Investment limit may hit 0.3% of EPF subscribers
NEW DELHI: The Budget proposal to impose ₹2.50 lakh annual limit for tax-free employee’s contribution in provident funds (PFS) will affect only 0.3% of total 45 million subscribers of Employees’ Provident Fund Organisation (EPFO) having combined deposits of over ₹62,500 crore, two finance ministry officials said.
These 1.23 lakh employees provident fund (EPF) accounts have on an average a corpus of ₹5.92 crore per person. They are earning huge sum–on an average ₹50.3 lakh per account holder per annum–which is tax free with an assured 8% interest, they said requesting anonymity.
“About 0.27% people are using the retirement fund in a very scheming manner at the cost of the salaried class and other taxpayers. This anomaly was required to be corrected,” one of them said. Out of this minority group, the highest contribution is made by an individual [name withheld] with over ₹103 crore in his account, followed by two with over ₹86 crore each. The top 20 high-networth individuals have about ₹825 crore in their accounts while top 100 HNIS contributed more than ₹2,000 crore, he said.
The budget rationalised taxfree income on PFS.
“In order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of ₹2.5 lakh. This restriction shall be applicable only for the contribution made on or after 01.04.2021,” the annexure to her budget speech said. The decision to remove the tax exemption on provident fund contributions of ₹2.5 lakh and above in the budget has been based on the principle of equity among the contributors. “Since any tax exemption is provided through taxpayers’ money, it was unfair to allow a small group of HNIS to misuse a welfare facility and earn wrongfully tax free income as assured interest return, adding that average normal EPF or GPF [General Provident Fund] contributor would not be affected by the removal of anomaly in the system prevailing over a long period of time,” the official quoted above said.