It was introduced in Budget 2021 that if an worker’s whole contributions to his/her staff’ provident fund (EPF), and voluntary provident fund (VPF) accounts exceeded ₹2.5 lakh in a monetary 12 months, then the curiosity earned on the contributions in extra of the restrict will probably be taxable, and the worker will bear the tax burden. Further, the funds mentioned that in case there was no contribution by the employer to the EPF account, then curiosity earned from such accounts will probably be tax-exempt on deposits as much as ₹5 lakh in a monetary 12 months.
However, after the introduction of outlined profit pension scheme (DBPS) in public sector banks and insurance coverage firms, employers aren’t required to make any contribution to the EPF accounts of these staff who’re members of the DBPS.
Instead, an identical contribution on behalf of such staff is made to the pension fund arrange for making pension funds to them upon retirement. In such circumstances, the place there isn’t a contribution by the employer to an worker’s EPF account, please verify whether or not curiosity on EPF and VPF contributions by staff who’ve opted for DBPS will probably be exempted from tax as much as enhanced restrict of ₹5 lakh or not.
—Praveen Godbole
We perceive that within the instantaneous case, employer’s matching contributions are made solely to the desired pension fund for workers who’re beneficiaries of DBPS.
No contribution is made by the employer to the acknowledged EPF account, whereas the worker continues to contribute to the EPF.
As per the Finance Act, 2021, curiosity accrued on contribution in extra of ₹2.5 lakh made by worker to the EPF from FY22 onwards shall now be taxable. However, in case there aren’t any contributions made by the employer to such EPF accounts, then curiosity accrued on worker contribution in extra of ₹5 lakh will probably be thought of taxable from FY22.
Accordingly, within the instantaneous case, because the employer just isn’t making any contribution to the worker’s EPF account, solely the curiosity accrued on worker contribution in extra of ₹5 lakh in a tax 12 months shall be taxable.
Please be aware that the principles governing the way and timing of computation of such taxable curiosity haven’t but been prescribed.
Parizad Sirwalla is associate and head, international mobility companies, tax, KPMG in India.
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