Mumbai, Feb 27
It’s your retirement kitty that you get at the time you retire after many years in service when you are done with the last assignment for your organization. Everyone retires from their regular career, one day or the other when they reach the age of superannuation to step into a new life span which could be a peaceful retired life or taking up some consultancy jobs or other engagements. When a person is retired, he must enjoy the fruitful harvests of his efforts for the rest of his life and the accumulated Provident Fund (PF) money does exactly that in providing some financial security for his needs.
In India PF is governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 which specifies the contribution to be minimum 12% of an employee’s performance wages and basic salary with the employer contributing another 12% to it month-on-month. This continues until his last day of employment with the firm. Well, while presenting the union budget recently in the Parliament, finance minister Nirmala Sitharaman had announced that interest on employee contributions to PF of over ₹ 2.5 lakh would be taxed and the law will come into force from April 1 this year. Up to ₹ 2.5 lakh has been retained as the deposit limit for which interest is tax exempt, Sitharaman said while presenting the budget.
Analysts opine that it is becoming difficult for the government to pay tax free interest on PF contributions and is looking for measures to rein in high income earners from self-contributing more voluntarily to their PF accounts. As the new rule comes into effect people in high income bracket who were investing more into their PF accounts through Voluntary Provident Fund contributions will find that this route for garnering tax free returns is blocked. As per prevailing tax provisions interests received from EPF is exempted from tax but with new rules it would be another story with employee contributions being taxed.
The new provision will only take into account an employee’s contribution and not the total contribution to the fund during any year. Finance minister has said during the budget session that the big ticket money which comes into the fund and gets tax benefit as well as assured returns of around 8% would come under tax ambit. Nevertheless, PF investment continues to be the most preferred medium to build a retirement nest egg to be used in one’s winter years, be it buying a property, getting children married or taking care of any unforeseen medical expenses, etc.
