Provident Fund Tax Said To Impact Less Than 1% Of Subscribers
The central government's move to tax the high-income provident fund contributors will impact less than 1% of the total Employee Provident Fund subscribers.
There are 1.23 lakh contributors who fall under the category of ‘high net-worth individuals’ out of a total of 4.5 crore active EPF subscribers, according to a government official who spoke on the condition of anonymity. This means that 0.27% of all accounts will be impacted. Such people, who contribute at least Rs 2.5 lakh every year, had total deposits of Rs 62,500 crore in FY19, the official said.
From April 1, those contributing more than Rs 2.5 lakh a year to the EPF will have to pay tax on the interest earned on the amount above that limit. For example, if an individual contributes Rs 3.5 lakh to the EPF in the financial year through March 2022, the interest earned on Rs 1 lakh will be taxed based on the employee's income tax slab.
The budget proposal is intended to remove disparity among contributors, the official quoted above said, citing data which is not publicly available and cannot be independently verified.
The top 20 HNIs have about Rs 825 crore in their provident fund accounts, while top 100 HNI contributors have more than Rs 2,000 crore, the person cited above said. One of the highest contributors has more than Rs 103 crore in the EPF account, followed by two accounts having more than Rs 86 crore each.
On average, an HNI has close to Rs 6 crore in his or her corpus. Such accounts are, in some cases, earning interest as high as Rs 50 lakh without tax.
Contributions to the employee fund currently earn an interest of 8%. This is higher than the prevailing market rates as suggestions to link small savings rates to benchmark interest rates in the economy, such as the 10-year government bond yield, have never been strictly followed.