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New EPF Taxation and TDS Guidelines – Contributions above Rs. 2.5 lac


What are the brand new EPF Taxation and TDS Guidelines in case your contribution per yr is greater than Rs.2.5 lakh? How do calculate it and what are the foundations? Allow us to attempt to perceive these new guidelines with some examples.

New EPF Taxation and TDS Rules - Contributions above Rs. 2.5 lac

By way of TDS on EPF, there are two conditions the place TDS shall be relevant.

# EPF Withdrawal Taxation and TDS Guidelines

I’ve defined the identical within the beneath picture. Earlier the restrict of such TDS was for greater than Rs.30,000 and above withdrawal quantity. In Funds 2016, the restrict was raised to Rs.50,000. 

TDS on EPF withdarwal

It’s possible you’ll seek advice from the detailed put up on this “EPF Withdrawal Taxation-New TDS (Tax Deducted at Supply) Guidelines“.

New EPF Taxation and TDS Guidelines – Contributions above Rs. 2.5 lac

As per the round, the efficient date for TDS in case of ultimate declare settlement shall be:

i) 01.04.2022 or ultimate settlement/ switch – whichever is later, and

ii) in all different instances, TDS shall be on the date of credit score of curiosity.

Applicability of TDS –

TDS is relevant in case of
a) PF ultimate settlement,

b) switch claims,

c) on switch from Exempted institutions to EPFO and vice versa,

d) on switch from one Belief on one other,

e) previous accumulations switch, on the time of annual accounts processing, on again interval accounting after accounts for yr 2021-­22 are processed.

The TDS may even be relevant in demise instances as within the case of a reside member. It is going to be relevant to all EPF members together with members of Exempted Institutions/Exempted Trusts. It is going to even be relevant in case of Worldwide Employees.

That is the brand new EPF Taxation and TDS Guidelines guidelines that got here into impact on 1st April 2022 in case your contributions to EPF are greater than Rs.2.5 lakh a yr. Therefore, any contribution you carried out from FY 2021-22 shall be taxable and tax is deducted as per this new rule.

The Authorities has modified the foundations for the calculation of curiosity on EPF accounts. It has set a threshold restrict for contribution in EPF Rs. 2.50 Lakhs and GPF Rs. 5.00 Lakhs (as there isn’t any contribution from the employer) on which curiosity acquired won’t be taxable. Any curiosity on the contribution made in the course of the FY 2021-22 in extra of the quantity of Rs. 2.50 Lakhs (EPF) and Rs. 5.00 Lakhs (GPF) shall be taxable as “Revenue from Different Sources “within the hand of the worker or particular person contributing to these funds.

The CBDT has notified Rule 9D to calculate the taxable portion of curiosity pertaining to the contribution made to a statutory or a acknowledged provident fund in extra of the brink restrict of Rs. 2.5 lakh or 5.0 lakhs because the case could also be. It supplies that separate accounts throughout the provident fund account shall be maintained in the course of the earlier yr 2021-22 and onwards for the taxable and non-taxable contribution made by the particular person.

Solely the curiosity accrued within the Taxable contribution account can be taxable within the palms of the worker below the earnings head ‘Revenue from Different Sources”. The curiosity accrued within the Non-taxable contribution account shall proceed to be tax exempt.

As per the accounting system of EPFO,

Curiosity is credited on annual foundation. Nonetheless, Member accounts are maintained month-to-month as per Para 60(2) (a) of EPF Scheme, 1952. I’ve written an in depth put up on this at “How EPF (Workers’ Provident Fund) curiosity is calculated?“.

To handle this new rule’s applicability, the identical methodology is additional divided into two elements.

# Taxable

# Non-Taxable

The relevant TDS charges for this new rule are as beneath –

i) 10% if PF account is linked with legitimate PAN,

ii) 20% if PF account is just not linked with legitimate PAN (i.e., TDS fee can be double)

iii) 30% below Part 195 topic to provisions of DTAA; in case of non-resident.

The edge restrict within the case of GPF is Rs.5 lakh and for EPF it’s Rs.2.5 lakh.

Allow us to take few examples right here.

State of affairs 1 Taxation for FY 2021-22 contributions

Mr. X’s month-to-month contribution in direction of EPF from 1st April 2021 is Rs.25,000. He has an earlier steadiness of Rs.50,00,000. EPF rate of interest thought-about is at 8.1%. Then the month-to-month contribution, taxable, and tax-free curiosity desk seem like beneath for FY 2021-22.

