Tax On Provident Fund: Is It A Cause Of Worry For The Employees Or The Employers?

Tax On Provident Fund: Is It A Cause Of Worry For The Employees Or The Employers?

That is the reason it has become a point of concern among private-sector employees.


Tax On Provident Fund: Is It A Cause Of Worry For The Employees Or The Employers?

There was an announcement made by the Central Board of Direct Tax on 31st August 2021 that those people who are contributors to the Provident Fund (Not all, limited in certain cases) will now be taxable. Before this instrument was a tax-saving process but in certain cases, it is not. 

That is the reason it has become a point of concern among private-sector employees. There are lots of points that should be discussed but before that let’s have a look at the law itself. Rule no 9D says that there should be two separate accounts maintained which will be in the provident fund account. 

The first is for the non-taxable account and the second is for taxable contribution. Now the question is what is the limit of the non-taxable account? On this retrospective, the Finance Act 2021 says that contributions which are more than 2,50,000 will be taxable. On the other hand, where the employee has only contributed to the provident fund and the employees have none, in that case, the limit is 5,00,000. For this reason, there needs to maintain two separate provisional fund accounts. 

The rule will be effective from the financial year 2021-2022, and for maintaining such type of taxable and non-taxable account the EPFO should make the arrangements. If we talk about the rate of TDS rate then it will deduct as 10% on EPF balance if the money is withdrawn before 5 years. In this case, without the PAN number, the rate will be 30% that time. 

In the case of the newly created rule 9D, it can be said that the rule has such an amount of complexity and in deep it gives clarification on the calculation of the taxable account. It becomes complex when it comes to the employer’s side who is liable to maintain their employee’s account and whose contribution to the taxable account. The maintenance of two such kinds of accounts will add more stress to the employees as well as to the EPFO. One of the common questions is the procedure for payment of the tax. 

The new thing added to the law is the liability for payment of tax made by employees. On the other hand, the liability to withhold tax has existence in u/s 192A of the IT Act. This is for the person who is making a contribution or payment to the EPF account of a person and the money is more than 50,000. Therefore, the amount is liable to tax under u/s 192A of the IT Act. There is nothing new about this is in the present CBDT circular. 

Now the question is about the TDS certificate. The income tax rule says that in every case when the payment is done and the TDS distance occurred then the TDS certificate should be issued within a limited time period. At the time of filing the income tax return, this TDS certificate works as evidence and for this evidence, the taxpayer can claim credits. 

Therefore, the EPFO will issue the TDS certificate for the persons whose tax will be deducted. Now the question is how to save the tax? There is only one way to save tax, which is not to do an excess contribution to the EPF account but the investment should be on the borderline. 

The investor or the employee or the common people should find an alternative investment plan to avoid the tax deduction. At the end of everything, it can be said that there is a lot of complexity in this new rule of the tax, and in the future, more amendments will be needed otherwise the government as well as the taxpayer both will face the consequences. 

 
Edited By Team CLIQTAX
 

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