Double taxation: No aid but for EPF, different schemes

Employees Provident Fund (EPF), National Pension Scheme (NPS) and Superannuation Fund (SAF) discover a distinguished place within the retirement corpus of salaried people. Earlier, EPF had all the time been underneath (exempt- exempt- exempt) EEE class which signifies that there was no taxability on the time of contribution by employers, no taxability on accrual of curiosity and no taxability on withdrawal, topic to sure situations. Similarly, NPS and SAF additionally had been tax exempt topic to the provisions of the Act.

The Union price range 2020 launched tax on contributions above ₹7.5 lakh and curiosity thereon, in a monetary yr, in respect of all of the above three retiral schemes. The intention was to convey parity with the tax of high-paid staff who had been in a position to design the wage packages in a manner that a big a part of the wage was paid by the employer in these tax exempt funds.

Accordingly, the definition of time period perquisites was amended to incorporate contribution to the EPF, NPS and SAF exceeding ₹7.5 lakh in a monetary yr as a taxable perquisite. This is a cumulative restrict in respect of all of the three funds. Further, the annual accretion within the type of curiosity, dividend or every other quantity on such contributions exceeding ₹7.5 lakh are additionally taxed as perquisite.

These provisions have taken away the EEE standing of the retiral schemes for extremely paid staff. Not solely that, in sure conditions, these might also lead to double taxation within the arms of the worker. The withdrawal from acknowledged Provident fund is exempt from tax solely when the worker withdraws after 5 years of steady service or withdrawal is completed on occasions of loss of life / incapacity or the funds are transferred to a different employer registered with EPF. In case any worker withdraws EPF earlier than 5 years then the accrued stability is topic to tax. Now if the contribution had exceeded ₹7.5 lakh within the yr of contribution, then the surplus quantity, which was already thought of as perquisite within the yr of contribution can be taxed once more on the time of withdrawal. Similarly, the curiosity on contribution over ₹7.5 lakh which was topic to taxation within the yr of accrual of curiosity can also be topic to double taxation on the time of withdrawal.

Also, the employer’s contribution to EPF is exempt solely to the extent of 12% of the wage. In case any employer contributes any quantity in direction of EPF in extra of 12%, then the surplus can also be topic to tax. This may even lead to double taxation the place the entire quantity of contributions exceeds ₹7.5 lakh. Similarly, in case of NPS, the employer’s contribution upto 10% of wage is exempt from tax. Any contribution over this 10% was anyway topic to tax. This extra quantity could fall into ₹7.5 lakh bracket and could also be taxed once more.

To present retirement advantages, many employers contribute to the SAF. This contribution has additionally been lined on this cumulative restrict of ₹7.5 lakh. The withdrawal from SAF is exempt from tax provided that the withdrawal is completed in particular conditions like loss of life or retirement or on turning into incapacitated or switch to NPS. In case SAF is withdrawn earlier than retirement on the time of fixing jobs, the identical is topic to taxation. This once more could result in double taxation of the part in extra of ₹7.5 lakh which has already been topic to tax as perquisite within the yr of contribution.

This double taxation state of affairs places a monetary pressure on the retirement corpus of the people. Till the time any clarifications are issued by the federal government, the people ought to rigorously evaluate their standing to verify whether or not their private circumstances are leading to any double taxation state of affairs. If so, an possibility of claiming revenue tax refund on the revenue doubly taxed earlier could be explored because the laws doesn’t intend to tax identical revenue twice. However, this may have its personal points.

The tax authorities at decrease ranges may problem the place and the aid could be anticipated solely on the increased ranges.

It was anticipated that the federal government will handle these points however no clarifications had been integrated within the Union price range 2023. Guess we should anticipate some extra time.

Rupali Singhania is FCA and companion, Areete Consultants LLP.

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