New Delhi: Interest on employee contributions to provident fund over Rs 2.5 lakh per annum would be taxed from 1 April 2021, a move aimed at taxing high-value depositors in the Employee Provident Fund (EPF).
Finance Minister Nirmala Sitharaman said the EPF is aimed at welfare of workers and any person earning less than Rs 2 lakh per month will not be affected by the Budget proposal.
Expenditure Secretary T.V. Somanathan said the number of people who actually contribute more than Rs 2.5 lakh per annum is less than 1 per cent of the total number of contributors in the EPF.
Employees’ Provident Fund Organisation (EPFO) has over six crore subscribers.
“In order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of Rs 2.5 lakh,” Sitharaman said in her Budget 2021-22 speech. This would come into effect from 1 April.
Addressing a post-Budget press conference, the minister said up to Rs 2.5 lakh has been kept as the deposit limit for which interest is tax exempt.
“We are not reducing any workers right. But at the same time, getting tax exemption and 8 per cent rate of interest for somebody who puts Rs 1 crore into the account, we thought is may be not correct. And therefore we have put the ceiling,” she said.
It is only the big-ticket money which comes into the fund and gets tax benefit as well as assured about 8 per cent returns that would come under the tax ambit.
“You have huge amounts, some to the extent of Rs 1 crore, being put into this account each month. For somebody who puts Rs 1 crore each month into this fund, what would be his salary? So for him to get tax concession and 8 per cent return we thought is probably not comparable with an employee with Rs 2 lakh who puts that money, gets tax concession and gets 8 per cent return. That person would still be allowed to put in money, but of course with a ceiling of Rs 2.5 lakh,” she said.
Somanathan said the Budget proposal affects “those who are not workers by any stretch of imagination but are using this, they are entitled to do. But they are a very, very small fraction of total number of contributors.”
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For high salaried individuals who work 16 hours a day benefiting companies and economy at large, this government charges 40 percent in direct tax and approx 15 percent in indirect taxes. From the balance 45 percent, they need to take care of everything including spend on their healthcare and savings dues to job certainty
A better way would have been to continue with interest earned on EPF (regular 12 % contribution of employee’s salary which is deducted mandatorily in order to secure employer contribution of 12%) to stay tax free without any limit on the amount. And, they could have put some limit on VPF. Now with this move, for some individuals a portion of mandatory retirement savings is becoming taxable- which goes against the established principles.
It is becoming clear day by day that this government just doesn’t care about the class of salaried individuals who are in higher salary group. Govt itself keeps stating publicly their decision won’t affect majority- but why you are okay with aggrieved minority? Please note this minority may not matter in vote bank politics but they are highly important as they play the roles of higher responsibilities and carry the weight of decision making on their shoulders and provide major contribution to success of the companies leading to overall economic health of country, and hence they are paid higher for the value they add. Regardless of this, I think the Govt not to violate the fundamental principles – if tax collection itself is based on % of income, why the tax free retirement savings should not be based on % income. It is understandable to have a limit in percentage terms, but why put a hard limit on the amount? And if you think in those terms, why not put a hard upper limit on amount of tax collected per individual as well?
Worst Budget of free India . Nothing for middle class or salaried people . This is Ambani and Adani budget . Sitharaman made it clear by taking Modi’s name 14 times during the budget speech. Tax on provident fund is the worst clause she could have put. Kick this government out.