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Interest of more than ₹2.5 lakh earned annually from contribution to Employees Provident Fund (EPF) or Government Provident Fund (GPF) will not be taxed retrospectively, Expenditure Secretary TV Somanathan clarified on Friday. He was speaking at a BusinessLine webinar on ‘De-coding the Budget 2021-22’.
“There is no intention to retrospectively tax. If anybody thinks wording of the Finance Bill has any loophole that could be interpreted as retrospective, please send to us, we will correct it,” he said during the conversation with Raghuvir Srinivasan, Editor of BusinessLine . The webinar was powered by HDFC Bank with BSE as an associate sponsor.
EPF taxation
EPF taxation is hogging headlines post the Budget on the grounds that it is going to dent old age security, which people in private sector organisations do not have. EPF is the only saving instrument where one gets tax exemption at the time of contribution, then on the accumulation and, finally, at the time of withdrawal. This is called EEE (Exempt-Exempt-Exempt) mechanism.
Giving details about the accounting system proposed, he said the intention is that GPF and EPF flows into an account above ₹2.5 lakh will be directed to a separate sub-account. The primary account including your past balance as on March 31, 2021 will always remain tax free; interest will also not have to be declared.
“The excess flow will go into a secondary bucket which is like a taxable deposit. If you continue to earn the same rate of interest as the primary bucket, interest on that is taxable. It will have to be declared in your return. Statement received from EPFO or GPF will reveal taxable portion of the interest,” he said while assuring that all these practical facilitations that are required to be done, the Government will do.
“We are antagonising 1.22 lakh people whose income is more than ₹2 lakh a month and it is just 0.25 per cent of all subscribers,” the Tamil Nadu cadre IAS officer of 1987 batch said when asked whether the new proposal is going to hurt many. He also made it clear that though there is no minimum threshold defined for GPF, like 12 per cent of wages under the EPF, still the government is not very comfortable with the concept of a ‘special bracket for babus.’
He also denied that this tax mop-up had a beneficial cost-benefit ratio. The levy will generate a reasonable amount of resources for the government which, going forward, will become substantial in the next few years, he said.
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