Tax Relief on contributions to Public Provident Fund (PPF) Account in case of premature closure of the Account:-

A point was raised by the State Bank of India Main Branch Bombay as to whether a partial withdrawal in excess of the prescribed limits or premature closure agreed to by the competent authority would have any effect on the relief of income tax admissible under Section 10(11) of the Income Tax Act and already availed of by the depositor on the subscription made in the relevant assessment year(s) and whether the relief so allowed could be withdrawn or reviewed in the event of a partial withdrawal or premature closure. The matter was referred to Central Board of Direct Taxes and the clarification now received from them in this regard is reproduced below for information and future guidance.

“Section 10(11) states that any payment from Provident Fund to which the Provident Fund Act, 1925 applies or from any other Provident Fund set up by the Central Government and notified by it in this behalf in the official gazette is not to be included in computing the total income of a person in any previous year.

The Section does not put any condition/restriction regarding the partial withdrawal of the account. If it is a payment in accordance with the Provident Fund Act, such payment is to be excluded from the total income of the I.T. Act. Hence any partial withdrawal in excess of the prescribed limit or premature closure agreed to by the competent authority will not have any adverse effect on the relief under the Income-Tax Act in term of Section 10(11) if the payment is in accordance with the rules of Provident Fund Act.”

(Compiled by Taxguru Team)

(Republished with Amendments)

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March 2024