New income tax rules notified.
The government has decided to split the existing provident fund (PF) accounts into two separate accounts to enable new ones. tax on pf income Generated from employee contribution over ₹2.5 lakh annually.
The Finance Ministry on Tuesday notified new income tax rules to this effect, but experts say it could prove to be an administrative nightmare for the Employees’ Provident Fund Organization (EPFO) and a few thousand employers who manage their employees’ EPF savings. do at home. .
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“For the purpose of computing taxable interest…, for the taxable contribution and non-taxable contribution made by an individual during the previous year 2021-2022 and all subsequent previous years in separate account within the Provident Fund Account shall be maintained,” in accordance with the Income Tax (25th Amendment) Rules, 2021.
Accordingly, all EPF accounts will have to be divided into a taxable and non-taxable contribution account, including the balance in their closing account as on March 31, 2021, and any contributions made thereafter that will be credited to “taxable contribution account”. are not included” and the annual interest earned on these two components.
24.77 crore accounts
In that context, EPFO had 24.77 crore members with EPF accounts, out of which 14.36 crore members were allotted Unique Account Number (UAN) as on March 31, 2020.
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Of these, about 5 crore members were active contributors to their EPF accounts during 2019-20.
Taxable interest for the year will be calculated as the interest earned during the previous year in the Taxable Contribution Account, where all contributions above ₹ 2.5 lakh in a year will be parked.
The same limit is ₹5 lakh for PF accounts where employers do not contribute, but most EPF accounts by definition usually include matching contributions from employers and employees of 12% of the monthly salary.
Comment | Re-examination of EPF tax rules
Top officials of the Central Board of Direct Taxes had earlier said that taxpayers will have to include taxable PF interest in their total income while filing tax returns, but the new rules suggest that EPFO and PF trusts run by companies should be allowed to deduct tax. may have to do. And remit it from such accounts to the treasury.
A retirement benefits expert said that it is not clear from the notification whether tax is to be deducted from taxable EPF account or added to one’s IT return as suggested earlier.
“Besides the hassle of maintaining two accounts from each member, if tax is to be deducted at source, it would require EPFO to issue Tax Deducted at Source Certificate or Form 26AS for each member from ₹ 21,000 per month To contribute more,” he pointed out. Resultant paperwork aside, implementation can also be a challenge as EPFO accounts are not linked to the Permanent Account Number (PAN) issued by the Income Tax Department.
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Central PF Commissioner Sunil Barthwal did not respond to a request for his comment on the implementation of EPF tax as per the new rules.
In this year’s budget, Finance Minister Nirmala Sitharaman had announced withdrawal of tax exemption on interest income earned in PF accounts arising out of employee contribution of more than Rs 2.5 lakh, arguing that some employees will be eligible for their PF accounts. Contributing a large amount to and getting tax-free. Income
Later, the government changed the limit to add ₹5 lakh for PF accounts where employers did not make any contribution.
This notification removes some ambiguity that arose with the introduction of taxation of interest on PF contributions above ₹2.5 lakh, said Shailesh Kumar, partner, Nangia & Co. LLP, separating taxable and non-taxable contributions to PF. as well as provide some facility for computing the interest tax liability on them.
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