In the latest move, the Employees’ Provident Fund Organization (EPFO) has released fresh guidelines regards to taxes and deductions on interest earned on EPF accounts. The government’s statutory body has announced a new structure of tax deducted at source (TDS) on provident contributions above ₹2.5 lakh annually for the private sector employees. While the taxation threshold is modified to a contribution of ₹5 lakh to government employees.
As per a circular issued by the EPFO on April 06, 2022, TDS on interest earned on excess contributions will be effective from April 1, 2022. The TDS will be deducted at the time of credit of interest in the EPF account. If there is a pending final settlement or transfers, then TDS will be deducted at a later date in the case of the final settlement.
Aakanksha Goel, Partner, T R Chadha & Co LLP, Chartered Accountants says, “The CBDT, vide notification dated 31st August 2021, provided that the interest relating to contribution in EPF funds exceeding Rs. 2.5 lakh (for non-government employees) or Rs 5 lakh (for government employees) shall be taxable in the hands of EPF account holder. Regarding the same, EPFO, on 6th April 2022 has issued much-needed clarity regarding calculation and deduction of taxable interest relating to contribution in EPF exceeding specified limit. Detailed instructions about effective date, applicability of TDS on excess contributions such as at the time of credit of interest, transfer of EPF accounts due to job change etc., methodology of computing TDS along with illustrations under various circumstances have been given in the Circular. Information Services Division of the organization has also been advised to make necessary changes in the Application Software to implement the procedure of TDS deduction. The Circular issued by EPFO is self-explanatory. If the recommendations are implemented as prescribed, the deductees would not face any issue in relation to TDS deduction on excess contribution made by them.”
What else do the new guidelines mean?
– For those who have not linked their PAN to their EPF accounts, the tax will be deducted on their annual income on contributions over ₹ 2.5 lakh at the rate of 20 percent. And those who have linked their EPF accounts with their PAN tax will be calculated at 10 percent.
– The circular said EPFO will maintain a non-taxable account and a taxable account for all such members who contribute over ₹ 2.5 lakh.
– However, if the calculated TDS is ₹ 5,000 or less, no TDS will be deducted on the interest credited to those EPF accounts.
who have active EPF accounts in India, the tax will be deducted at the rate of 30 percent or according to the provisions of the Double Taxation Avoidance Agreement between India and the respective country.
– Also, TDS would be applicable to all EPFO members, including members of exempted establishments or exempted trusts.
– The rate of TDS would remain the same in case of the death of the EPFO member.
The interest earned on the amount in EPF accounts is credited annually. But the accounts are maintained on monthly basis. So, if no transfers/final settlements are made during the financial year, then TDS will be deducted when the interest is paid.
Having one of the world’s largest clientele, the EPFO currently maintains 24.77 crore accounts of its members.
