{"id":98116,"date":"2021-03-27T10:02:35","date_gmt":"2021-03-27T04:32:35","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=98116"},"modified":"2021-03-27T13:03:01","modified_gmt":"2021-03-27T07:33:01","slug":"discrimination-in-taxing-provident-fund-pf","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/discrimination-in-taxing-provident-fund-pf\/","title":{"rendered":"Discrimination in taxing provident fund (PF)"},"content":{"rendered":"\n<p><b>Synopsis<\/b><span style=\"font-weight: 400;\">: The Finance Minister has enhanced the <a href=\"https:\/\/forumias.com\/blog\/issues-in-taxing-pf-contribution\/\" target=\"_blank\" rel=\"noopener\">Provident Fund<\/a>(PF) limit up to 5 lakhs from the previously proposed 2.5 lakh. This is a discriminatory proposal for taxing PF and should be reconsidered.<\/span><\/p>\n<h5><b>Background<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The finance bill 2021 was passed with 127 amendments. This included a proposal to tax income on PF contributions over Rs. 2.5 lakh rupees a year.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The rationale behind this was to prevent abuse of the process as 93% of users fall below 2.5 lakh category.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Recently, a contradictory provision of doubling the annual threshold to Rs. 5 lakh was also introduced. This enhanced limit was given to only those individuals whose employers do not remit any contribution to their retirement fund account.\u00a0<\/span><\/li>\n<\/ul>\n<h5><b>Current Threshold limits for Provident Fund:<\/b><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Annual investments made into individual PPF accounts are capped at\u00a0 Rs. 1.5 lakh per year.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">EPF contributions beyond 1.5 lakh are not tax-deductible under Section 80C of the I-T Act. However, income on such contributions beyond 2.5 lakh will be taxable.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Similarly, employer contributions into the EPF, NPS, or any superannuation pension fund can\u2019t exceed 7.5 lakh per year.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Income on GPF(General Provident Fund) contributions would be tax-free up to 5 lakh per year.<\/span><\/li>\n<\/ul>\n<h5><b>Concerns with such a move<\/b><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Firstly, it amounts to<\/span><b> discrimination with private employees <\/b><span style=\"font-weight: 400;\">who have an EPF (Employees Provident Fund) account as:<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Employer-employee relationship is an implicit requirement to open an EPF account.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Employees can contribute beyond the statutory wage limit of Rs. 15,000 but employers contribution can never reach zero.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Secondly, it <\/span><b>suggests a bias in favor of some government employees <\/b><span style=\"font-weight: 400;\">as:<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Only some senior government staff who joined service before 2004 and are not part of the NPS will benefit from this move.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">They possess a unique profile that allows them to contribute to the GPF account and get a defined benefit pension separately.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Thirdly, it move also <\/span><b>conflicts with other policy measures like Wage Code Bill.<\/b>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The calls for enhancing employers contribution in EPF accounts. This may make EPF contribution cross the 2.5 lakh limit thereby coming under the tax net.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Lastly, it shows a <\/span><b>disconnect between policymakers and the aspirations of the working class<\/b><span style=\"font-weight: 400;\"> to save for their retirement years. It appears that the government is willing to jeopardize the retirement benefits for augmenting tax collections.<\/span><\/li>\n<\/ul>\n<h5><b>Way Ahead:<\/b><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The government could offer the same cap of 5 lakh annual contribution to EPF account holders in order to bring equity. For capping the annual amount, employers&#8217; contributions can be counted as well.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Until this is done, the government can put the new tax structure on hold and think through its implications.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">India possesses a huge informal workforce that must be given equitable retirement benefits like the government sector employees.<\/span><\/p>\n<p><b>Source:<\/b>\u00a0 <a href=\"https:\/\/epaper.thehindu.com\/Home\/ShareArticle?OrgId=G1E8DPFSC.1&amp;imageview=0\" target=\"_blank\" rel=\"noopener\">The Hindu<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis: The Finance Minister has enhanced the Provident Fund(PF) limit up to 5 lakhs from the previously proposed 2.5 lakh. This is a discriminatory proposal for taxing PF and should be reconsidered. Background: The finance bill 2021 was passed with 127 amendments. This included a proposal to tax income on PF contributions over Rs. 2.5&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/discrimination-in-taxing-provident-fund-pf\/\">Continue reading <span class=\"screen-reader-text\">Discrimination in taxing provident fund (PF)<\/span><\/a><\/p>\n","protected":false},"author":10322,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[1308],"class_list":["post-98116","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-eco_0","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704789721},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/98116","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10322"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=98116"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/98116\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=98116"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=98116"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=98116"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}