Calculation and deduction of taxable interest relating to contribution in a provident fund exceeding specified limit: EPFO

Calculation and deduction of taxable interest relating to contribution in a provident fund exceeding specified limit: EPFO

ईपीएफओ, मुख्य कार्यालय
श्रम एवं रोज़गार मंत्रालय, भारत सरकार
भविष्य निधि भवन, 14, भीकाजी कामा प्लेस, नई दिल्‍ली 110066
EPFO, HEAD OFFICE
MINISTRY OF LABOUR & EMPLOYMENT, GOVERNMENT OF INDIA
BHAVISHYA NIDHI BHAWAN, 14, BHIKAIJI CAMA PLACE, NEW DELHI 110066
www.epfindia.gov.in

No. WSU/6(1)2019/IncomeTax/ Part-I (F-33306)

Date: 05.04.2022
06 APR 2022

To

All Addl. CPFC (Zones),
All Regional P.F. Commissioners
Incharge of Regional Offices.

Sub: Calculation and deduction of taxable interest relating to contribution in a provident fund exceeding specified limit -regarding

Ref: Ministry of Finance Notification G.S.R. 604(E) dated 31.08.2021. (Copy enclosed)

Madam /Sir,

In ‘pursuance of the notification issued by Department of Revenue (CBDT) dated 31st August 2021, the interest relating to contribution in a Provident Fund, exceeding specified limit of Rs. 2.5 Lakh shall be part of taxable income of the subscriber.

(2) Relevant provisions of Law:

The relevant para of the notification under reference is reproduced as under:-

“Explanation: For the purposes of this rule—

(a) Non-taxable contribution account shall be the aggregate of the following, namely:

(i) Closing balance in the account as on 31st day of March 2021;

(ii) Any contribution made by the person in the account during the previous year 2021—2022 and subsequent previous years, which is not included in the taxable contribution account; and

(iii) Interest accrued on sub— clause (i) and sub— clause (ii), as reduced by the withdrawal, if any, from such account;

(b) Taxable contribution account shall be the aggregate of the following,
namely:

(i) Contribution made by the person in a previous year in the account during the previous year 2021—2022 and subsequent previous years, which is in excess of the threshold limit; and

(ii) Interest accrued on sub— clause (i), as reduced by the withdrawal, if
any, from such account and;

(c) The threshold limit shall mean:

(i) *

(ii) Two lakh and fifty thousand rupees in other cases”.

3. The matter has been examined at Head office and following instructions are being issued in context of calculation and deduction of taxable interest relating to contribution in a provident fund exceeding specified limit:

(a) Effective Date:-

(i) It shall be applicable to all EPF subscribers and shall come into force on 1st day of April, 2022 for the financial year 2021-22.

(ii) The effective date of TDS shall be 1st day of April, 2022 or final settlement or transfers, whichever is later in case of final claim settlement.

(iii) In all other cases not including final settlement or transfers, the TDS will be deducted on the date of credit of interest.

(b) Applicability:-

(i) TDS will be applicable in case of PF final settlement, transfer claims, on transfer from Exempted establishments to EPFO and vice versa, on transfer from one Trust on another, past accumulations transfer, at the time of annual accounts processing, on back period accounting after accounts for year 2021-22 are processed.

(ii) The TDS will also be applicable in death cases as in the case of a live
member.

(iii) It will be applicable to all EPF members including members of Exempted Establishments/Exempted Trusts.

(iv) It will also be applicable in case of International Workers.

(c) Methodology of Computing TDS (Illustrated in Annexure-A):

(i) Taxable contribution part will be subject to a separate accounting of interest and maintenance as the closing balance of the part (i.e. taxable portion) will earn interest next year and will be subject to TDS. As per the current Accounting System in EPFO,

(a) ‘Interest is credited on annual basis. However, Member accounts are
maintained on monthly basis as per Para 60(2) (a) of EPF Scheme, 1952. For the purpose of TDS the same is further divided in to two components:

(aa) Taxable
(ab) Non taxable

(b) In case of a claim for the refund under para 69 or 70, interest shall be payable upto the end of the preceding date on which the final payment is authorised as per Para 60(2) (b) of EPF Scheme, 1952. For the purpose of TDS the same is further divided in to two components:

(ba) Taxable
(bb) Non taxable

(ii) If PF account is linked with a valid PAN, rate of TDS shall be 10 percent and if the same is not linked with a valid PAN, rate of TDS will be double the rate of normal TDS. (Ref. section 194A of Income Tax, Act) (Annexure-B).

