In FY2021-22, I deposited ₹4.5 lakh in VPF. My share in EPF is ₹95,000 and the employer share is ₹80,000. I’ve not but obtained the curiosity of FY2021-22 in my PF account. From FY 2021-22, there’s a tax on curiosity of extra quantity of PF after ₹2.5 lakh. So what’s the tax legal responsibility in my case for FY2021-22?
—Deepak Gupta
We perceive that in FY2021-22, you might have contributed ₹5.45 lakh in the direction of the Employee Provident Fund (EPF) account ( ₹95,000 in the direction of statutory EPF and ₹4.5 lakh as voluntary PF). Further, we’ve assumed that your PF account is maintained with Employees’ Provident Fund Organization (EPFO) and never by means of the non-public PF belief of your employer.
As per the provisions of the Income-tax Act, 1961, if EPF contribution by worker exceeds ₹2.5 lakh throughout the monetary yr, curiosity accrued throughout the yr on such extra contribution might be thought-about as taxable earnings on the regular tax slab charges. There is a view prevailing that as curiosity is within the nature of earnings from different sources, it might be supplied to tax as per the strategy of accounting usually employed by the person i.e. money or mercantile. It can also be debatable whether or not such curiosity is taxable on year-on-year or solely on withdrawal.
As per the desired mechanism, separate accounts (for taxable contribution and non-taxable contribution made by an individual) are to be maintained by EPFO throughout the particular person’s PF account for curiosity on respective contributions.
The earnings tax guidelines clarifies that the withdrawal of earnings tax exemption is potential (from 1 April 2021) because it grandfathers any curiosity on steadiness in EPF account as on 31 March 2021 by together with it as part of the ‘non-taxable contribution account.
Further, the EPFO round dated 5 April 2022 has outlined the strategy of calculation and deduction of corresponding Tax Deduction at Source (TDS) by the payer. The mentioned round supplies that the efficient date of TDS shall be 1 April 2022 and tax shall be deducted at supply on such curiosity earnings (i) At the time of credit score of curiosity within the worker’s EPF account or (ii) Final settlement/switch (whichever is later, in case of ultimate settlement). Since the EPFO is but to credit score curiosity for FY2021-22 within the PF account, virtually, it stays to be seen whether or not the curiosity earnings and corresponding TDS deducted thereon by the EPFO can be reported by them in FY2021-22 or FY2022-23. It additionally stays to be seen by which FY, the corresponding TDS shall replicate within the Form 26AS.
Hence, the worker might select to report the curiosity earnings within the related FY. In case there may be any mismatch between the FY of earnings reporting and tax deduction, the identical would have to be defined/ reported accordingly.
In case you might have already filed the tax return for FY2021-22, relying upon the FY by which the TDS entry is showing in your Form 26AS, it’s possible you’ll revise the tax return (if required) by 31 December 2022 to assert the credit score of the TDS.
Parizad Sirwalla is associate and head, world mobility companies, tax, KPMG in India.
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