ByRajeev Jayaswal, Hindustan Times, New Delhi
Jan 22, 2022 04:43 AM IST
Tax professionals and PF experts, however, said the amendment to raise the threshold limit from ₹2.5 lakh to ₹5 lakh only benefited the government employees, which was discriminatory.
The government may double the limit for tax-free contributions in provident fund (PF) for all other salaried employees, to the same level as that for government servants, a maximum of ₹5 lakh a year, two people familiar with the matter said.
In Union Budget 2021-22, the finance minister announced capping of tax-free annual PF contributions to ₹2.5 lakh to avail tax-free interest income, but later raised this limit to ₹5 lakh for such funds where employers do not contribute, a move that benefited only government employees, the two said on condition of anonymity. “Several representations have been received in various ministries and departments to make this provision equitable and non-discriminatory and also to enhance the limit as this is one of the most effective social security mechanisms. It is being considered,” one of the two added.
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After announcing the limit in the budget last year, finance minister Nirmala Sitharaman told the Lok Sabha on March 23, 2021, “I want to address the question of income tax imposed on ₹2.5 lakh contribution in the PF. This limit of ₹2.5 lakh is covering majority of the people. Small and medium taxpayers are not impacted by this step. I intend to raise limit to ₹5 lakh where there is no contribution by employer.”
Tax professionals and PF experts, however, said the amendment to raise the threshold limit from ₹2.5 lakh to ₹5 lakh only benefited the government employees, which was discriminatory. “Following Budget 2021, the government announced a further amendment in which it doubled the threshold limit of contribution from ₹2.5 lakh to ₹5 lakh for tax-free interest income if the PF contribution is made to a fund where there is no contribution by the employer. Hence, the government has provided relief for contributions made to the General Provident Fund (GPF), a facility which is available only to government employees, and where there is no contribution by the employer. Hence, for government employees, the cap for tax-free interest income is ₹5 lakhs,”said Archit Gupta, founder and chief executive of tax consultancy firm Clear.
The second person mentioned above said, “For all practical purposes, particularly for private sector employees, both employee and employer contributions are part of the negotiated salary, which is called cost-to-company (CTC). The employer’s contribution is always part of this CTC. Hence, there is a case for consideration.”
Tax professionals said the new regime provides for grandfathering of earlier contributions. “This amendment is applicable to contributions made on or after April 1, 2021. All earlier contributions and interest will not be impacted by the amendment,” said Anita Basrur, partner, direct tax at Sudit K. Parekh & Co. LLP, a tax and audit firm.
“The limit of ₹2,50,000 applies to only employee contributions during a previous year. Only the interest earned on such excess portion is liable to be taxable in hands of the employee. This tax impact would continue for y-o-y interest accruals on this portion only,” said Aarti Raote, partner at Deloitte India.
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News / Business / Govt looking at raising tax-free PF limit to ₹5L
