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TRUST MANAGEMENT

1.

What are the provisions related to the recognition of EPF, Superannuation and Gratuity Trust?

2.

What is the Investment Pattern for a PF Trust?

3.

What is the Contribution permitted to employer in Provident Fund Trust?

4.

What is the Contribution Permitted to Employer in case of Superannuation Trust?

5.

What are the TDS. Provisions Applicable on Trusts?

6.

What is the procedure for TAN No. Application?

7.

What is the Premium Paid on the Purchase of Securities?

8.

How is the Physical Verification of Securities carried out?

1. What are the provisions related to the recognition of EPF, Superannuation and
   Gratuity Trust?


These trusts are governed by the provisions of Part 'A', Part 'B' and Part 'C' of the Schedule Fourth of the Income Tax Act, 1961. Application for recognition has to be filed with the Commissioner of Income Tax having jurisdiction over the assessment of employer of the Provident Fund Trust. Application would be filed with 2 copies of Trust Deed & Rules with a checklist covering specific issues relevant for the recognition of trust.

Order of recognition in case of provident fund trust under rule 78 of the Income Tax Rules, 1962 would take effect from the last day of the month in which the application for recognition is received by the Income-Tax authorities concerned, unless at the request of the employer, the last day of any later month in the same financial year is specified. Although there are provisions for condonation of delay in filing the application for recognition in rule 78 itself, but such condonation can be maximum w.e.f. 1st April of the financial year in which application filed.

Order of recognition in case of superannuation or gratuity fund can be effective from any back date also, in case trust was there. Rule 78 specifying date of order is applicable for provident fund trusts only and not for the superannuation and gratuity trusts.

2. What is the Investment Pattern for a PF Trust?

These trusts are governed by the provisions of Part 'A', Part 'B' and Part 'C' of the Schedule Fourth of the Income Tax Act, 1961. Application for recognition has to be filed with the Commissioner of Income Tax having jurisdiction over the assessment of employer of the Provident Fund Trust. Application would be filed with 2 copies of Trust Deed & Rules with a checklist covering specific issues relevant for the recognition of trust.

3. What is the Contribution permitted to employer in Provident Fund Trust?

As per the provisions of Rule 6 of the Part 'A' of the Fourth Schedule of the Income-Tax Act, 1961 employer can contribute up to 12% of the eligible amount, any contribution exceeding this 12% would be taxable under the head salaries.

4. What is the Contribution Permitted to Employer in case of Superannuation Trust?

Contribution permitted to superannuation trust is 27% minus contribution made to provident fund trust as per the provisions of rule 88 of the Income Tax Rules, 1962.

5. What are the TDS. Provisions Applicable on Trusts? 

TDS. on settlement of Provident Fund Trust:

As per the provisions of rule 8, 9 and 10 of The Part 'A' of the Fourth Schedule of the Income-Tax Act, 1961 in following cases no TDS. would be there in following cases (refer rule 8) :

i)

If employee 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 termin- ated by reason of the employee's ill-health, or by the contraction or discontinuance of the employer's 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 recognized provident fund maintained by such other employer, or

iv)

If, the accumulated balance due and becoming payable to an employee participating in a recognized fund maintained by his employer includes any amount transferred from his individual account in any other recognized provident fund or funds maintained by his former employer or employers, then in computing the period of continuous service for the purposes of clause i) or ii) given above the period or periods for which such employee rendered continuous service under his former employer or employers aforesaid shall be included.


If the case of settlement falls in any of the above-mentioned categories, no T.D.S. would be there, otherwise T.D.S. would be calculated in the manner given below:

i)

Add the amount of employer's contribution, interest on employer's contribution and interest on employee's contribution for the relevant financial years to the other incomes of the employee;

ii)

Calculate the tax liability for all the years involved by applying the relevant slab for concerned financial year; 

iii)

Calculate the difference between the tax liability before inclusion of amount given in i) above and tax liability calculated at ii) above;

iv)

Revert back the amount of rebate taken by employee on his own contribution under section 88. In this regard following criteria has to be followed :

 

a)

Amount of revert back would be lower of tax liability or eligible rebate under section 88 on employee's on contribution;

b)

In case employee have rebate under section 88 from investments other than EPF also in that case, if tax can be covered by investments other than EPF than in that case first of all we would set the amount of other investment and then if any tax liability is still pending then in that case EPF would be absorbed.

v)

Apply surcharge applicable for financial year in which settlement made on the amounts given at column no. iii). & iv). given above.


T.D.S. Provisions Applicable on Superannuation Trust:
As per the provisions of rule 6 of The Part 'A' of the Fourth Schedule of the Income-Tax Act, 1961, T.D.S. has to be calculated at the time of settlement except in the following cases:

i)

On the death of the beneficiary; or

ii)

To an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement;


Tax would be deducted at average rate of tax. Average rate of tax as per section 2(10) means the rate arrived at by dividing the amount of Income Tax for last three years by the income of those last three years. After calculating average of tax, it has to be applied over the amount of settlement with concerned financial year's surcharge.

On the above deductions of T.D.S. trust has to issue a certificate of deduction in form no. 16 up to 30th of April of the following financial year and an annual return in form no. 24 & 22 has to be filed up to 31st of May of the following financial in case of provident fund trust & superannuation trust respectively.

6. What is the procedure for TAN No. Application?

Every provident fund trust & superannuation trust has to apply for TAN No. within the following month of the month in which deduction was made in form no. 49B in duplicate to be filed in Mayur Bhawan. Otherwise after expiry of period given above a penalty of Rs. 100/- is chargeable per day on delay.

7. What is the Premium Paid on the Purchase of Securities?

Premium paid at the time of purchase of securities should be written off over the period of time. To avoid complexity of calculation it is suggested that the same should be written off over the financial years involve and fraction of financial year would be taken as full year for the purposes of written off. A Separate account namely premium paid on securities should be created to carry the amount of premium.  

8. How is the Physical Verification of Securities carried out?

At the year-end physical of securities has to be carried out to ensure the safe custody/ ownership of the securities. To ensure the custody of securities with the trust following steps are essential:

i)

Verification of securities lying with the trustees with list of investments;

ii)

Obtaining bank certificate/depository if securities are lying with custodians.

iii)

Make a note for the securities not falling in any of the above-mentioned categories.

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