How changes in EPF rules may affect you?

India’s Employees’ Provident Fund Organisation (EPFO) is one of the world’s largest clientele which maintains 24.77 crore accounts of its members.

Employees are mandated to contribute a portion of their salary to EPFO. Their employers too put almost a similar amount in it, every month, building a retirement coffer.

The interest rates have become less attractive over the years. From 12% in 1989-90, it is 8.1% now. But it is still one of the most attractive investment options available.

In the budget of 2021, the government had proposed to tax income on PF contributions above Rs 2.5 lakh. The move was criticised in several quarters.

Institute of Chartered Accountants of India (ICAI) had called the move harsh for account holders.

But the new rules have been announced now. According to the April 6 circular, TDS deduction will begin from April 1.
 

Citing guidelines, Gopal Bohra, partner, N.A. Shah Associates, says that the EPFO shall maintain separate accounts for taxable and non-taxable contributions.

The new rule will apply to all EPF subscribers: un-exempted establishments, exempted establishments, and exempted trusts.

Prashant Singh, vice-president and business head-compliance and payroll operations, TeamLease Services, says that TDS will be applicable in case of Provident Fund (PF) final settlement, transfer claims, transfer from exempted establishments to the EPFO, and vice versa. It will also apply in case of transfer from one trust to another, and in case of death. This rule will also apply to international workers.

TDS will not apply to the closing balance in the EPF account on March 31, 2021.

Prashant Singh also says that when a member avails of partial withdrawal during FY22 and in future years, which brings down the quantum of contribution to Rs 2.5 lakh or less, TDS will not be deducted in that case.

Those who have not linked their PAN to their EPF accounts will have to pay 20% tax. While for others, the tax will be calculated at 10% rate.

Forms 15G and 15H can be submitted with a valid PAN to reduce the rate at which tax is deducted. In the case of resident Indians, it will not be deducted if the TDS amount is up to Rs 5,000.

In the case of non-resident Indians (NRIs), it will be deducted at the applicable rate, even if TDS amount is up to Rs 5,000.

For the NRIs, the TDS will be 30 per cent. In addition, a 4 per cent cess will also apply. A surcharge will apply if interest earned exceeds Rs 50 lakh, whose rate could range between 10 per cent and 37 per cent, depending on the interest amount.

But Suresh Surana, founder of RSM India which provides audit, tax and consulting services, says that if the double taxation avoidance agreement has been entered into with the NRI’s country, then a rate lower than 30 per cent will apply.

One question many people who contribute to the EPF are asking is whether TDS will be implemented with retrospective effect on past accumulation.

Finally, Surana says that every assessee should check if his PF account is linked with his PAN, or he will end up paying a much higher amount.