Sensing trouble and outrage from the government employees and
powerful workers’ unions, the finance ministry is considering
not taxing the one percentage point increase in Employees
Provident Fund (EPF) rates for the current fiscal.
Recently, the interest rate on provident fund (PF) deposits for the current year was increased to 9.5 per cent from the 8.5 per cent paid over the last five years.
The contentious issue has cropped up due to the fact that even before the Employees Provident Fund Organisation (EPFO) Board took the decision on September 15 to hike PF rates for the current fiscal, the Central Board of Direct Taxes ( CBDT), which operates under the Income Tax ( I- T) department – had notified a tax- free PF rate of 8.5 per cent for 2010- 11 effective from September, 1.
A finance ministry official requesting anonymity said CBDT has already been asked now to look into the issue. CBDT is now expected to re- notify and accommodate the one per cent increase in PF rate, making it tax free for the current fiscal.
Usually, CBDT notifies a taxfree PF rate for the entire year.
But this time, it is only applicable till August 31. So, the 9.5 per cent PF return would be taxfree from April to August, but could be taxable thereafter till CBDT notifies it to be tax- free.
However, there is no clarity on the issue now.
The finance ministry official also explained that the concerned ministry – the labour and employment ministry – as well as EPFO may be asked to chalk out a strategy for investing its funds for better returns.
“The monetary calculation may differ next year as it would again come back to the same 8.5- per- cent level or even less in the future until the EPFO’s fund managers have a strong back- up for returns. Our ministry has not discussed anything on this. It will be discussed shortly,” said the official.
EPFO invests in Central and state government securities as well as in public sector undertakings and financial institutions.
There has been pressure on the Union minister of labour and employment, Mallikarjun Kharge, from various workers’ unions to ensure that the increased returns on PF deposits are made tax- free. The employees’ representatives had for long been demanding that the rate of return on PF deposits be raised to 9.5- 10.5 per cent from 8.5 per cent.
The increased returns for the current fiscal were made possible as the EPFO found a surplus of over Rs 1,731 crore on analysis of its accounts on an accrualbased system. EPFO follows the cash system of accounting and not the accrual system.
But for the first time it calculated the interest payable to the depositors on accrual basis to analyse the details of the Rs 14,696 crore lying in the interest account.
EPFO will shell out Rs 1,700 crore for the one per cent increase on PF returns to its subscribers for the current fiscal.
source -Indiatoday
Recently, the interest rate on provident fund (PF) deposits for the current year was increased to 9.5 per cent from the 8.5 per cent paid over the last five years.
The contentious issue has cropped up due to the fact that even before the Employees Provident Fund Organisation (EPFO) Board took the decision on September 15 to hike PF rates for the current fiscal, the Central Board of Direct Taxes ( CBDT), which operates under the Income Tax ( I- T) department – had notified a tax- free PF rate of 8.5 per cent for 2010- 11 effective from September, 1.
A finance ministry official requesting anonymity said CBDT has already been asked now to look into the issue. CBDT is now expected to re- notify and accommodate the one per cent increase in PF rate, making it tax free for the current fiscal.
Usually, CBDT notifies a taxfree PF rate for the entire year.
But this time, it is only applicable till August 31. So, the 9.5 per cent PF return would be taxfree from April to August, but could be taxable thereafter till CBDT notifies it to be tax- free.
However, there is no clarity on the issue now.
The finance ministry official also explained that the concerned ministry – the labour and employment ministry – as well as EPFO may be asked to chalk out a strategy for investing its funds for better returns.
“The monetary calculation may differ next year as it would again come back to the same 8.5- per- cent level or even less in the future until the EPFO’s fund managers have a strong back- up for returns. Our ministry has not discussed anything on this. It will be discussed shortly,” said the official.
EPFO invests in Central and state government securities as well as in public sector undertakings and financial institutions.
There has been pressure on the Union minister of labour and employment, Mallikarjun Kharge, from various workers’ unions to ensure that the increased returns on PF deposits are made tax- free. The employees’ representatives had for long been demanding that the rate of return on PF deposits be raised to 9.5- 10.5 per cent from 8.5 per cent.
The increased returns for the current fiscal were made possible as the EPFO found a surplus of over Rs 1,731 crore on analysis of its accounts on an accrualbased system. EPFO follows the cash system of accounting and not the accrual system.
But for the first time it calculated the interest payable to the depositors on accrual basis to analyse the details of the Rs 14,696 crore lying in the interest account.
EPFO will shell out Rs 1,700 crore for the one per cent increase on PF returns to its subscribers for the current fiscal.
source -Indiatoday
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