Tax Changes on P|F Contributions for Government Employees as per Finance Bill 2021| The EPFO
has amended the provisions of Section 10 (11) and Section 109(12) of the Finance Act, 2021 to bring
interest on the Statutory Provident Fund (MPF) and Employees Provident Fund (EPF) to the
employees of the companies covered by the EPFO. Tax net
Currently, the entire interest on GPF and EPF is exempt from tax. However, up to AIY 2021-22, the amount of interest on taxes on employees in PF accounts is more than the amount of Rs 250,000 tax in a financial year. For employees contribution in PF account only Rs. There will be a tax deduction of Rs 250,000 in a financial year. The same was introduced in the Lok Sabha on February 1, 2021, as per the original amendment proposed in the Finance Bill.
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When the Finance Bill was passed in the Lok Sabha on 23.03.2021, it was proposed to amend the provisions of Section 10 (11) and Section 10 (12) to provide an increased limit for more employees to contribute such PF to the PF account. Contributions ranging from Rs. 2,5 Lakh to Rs. 5,00,000 only in cases where the employer makes no contribution to the PF account of the employees.
According to the EPF rules, an employer is required to contribute to the employee's EPF account at the rate of 12% of the employee's initial salary and DA. Under no circumstances can an employer be exempted from the mandatory requirement to deposit in an EPF account. Therefore there can be no situation when an employee can enjoy the advanced limit of Rs. 5,00,000 under section 10 (12)
Similarly, in the case of PPF accounts, the employer has no contribution. In fact, the PPF account is not in the model of the employer-employee relationship. Therefore, no contribution to the PPF account is attracted by these amendments. Anyone including a self-employed person can open a PPF account.
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Even if a person opens a PPF account, whether he is an employee elsewhere, in government service or not, it is not because of an employer-employee relationship, but because he is open to his own ability. Being an employee is not a prerequisite for opening a PPF account. PPF can also hold a minor. Earlier, HUF was also allowed to keep PPF accounts.
Further, there is a limit to the annual contribution. 1,50,000 in the PPF account, therefore, the proposed revised provisions of duty on interest on additional deposits in the PPF account will not be applicable.
The finance minister has also made this clear in Parliament. In response to a question about the imposition of interest tax on PF amount and Rs. 5,00,000/- within the increased limit, FM replied, Often, both the employee and the employer contribute, but in cases where there is only one
contribution from the employee and no contribution from the employer, the amount is increased to Rs 2,000.
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Similarly, in the case of PPF accounts, the employer has no contribution. In fact, the PPF account is not in the model of the employer-employee relationship. Therefore, no contribution to the PPF account is attracted by these amendments. Anyone including a self-employed person can open a PPF account.
Even if a person opens a PPF account, whether he is an employee elsewhere, in government service or not, it is not because of an employer-employee relationship, but because he is open in his own capacity. Being an employee is not a prerequisite for opening a PPF account. PPF can also hold a minor. Earlier, HUF was also allowed to keep PPF accounts.
Further, there is a limit to the annual contribution. 1,50,000 in the PPF account, therefore, the proposed revised provisions of duty on interest on additional deposits in the PPF account will not be applicable.
In short, the government amendments proposed in Section (11) and Section (12) of Section 10 to increase the tax-free limit of the contribution of employees to Rs. 5,00,000 /- in a fiscal year for government employees alone. It does not affect contributions to any PPF account. The duty-free limit for employee contribution to any EPF account is Rs. 2,50,000 only. The benefit of the extended limit of Rs. 5,00,000/- not extended to private-sector workers
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