EPF Contribution above Rs.2.5 Lakh

The above chart is just with respect to the month-to-month contribution carried out throughout a yr. Nonetheless, as I discussed above, he has an earlier steadiness of Rs.50 lakh additionally. Therefore, the taxable and non-taxable checklist seems to be just like the beneath.

a) Tax-Free account

Opening steadiness – Rs.50,00,000

Curiosity on opening steadiness – Rs.4,05,000

The contribution made as much as the brink restrict for FY 2022-23 – Rs.2,50,000.

Curiosity earned on the brink restrict – 12,659

TDS @10% in case PAN is out there and linked with Aadhaar – NIL

TDS @20% in case PAN is just not out there and never linked with Aadhaar – NIL

TDS @ 30% for NRIs – NIL

Yr-end steadiness (as on thirty first March 2022) of tax-free account is Rs.50,00,000 (preliminary steadiness) + Rs.4,05,000 (curiosity on Rs.50,00,000 steadiness) + Rs.2,50,000 (contribution of final yr beneath the brink restrict) + Rs.12,659 (curiosity on such contribution of beneath Rs.2,50,000) = Rs.56,67,659

b) Taxable account

Opening steadiness as on 1st April 2021 – NIL

Curiosity accrued on opening steadiness – NIL

Cumulative extra quantity above Rs.2.50,000 – Rs.50,000

Curiosity earned on such extra quantity throughout FY 2021-22 – Rs.507.

TDS @10% in case PAN is out there and linked with Aadhaar – Rs.50.07

TDS @20% in case PAN is just not out there and never linked with Aadhaar – Rs.101.4

TDS @ 30% for NRIs – Rs.152.1

Complete yr finish steadiness (as on thirty first March 2022) in such taxable account is Rs.50,000 (contribution above Rs.2,50,000) + Rs.507 (curiosity on such contribution above Rs.2,50,000) = Rs.50,507.

State of affairs 2 Taxation for FY 2022-23 contributions

From right here onwards there are two accounts to be managed. One is a taxable account and one other is a tax-free account. Allow us to first talk about tax-free account particulars.

The month-to-month contribution desk and curiosity earned on such month-to-month contribution will stay the identical because the above desk of state of affairs 1 for FY 2022-23. As a result of our contribution is similar and rate of interest can also be similar. Nonetheless, the tax-free account and taxable account particulars will differ. Therefore, I’m not once more sharing the above desk. Relatively, I’ll clarify the taxation from FY 2022-23.

a) Tax-Free account

Opening steadiness as on 1st April 2022- Rs.56,67,659

Curiosity on opening steadiness – Rs.4,59,080

The contribution made as much as the brink restrict for FY 2022-23 – Rs.2,50,000.

Curiosity earned on the brink restrict – 12,659

TDS @10% in case PAN is out there and linked with Aadhaar – NIL

TDS @20% in case PAN is just not out there and never linked with Aadhaar – NIL

TDS @ 30% for NRIs – NIL

Yr finish steadiness (as on thirty first March 2023) – Rs.56,67,659 (Preliminary steadiness) + Rs.4,59,080 (curiosity on such preliminary steadiness) + Yearly contribution beneath the brink restrict Rs.2,50,000 + Curiosity on such contribution of beneath threshold restrict Rs. 12,659 = Rs.63,89,398.

b) Taxable account

Opening steadiness as on 1st April 2022 – Rs.50,507

Curiosity accrued on opening steadiness – Rs.4,091

Cumulative extra quantity above Rs.2.50,000 – Rs.50,000

Curiosity earned on such extra quantity throughout FY 2022-23 – Rs.507.

Complete taxable curiosity earned throughout FY 2022-23 – Rs.4,091 (from the preliminary steadiness) + Rs.507 (on the month-to-month contribution in extra of Rs.2,50,000) = Rs.4,598.

TDS @10% in case PAN is out there and linked with Aadhaar – Rs.459.8

TDS @20% in case PAN is just not out there and never linked with Aadhaar – Rs.919

TDS @ 30% for NRIs – Rs.1,379.

Yr finish steadiness (as on thirty first March 2023) -Rs.50,507 (Preliminary steadiness) + Rs.4091 (Curiosity on yr finish steadiness) + Rs.50,000 (Contribution above Rs.2,50,000 in a yr) + Rs.507 (Curiosity earned on contribution past threshold restrict) = Rs.1,05,105.

Conclusion – I hope that the above examples gives you readability. Nonetheless, I’ve one doubt which I’m unable to seek out from the notification of EPFO relating to Rule 9D (Dated thirty first August 2021) is whether or not the long run partial withdrawals are thought-about as a part of the taxable EPF quantity or from tax-free EPF quantity. If anybody of you discovered the readability on this side both from EPFO or from CBDT, then please do share the identical by commenting to this put up.

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