Why the government of India may “tax on PF savings from 2022” | PF tax

As per the Revenue department of Indians reports for the year, 2018-19 more than 1.23 lakh (HNIs) means high net worth individuals had deposited the amount over ₹62,500 crores into their employees’ provident fund (EPF) accounts.

To go more minutely The largest EPF account holder has a humongous ₹103 crore balance in their account and while the top 20 HNIs have a cumulative balance of ₹825 crores. 

In the financial year, 2019-20 amongst the active and the  estimated 4.5 crore EPF accounts, around 0.27% members were contributing  around ₹5.92 crores from these huge amounts they were earning over ₹50 lakh a year as ‘tax-free assured interest,

This clearly shows the way for taxation for the government, so the present governments of India want to levy capital gains tax on this income from these tax exempted and safe accounts from the next financial year.

But it affordable and easy tax source for the government comes with some challenges too, let us discuss some challenges one by one :

At the present scenario EPFO has 24.77 crore members with EPF accounts, amongst the 14.36 crore members are provided with the (UANs) means the Unique Account Numbers and About the whooping of 5 crores of these members are the active contributors into the EPF accounts in the financial year 2019-20. 

As per the government’s recommendations of creating two separate accounts for taxations from the PF accounts complete technology up-gradation is required, now through technology up-gradation isn’t an issue for India as we are a leading tech industry in the world. There are some other issues too like Deducting tax at source would require the EPFO or trustees of individual PFs to issue tax deduction certificates or the IT Form 26 AS for all such members who will have to pay or aid the taxes and this work involves the individual scrutiny and manual paperwork. 

This huge work for an organization like EPFO who is handling around the country’s largest retirement fund manager with around ₹15 lakh crore of assets under management isn’t going to be a cakewalk or one-day physical task.

What is the share of contribution in EPF accounts for employees and employers?

The proportion of contribution is 12% of basic pay and dearness allowance by the employer and another 12% amount which is approximately equivalent to it is deducted as the employee’s contribution to their employee work for their organization.

These contributions and cuts are compulsory for any organization who is having 20 or above works and with around 15,000 rs as monthly salaries to these employees.

What does the EPF accounts means the employee provident fund accounts?

EPF is a special care account that shows the welfare state system of the government. The state takes care of their citizens by managing their monthly deducted small amount of money and returning them to the same individuals when they are about to retire or having the age of 58 and above.

What are the taxation plans by the government?

A new Rule 9D has been added For the calculation of taxable interest relating to contribution in a provident fund or recognized provident fund, exceeding the specified limit. After the implementation of The new rule requires all Provident Fund accounts to be split into separate accounts – the first with the taxable contribution and interest earned on that component, and another with the non-taxable contribution which shall include the closing balance of the Provident Fund account as on March 31, 2021, and all fresh non-taxable contributions and interest thereon will be considered for the next financial year.

The creation of two PF accounts responsibility lies with the administrators of the Employee Provident  Fund, General Provident Fund and company-managed Provident Fund trusts. So now the customers need to follow up with the EPFO about any formalities that may arise to bifurcate EPF accounts. If Any of your employers manages your Provident Fund in-house through an exempt trust, look out for similar missives or updates from its trustees or your HR/Accounts Departments about the next steps they plan to take in the account bifurcation issue.

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