A year after the government introduced a new tax on income arising from annual Employees’ Provident Fund (EPF) contributions over ₹2.5 lakh, operational guidelines on implementing the levy were finally issued on Wednesday.
For those who don’t link their Permanent Account Number (PAN) to their retirement savings accounts, tax will be deducted on their annual income on contributions over ₹2.5 lakh at the rate of 20%, the EPF Organisation (EPFO) has said.
The EPFO will maintain a non-taxable account and a taxable account for all such members who contribute over ₹2.5 lakh and reduce the tax deduction at source (TDS) for those who link their EPF accounts with the PAN issued by the Income Tax department, to 10%.
However, if the calculated TDS amount is up to ₹5,000, no TDS will be deducted on the interest credited to those EPF accounts, the EPFO said in a circular.
For expat or non-resident employees who have active EPF accounts in India, tax will be deducted at the rate of 30% or as per provisions of any Double Taxation Avoidance Agreement (DTAA) entered into with India by their respective countries.
For availing any benefit as per such DTAAs, EPF members have been tasked with filing a declaration under section 90 of the Income Tax Act, 1961. “Wherever interest income exceeds ₹50 lakh in such cases, an additional cess of 4% on the TDS amount as well as surcharges will be levied,” the EPFO said in its advisory.
The tax on EPF incomes for contributions will kick in from this assessment year, and apply to contributions made through 2021-22.