Over 1.23 lakh high net worth individuals (HNIs) deposited over ₹62,500 crore into their employees’ provident fund (EPF) accounts in 2018-19 alone, and the largest EPF account has a staggering ₹103 crore balance, sources in the Department of Revenue said on Thursday, defending the Budget move to tax the income on employees’ PF contributions over ₹2.5 lakh a year .
“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,” an official said, stressing that the step was intended to enforce the principle of equity among PF contributors.
Of an estimated 4.5 crore EPF accounts, the source said about 0.27% members had an average corpus of ₹5.92 crore and so were earning over ₹50 lakh a year as “tax-free assured interest”.
EPF accounts are mandatory for employees earning up to ₹15,000 a month in firms with over 20 workers, with 12% of the basic pay and dearness allowance deducted as employees’ contribution and another 12% remitted by the employer.
The government had capped the contributions by employers into employee welfare schemes like the EPF or the National Pension Scheme or a superannuation plan, at ₹7.5 lakh a year, in last year’s Budget. However, government as well as private sector employees are allowed to make voluntary contributions over and above the statutory deductions into the general provident fund (GPF) or EPF, respectively.
Also read | ‘Interest on PF contributions of over ₹2.5 lakh must in I-T filing’
On Monday, Finance Minister Nirmala Sitharaman had said that some people went to the extent of contributing ₹1 crore each month into such PF accounts. “What would be his salary? For him to get both tax concession and an assured income is not comparable with an employee who earns ₹2 lakh and gets 8% return,” she had pointed out.
The top 20 HNIs have about ₹825 crore in their EPF accounts and the top 100 have over ₹2,000 crore, said the Revenue Department official quoted earlier. The largest EPF account has over ₹103 crore, followed by two accounts that have over ₹86 crore each.
“The average normal EPF or GPF contributor would not be affected by the removal of this anomaly in the system prevailing over a long period of time,” the official said.
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While some tax experts have said this amendment may be applicable retrospectively for interest earned after April 1, 2021 on past contributions over ₹2.5 lakh, Revenue Department sources said it will apply prospectively.
Central Board of Direct Taxes Chairperson P.C. Mody has told The Hindu that taxpayers will be required to include the annual income from contributions beyond ₹2.5 lakh into their PF accounts while filing their returns.
