The Employees’ Provident Fund Organisation (EPFO) had given the guidelines on imposing the tax deducted at source (TDS) on the earned interest via EPF account in which the contribution is more than Rs 2.5 lakh in the financial year. As per the circular issued on April 6, The TDS deduction would start from April 1.
On August 31, 2021, the Central Board of Direct Taxes reported that when the contribution to the employee’s PF is more than Rs 2.5 lakh for the non-government employees and Rs 5 lakh for the government then the interest obtained through these contributions will be subjected to tax. The announcement was performed in the Union Budget 2021.
As per Aditya Chopra, managing partner, Victoriam Legalis-Advocates & Solicitors, “The April 6 circular offers much-needed clarity on the calculation and deduction of tax.”
Tax experts mentioned as per the rules issued by the EPFO will maintain separate accounts for taxable and non-taxable contributions.
To Whom the TDS is Applicable?
This new rule is subject to apply to all EPF subscribers: unexempted establishments exempted establishments and exempted trusts.
Prashant Singh, vice-president and business head-compliance and payroll operations, TeamLease Services specified that “TDS will be applicable in case of Provident Fund (PF) final settlement, PF transfer claims, transfer from exempted establishments to the EPFO, and vice versa. It will also apply in case of transfer from one trust to another and in case of death.” This rule is to be applied to international workers.
Who is Exempted in EPF Account?
The TDS would apply to the closing balance in the EPF account on the date of 31st March 2024. Any contribution of Rs 2.5 lakh in 2023-24, and the next years, would indeed be privileged. “When a member avails of partial withdrawal during FY24 and in future years, which brings down the quantum of contribution to Rs 2.5 lakh or less, in that case, TDS will not be deducted,” said Prashant Singh.
Subjected Rates for PF
TDS rate would rely on whether your PF account is linked to your permanent account number (PAN). “TDS will be deducted on interest earned. It will be 10 per cent for those who have PAN and 20 per cent for those who don’t,”
Forms 15G and 15H would be submitted through the valid PAN to diminish the rate at which the tax has been deducted. Towards the case of the resident Indians, the same would not be deducted when the TDS amount is up to Rs 5000.
For the concern of the non-resident Indians (NRIs), the same would be deducted at the subject rate, despite the TDS amount being up to Rs 5000. 30% is the TDS rate that is applicable for NRIs and additionally, a 4% cess is indeed applicable. A surcharge would be applicable when the earned interest is more than Rs 50 lakh, whose rate can vary between 10% and 37% depending on the interest.
“If the double taxation avoidance agreement has been entered into with the NRI’s country, then a rate lower than 30 per cent will apply, according to the provisions of Section 90 of the Income-Tax Act.” specified by Suresh Surana, founder, RSM India.
Does it is Applicable Retrospectively?
People who contribute to the EPF ask if the TDS would be executed with the retrospective effect on the former accumulation.
Surana commented “No TDS will be applicable on past accumulation till March 31, 2021. It will only apply to contributions made from April 1, 2021, which exceed the threshold limit of Rs 2.5 lakh,”
What is the Advice of Experts?
See that if your PAN is linked to your EPF account “TDS will be deducted at a higher rate if your PF account is not linked to PAN, so every assessee should do so at the earliest,.”
Tax experts specified that the amendment in the employment, members should get their PF accounts transferred to the latest establishment via submitting Form 13(R). The same would be executed online via the member interface on the unified portal.
Since TDS will be deducted only when it is credited, what will happens if TDS is deducted after tax filing return date which is normally 31s July? Govt would expect tax on interest to be paid on or before 31st July but one can’t adjust TDS which is not deducted yet.