SCHEDULES XI TO XII — PROVIDENT FUNDS AND AUDIT

SCHEDULE XI — Provident Funds, Superannuation Funds, Gratuity Funds

Statutory anchor: Section 2(91)

Schedule XI is divided into five Parts:

• Part A — Recognised Provident Fund (RPF).
• Part B — Approved Superannuation Fund (ASF).
• Part C — Approved Gratuity Fund.
• Part D — National Pension System Trust / similar.
• Part E — Procedural / definitional / transitional.

Part A — Recognised Provident Fund (RPF)

RPF — Recognition, accretion, transferred balance, withdrawal

SCHEDULE TEXT

Part A of Schedule XI sets out the complete RPF regime: (i) Conditions for recognition by the CIT (specified rules of the fund — minimum employee participation, employer contribution at minimum 12% of salary, vesting, refund-on-cessation rules, audit, banking-channel transactions); (ii) Annual accretion to balance — interest credited at the rate notified by the Central Government from time to time (currently 8.25% for FY 2024-25). Excess interest above the notified rate is taxable in the employee's hands (Schedule II / Form 16);

Paragraph 6: Annual accretion threshold — when employee's own contribution (post-FA 2021) exceeds Rs 2.5 lakh in the tax year (Rs 5 lakh where employer contributes nothing), interest on the excess is taxable annual accretion under section 17(1)(i) read with Rule 16;

Paragraph 11: Transferred balance from URPF / unrecognised PF at the time of recognition — the portion attributable to employer contribution + interest thereon is taxable in the employee's hands as deemed receipt;

Withdrawal regime: (a) RPF withdrawal after 5 years of continuous service — exempt; (b) within 5 years — exemption only if cessation due to ill-health / permanent disability / business closure / employer at fault; (c) otherwise — taxable as salary in withdrawing employee's hands.

OLD ACT (1961) CORRESPONDENCE

Part A of Fourth Schedule of the 1961 Act — RPF Rules. Rules 1-15 of Part A. Section 10(11) / (12) read with Part A — exempt PF withdrawal after 5 years.

COMMENTARY

Schedule XI Part A is the operative architecture for RPF in India. Every employer running a recognised PF (in-house Trust or transferring contributions to EPFO) must comply with the recognition conditions and the annual accretion / transferred balance rules.

Threshold analysis (FA 2021 amendments preserved). Rs 2.5 lakh annual employee contribution cap — interest above this taxable. The cap rises to Rs 5 lakh where the employer makes no contribution (typical of statutory provident funds — GPF for Government). For HNI executives whose annual employee contribution exceeds Rs 2.5 lakh, the interest on the excess is taxable in the year of accrual (not on withdrawal).

Practitioner workflow. (i) For payroll: monthly deduction at 12% of basic salary; integration with EPFO portal. (ii) For HR / Finance: track each employee's annual contribution; if > Rs 2.5 lakh, separately compute interest on excess for Form 16 reporting. (iii) For employees: non-tax-deductible contributions to RPF should be evaluated — voluntary PF (VPF) above the threshold may not be tax-efficient. (iv) For transfer of balance from URPF to RPF: ensure documentation; the deemed receipt under Para 11 is taxable in the year of recognition.

Continuity of jurisprudence. CIT v. L. W. Russell (1964) 53 ITR 91 (SC) — perquisite from employment; CIT v. Mehul Cera Ltd. (2009) 308 ITR 256 (Guj.) — RPF compliance defaults; PF jurisprudence carries forward unchanged.

Part B — Approved Superannuation Fund (ASF)

ASF — Recognition, contribution, withdrawal

SCHEDULE TEXT

Part B sets out: (i) Conditions for approval by the CIT — fund constituted as a trust with definite corpus, segregated from employer's funds, audit, EPFO oversight; (ii) Employer contribution — deductible under section 29 of the Act subject to Rs 1.5 lakh per employee per year cap (under Schedule XI Part B Rule); (iii) Employee contribution — deductible under section 116 (formerly s. 80C) within the Rs 1.5 lakh aggregate cap; (iv) Annual accretion — exempt at fund level under Schedule II / VII; (v) Withdrawal regime: (a) on retirement / death — partly commuted as lump-sum (1/3 if pension also payable; full if no pension) — exempt subject to limits; (b) Pre-retirement withdrawal — taxable as salary.

OLD ACT (1961) CORRESPONDENCE

Part B of Fourth Schedule of the 1961 Act. Section 36(1)(iv) — employer contribution. Section 80CCC (now s. 117) — employee contribution to pension fund.

COMMENTARY

Schedule XI Part B governs the company-funded retirement-cum-pension scheme — typical of large employers (banks / corporates). Distinguishes from Part A RPF (mandatory under EPF Act) and Part D NPS (statutory pension scheme).

Practitioner takeaway. (i) For multi-employer / large employers: maintain separate audit of ASF Trust; coordinate with Schedule XI Part B for tax compliance. (ii) For senior executives near retirement: structure commuted vs annuitised portion to optimise tax. (iii) For HR designing executive benefit plans: ASF + RPF + NPS combination — the post-FA 2020 Rs 7.5 lakh aggregate employer contribution cap (perquisite under s. 17(2)(g)/(h)) is an important constraint.

