The Central Board of Direct Taxes and Customs (CBDT) on July 28, 2023, issued Clarification in respect of Rule 114F (5) of the Income Tax Rules, 1962
The following has been clarified namely: -
• it has clarified that a Treaty Qualified Retirement Fund shall not be treated as a non-reporting financial institution for the purposes of maintaining and reporting information in respect of any reportable account other than a U.S. reportable account defined in clause (11) of Rule 114F of the Rules.
• It has clarified that a non-public fund of the armed forces shall not be treated as a financial institution in case of any reportable account other than a U.S. reportable account defined under clause (11) of Rule 114F of the Rules.
• It is clarified for the purpose of reporting under the CRS in respect of accounts other than U.S. reportable accounts:
a. Gratuity funds which are only managed by either individuals or entities that are not financial institutions, are not capable of being classified as a managed Investment Entity 3 under sub-clause (c) (B) of the Explanation to clause (3) of Rule 114F of the Rules.
b. In cases where a gratuity fund is a managed investment entity under subclause (c) (B) of clause (3) of Rule 114F of the Rules, such gratuity fund will qualify as a Financial Institution and a Reporting Financial Institution for reporting purposes under the CRS.
c. Generally, accounts held in gratuity funds will be treated as excluded accounts if they qualify as retirement or pension accounts as per clause h(i) of Explanation to clause 1 of Rule 114F, subject to satisfaction of all the conditions laid out in that clause including, inter alia, the monetary limits in respect of contributions to the said funds.
d. accounts held in gratuity funds may also involve withdrawals conditioned on meeting specific criteria in circumstances beyond death, disability, or retirement (e.g., gratuity funds that permit withdrawals upon resignation after a certain period of continuous service). Such accounts can be treated as excluded accounts under clause h(ii) of Explanation to Clause 1 of Rule 114F subject to satisfaction of all the conditions laid out in that clause including, inter alia, annual monetary limits in respect to contributions to the said funds.
e. in the event that a gratuity fund is a reporting financial institution, relevant accounts held with such a gratuity fund fulfilling the conditions specified in clause (h)(i) or h(ii) of the Explanation to clause 1 of Rule 114F of the Rules, will be treated as excluded accounts.
[Notification No. F. No. 500/34/2019-FT&TR-III(Pt.)/1]
