to an employee is exempt from tax. If employee fulfills any of following conditions, payment from recognised provident fund is tax free :

(i) if he has rendered continuous service with his employer for a period of five years or more, or (ii) if, though he has not rendered such continuous service, the service has been terminated by reason of the employees ill-health, or by the contraction or discontinuance of the employers business or other cause beyond the control of the employee, or
(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised PF maintained by such other employer.