Part C — Approved Gratuity Fund

Gratuity Fund — Recognition, employer contribution

SCHEDULE TEXT

Part C sets out: (i) Conditions for approval — constitution as a trust, employer contribution rules, segregation; (ii) Employer contribution — deductible under section 29 of the Act, subject to actuarial valuation; (iii) Annual accretion — exempt at fund level; (iv) Disbursement — at retirement / death / cessation — falls within the s. 19 [Table Sl. No. 3-6] gratuity exemption regime.

OLD ACT (1961) CORRESPONDENCE

Part C of Fourth Schedule of the 1961 Act. Section 36(1)(v) — employer contribution to approved gratuity fund.

COMMENTARY

Schedule XI Part C is the framework for in-house funded gratuity schemes. Most large employers fund gratuity via LIC group gratuity policy or in-house Trust. The actuarial valuation requirement (annual) determines the deductible contribution; under-funded contributions are deductible only on actual payment.

Practitioner takeaway. (i) For employers: annual actuarial valuation by qualified actuary; deductible contribution per actuarial certificate. (ii) Coordination with section 19 [gratuity exemption Table] — Rs 20 lakh cap applies at employee level; Schedule XI Part C governs employer level.

Part D — National Pension System Trust

NPS Trust — Tax exemption

SCHEDULE TEXT

Part D provides exemption to the NPS Trust at trust level. NPS contributions — by employer + employee — flow through PFRDA-regulated NPS Trust which is exempt from tax on all income (interest, capital gains, dividends). At withdrawal, the regime under section 19 [Table Sl. No. 9 — pension commutation] and section 124 (formerly s. 80CCD) governs employee-level taxation.

OLD ACT (1961) CORRESPONDENCE

Section 10(44) of the 1961 Act — NPS Trust exemption.

COMMENTARY

Part D is short — the operative NPS architecture is in section 124 (formerly s. 80CCD) for contributions and in section 19 [Table] for withdrawals. Schedule XI Part D simply provides the trust-level exemption.

Part E — Procedural / Definitional / Transitional

Procedural / definitional / transitional

SCHEDULE TEXT

Part E contains: (i) Recognition / approval procedure — application to CIT, conditions, withdrawal of recognition, appeal; (ii) Definitions — 'salary' for PF purposes, 'employer contribution', 'employee contribution', 'continuous service'; (iii) Transitional — RPF / ASF / Gratuity Fund recognised under old Fourth Schedule continues under Schedule XI without re-approval; (iv) Reporting requirements — annual returns to CIT, audit, books of account.

OLD ACT (1961) CORRESPONDENCE

Part D and Part E of Fourth Schedule of the 1961 Act — Procedural and miscellaneous provisions.

COMMENTARY

Part E is the operative procedural anchor. Practitioner takeaway: existing RPF / ASF / Gratuity Fund recognitions under the old Fourth Schedule continue under Schedule XI through section 536 savings; no fresh approval required. New funds set up after 1-4-2026 must apply under Schedule XI procedures.

SCHEDULE XII — Audit (Section 51)

Audit Report under Section 51 (Prospecting / Mining Business)

SCHEDULE TEXT

[See section 51]

Schedule XII contains two Parts:

Part A — Audit Form 6 (formerly Form 6B) for assessees claiming deduction under section 51 (formerly s. 35E) for prospecting / mining business expenditure.

Part B — Conditions and procedure for audit certification by the Chartered Accountant — including (i) audit conducted as per professional standards; (ii) report identifying eligible expenditure separately from non-eligible; (iii) certification of deduction quantum; (iv) annexure with detailed working.

OLD ACT (1961) CORRESPONDENCE

Section 35E of the 1961 Act read with Rule 6AC and Form 6B.

COMMENTARY

Schedule XII is narrow — applicable only to assessees in the prospecting / mining sector claiming deduction under section 51. The deduction is for expenditure on prospecting / extraction of specified minerals, allowed over 10 years on a 1/10 basis from the year of commercial production.

Practitioner takeaway. (i) For mining / petroleum exploration clients: Form 6 (formerly 6B) audit certification mandatory along with return of income. (ii) Coordinate with Rule 28 of the 2026 Rules. (iii) For Indian companies engaged in offshore exploration (e.g., African / South-East Asian mining ventures), the deduction may apply if the prospecting is for Indian use.

Schedules XI-XII — At a Glance

Practitioner notes

• Schedule XI: existing RPF / ASF / Gratuity recognitions grandfathered under s. 536 savings — no fresh approval needed.
• Para 6 Rs 2.5 lakh / Rs 5 lakh threshold: HR + payroll must compute annual interest on excess for HNI executives; report on Form 16.
• Schedule XI Part B (ASF): integrate with Rs 7.5 lakh aggregate employer-contribution cap under s. 17(2)(g).
• Schedule XI Part C (Gratuity Fund): annual actuarial valuation; deductible contribution per certificate.
• Schedule XII (s. 51): Form 6 audit by CA; mining / prospecting clients only.

— End of Schedules Volume 4 —