The government may be fostering notions of tax terrorism among foreign investors while also projecting a poor stand to fend off allegation, there is a clause in the Finance Bill which can undo all the work they set out to achieve. The clause can affect the retirement savings of workers by bringing it under the income tax net, even if they earn a small amount.
To make things more comprehensible, the annual income limit above which income is taxable will be set at Rs 2.5 lakh or even Rs 21,000 per month.
The Tax Effect
Effective from June 1, workers’ retirement savings which cross Rs 30,000 will now be taxed at 10.3% or 30.6%. This is for employees who the provident fund before completing five years in the organization.
Highest rate of tax will be deducted from the EPF account balances of workers who are without a PAN card. This is because the document is used to identify taxpayers as laid down in the Income Tax Act. For employees with a PAN card, the news isn’t all too good too. Those who pay income tax will be required to file past tax returns where there were claimed deductions against EPF contributions.
PAN Card Issues
Officials in the EPF India office are quite alarmed by this new clause. This is because around 90% of Employees’ Provident Fund Organisation’s members are without PAN cards. This would mean that they would a large amount of tax on their savings. The EPFO Board which is headed by the labour and employment minister, Bandaru Dattatreya, raised the issue with the finance ministry recently.
However, EPFO officials are yet to reconsider. This is stark contrast to the finance ministry’s announcement to review new I-T return forms of foreign travel.
Hard Times
Another provision of the Finance Bill is gaining notoriety. The issue of consumer having to quote their PAN card to purchase jewellery which is above Rs 1 lakh will now be applied to EPF members to avoid unnecessary hassles.
Opening of an EPF account is compulsory for employees earning above Rs 15,000 a month in companies with a workforce of 20 workers. Around 24% of an employee’s salary will be sent to the PF account as social security for the future.
What to Expect
What does the Rs 30,000 limit set in the Finance Bill, which deducts tax from your provident fund balance, mean? It implies that you would have to pay tax on contributions as meager as Rs 508 towards EPF monthly for the stipulated 59 months. For those raking a little over Rs 2,120 a month, their retirement savings could be applicable to a 30.9% tax charge if they fail to produce a PAN card.
The finance ministry has in fact directed the EPF India office to charge the highest possible tax rate for individuals without tax rate. When tax is deducted from employees who are not in possession of a PAN card, they will be required to submit various forms to the income tax department, namely forms 15G, 15H and 60.
