Finance Ministry defends EPF’s tax-free thresholds

The Finance Ministry has strongly defended its resolution to grant a higher tax-free threshold of ₹5 lakh for Provident Fund contributions by authorities staff, in comparison with non-public sector employees whose revenue on annual contributions past ₹2.5 lakh will probably be taxed from this yr.

“I would like you to clarify this. There are two ways the contribution can be made — by the employer and by the employee. In case where the contributions are made by both of them, the employers’ contribution up to ₹7.5 lakh is exempt and for employees, it’s ₹2.5 lakh. So the total threshold for private sector employees is at ₹10 lakh,” Revenue Secretary Tarun Bajaj defined.

“For the government (or for such) funds where only the employee is contributing, we have put a threshold only of ₹5 lakh. So, in fact, it’s the other way round,” he stated, stressing that non-public sector staff with increased salaries can have a contribution as much as ₹10 lakh a yr into their EPF accounts with tax-free curiosity, whereas those that solely contribute themselves face a threshold of ₹5 lakh.

Mr. Bajaj additionally asserted that it was incorrect to counsel the tax on EPF revenue amounted to double taxation as contributions past ₹1.5 lakh are made out of tax-paid revenue. Section 80C limits tax breaks on staff’ PF contributions together with different comparable financial savings devices to ₹1.5 lakh per yr, so some specialists have identified that part of EPF contributions past ₹1.5 lakh will face taxation on the contribution stage and financial savings past ₹2.5 lakh will probably be taxed on the revenue stage as nicely.

“I think that’s a wrong interpretation. We are not taxing your contribution; we are taxing the interest income on your contribution. When you invest in FDs, when you invest in shares, when you invest in company deposits, you are doing the same thing. You are taxed for your income there also,” he identified.

“It is quite possible that one has put ₹1.5 lakh in EPF, ₹1.5 lakh in an insurance policy, and then ₹1.5 lakh in PPF also. Then he doesn’t get any benefit under PPF. Basically, anything you invest is from your tax-paid income only, but the interest on that will be taxed as that is again your income,” the Secretary stated.

Asked if the federal government had plans to revise the taxation threshold for revenue on PF contributions primarily based on inflation ranges within the coming years, Mr. Bajaj stated, “Let’s see. Only future will tell.”