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Monday, April 19, 2021
Home Business ‘Interest on PF contributions of over ₹2.5 lakh must in I-T filing’

‘Interest on PF contributions of over ₹2.5 lakh must in I-T filing’

CBDT’s Mody says curiosity calculable on annual foundation, needs to be taxed that yr

Employees making contributions of greater than ₹2.5 lakh a yr into their Provident Fund (PF) accounts, should embrace the curiosity attributable to the investments exceeding ₹2.5 lakh in their annual revenue beginning 2021-22 and file tax returns accordingly, Central Board of Direct Taxes (CBDT) chief PC Mody informed The Hindu.

The Union Budget has proposed tax on curiosity revenue on PF contributions exceeding ₹2.5 lakh a yr. Finance Minister Nirmala Sitharaman mentioned on Monday that some individuals had been investing as a lot as ₹1 crore every month into PF and recommended it was unfair that they get tax concessions in addition to an assured return.

When requested how the taxation proposal could be applied — on the time of retirement or withdrawal from the PF account, or by deducting tax on the time of crediting curiosity — Mr. Mody mentioned that although PF account holders could have the choice to withdraw or not, the dedication of the tax was very clear.

“The interest portion is calculable on a year-to-year basis, and that will go on an accrual basis, so that is taxable on your calculations in that particular year. If I am contributing into the GPF [General Provident Fund for government employees], I know how much interest I have received that year. That should be brought to tax in that very year. That is very simple, it’s just like bank interest,” he mentioned.

“So, at the time of filing tax returns, you have to factor in the interest which you are receiving on that. For you and me, it is the same. It is for both the government employee and private sector employees,” Mr. Mody defined.

Analysts mentioned the change throws up uncertainties in tax therapy and administration.

“It will result in implementation difficulties given the design of Employees’ PF (EPF),” mentioned Amit Gopal, principal, Mercer Consulting. “PF being an interest-bearing product with annual compounding, tracking interest across years that is attributable to only employee contributions will be a challenge,” he added.

“Further, the input mechanism to ascertain interest credits is not very efficient due to delays in rate declarations. These could also impede seamless implementation of this proposal,” he identified.

An identical tax has been launched on revenue from annual premium funds exceeding ₹2.5 lakh into unit-linked insurance coverage merchandise, however that provision clearly states that maturity advantages could be subjected to capital beneficial properties tax.

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