More clarity needed on taxable interest on employee’s contribution to PF…
Interest on employee contribution to provident fund (PF), hitherto exempt, was made taxable vide the Finance Act, 2021, on contributions exceeding a prescribed threshold of ₹2.5 lakh ( ₹5 lakh in cases where there is no contribution by the employer) in any financial year (FY). The objective of Budget 2021 was to limit the exemptions granted with respect to the accumulated balance payable to an employee. The much-awaited method of calculation of this interest was notified by tax authorities on 31 August. The newly prescribed rule requires maintenance of separate accounts within PF, for non-taxable contributions and taxable contributions. The non-taxable contributions would be the aggregate of the closing balance of the account as on 31 March 2021 and the contributions made during the FY and subsequent FYs up to the prescribed threshold and would also include any interest accrued on the above but as reduced by any withdrawal(s).
However, the question still remains unanswered as to who will deduct the tax on such taxable interest?
Whether it will be deducted by EPFO as TDS that is Tax Deduction At Source or whether PF Member will have to pay it while filing his Tax Return?
Or it is to be paid as Advamce Tax on accrued interest?
EPFO normally takes more than 12 months to notify interest on PF every year. In such cases on what basis interest is to be computed. Whether its on interest prevailing till notified or interest deemed to be declared by EPFO vide its Notification. OR EPFO will declare interim interest such like Corporates how they declare interim dividend and later on final dividend.
These are some of the questions which Government and EPFO need to answer in consultation with CBDT of Income Tax.