This year’s Indian Budget announced that the interest on an employee’s contributions to provident fund over ₹2.5 lakh per annum would be taxed from April 1, 2021.
Noteworthy, less than 5% of the total of six crore EPFO subscribers contribute more than ₹2.5 lakh in the fund.
In answer to the incessant criticism over the proposed tax changes for those contributing more than 2.5 lakh yearly, the revenue secretary Ajay Bhushan Pandey said: “The decision to remove the tax exemption on provident fund contributions of ₹2.5 lakh and above in the budget was based on the principle of equity”.
The government has claimed that only 1.2 lakh subscribers among the six crore taxpayers were hit by the change.
Barely 0.3% to be exact were contributing huge sums. Official sources inferred that the benefit of high tax-free return was accruing to high net worth individuals (HNIs) though, the provident fund was meant for honest average salaried workers.
The government said that just 20 high net-worth individuals have a huge sum of ₹825 crores in their PF accounts while the top 100 HNI contributors have more than ₹2000 crore, with the top one having hundred plus crore in his account as the highest corpus.
With average earnings of rupees 50.3 annually the average corpus of HNI accounts is 5.9 crores and is tax-free in the current scenario.
A finance ministry source said that there are 6 crore EPF contributors and the HNIs chip with around 62,500 crores to the PF funds. Furthermore, justifying the tax proposal in the budget he added that, with this provision, the government is trying to curb the disparity of paying a large sum of tax-free interest to HNIs at the cost of the salaried class contributors.
The government has clarified that the normal subscriber of employees’ provident fund will not be affected by the removal of the anomaly in the system.