(iii) The rates of TDS shall be same in death case also i.e. if the member account of resident is linked with a valid PAN, the rate of TDS will be 10 percent and if the account is not linked with a valid PAN, the rate of TDS will be double the normal rate. However interest u/s 60 will not be payable if the account becomes inoperative u/s 72(6), as per same interest is payable for 36 months from date of death or upto previous month when claim is settled u/p 70, whichever is earlier.

(iv) In case of non-resident as defined u/s 6 of the IT Act PF member rate of TDS will be 30 percent u/s 195 subject to provision of Double Taxation Avoidance Agreement (DTAA). The TDS rate will increase by cess and surcharge as per rates in force, however cess and surcharge will not be applicable if TDS is deductible as per provision of the DTAA u/s 90 of IT ACT 1961. For Financial year 2021-22 rate of cess is 4 % of TDS rate and Surcharge is applicable if interest exceeds Rs. 50 lacs.

(v) If the member has not linked the account with PAN, rate of TDS u/s 194A will be double than the normal rate of TDS i.e. 20% at the time of annual interest accounting as well in case of PF account settlement/ transfer as per provision of section 206AA of the IT Act

“any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—

(a) at the rate specified in the relevant provision of this Act; or
(b) at the rate or rates in force; or
(c) at the rate of twenty per cent”

(vi) In case of Inter Office Transfer from One Regional Office to another: Details of month wise contributions during the financial year 2021-22 have to be shared through revised Annexure-K. The detail of total Taxable contribution along with its interest and TDS deducted (if any) is also to be shared through Annexure —K. Further, Opening Balance and Closing Balance along with withdrawals (separately for Taxable and Non-Taxable part will also have to be shared).

(vii) In case of Exempted Trust to EPFO: Exempted Trusts have to intimate to EPFO the month wise amount of Employee share of contribution of the member and TDS (if any) deducted and details of month wise contribution for the previous year 2021-22 and all subsequent previous years have to be shared through Annexure-K or other mode. The detail of total taxable contribution along with its interest and TDS deducted (if any) is also to be shared through Annexure -K. Further, Opening Balance and Closing Balance along with withdrawals (separately for Taxable and Non-Taxable part will also
have to be shared).
On the basis of information provided by the Exempted Trust, EPFO will arrive at the total employee share during the previous year 2021-22 and
subsequent previous year and interest thereof against the member/UAN and TDS amount after subtracting of TDS already deducted/ deposited (if any) against such member, EPFO while processing annual accounts/ claim settlement/ transfer of PF account of such members shall deposit the balance amount of TDS at the applicable rate.

(vii) In case of Transfer from EPFO to Exempted Trust:– EPFO has to intimate to an Exempted Trust about the month wise amount of Employee share of contribution of the member and TDS (if any) deducted. Details of month wise contribution for the previous year 2021-22 and all subsequent previous years have to be shared through Annexure-K or other mode. The detail of total Taxable contribution along with its interest and TDS deducted (if any) is also to be shared through Annexure -K. Further, Opening Balance and Closing Balance along with withdrawals (separately from Taxable and Non-Taxable part) will also be shared. On the basis of information provided by the EPFO, the Trust will arrive at the total employee share and interest thereof against the member/UAN and TDS amount after subtracting TDS already deducted/ deposited against such member. Exempted Trusts while processing the annual accounts/ settlement/ transfer of PF account of such members will have to deposit the balance TDS on interest in taxable account.

(ix) Contribution which is added through Appendix-E during financial year 2021-22 and subsequent years, TDS on addition of such contributions through Appendix-E will be deducted when annual accounts are processed or PF claims are settled/ transferred and the interest is credited.

(x) In case of transfer of accumulations from one Exempted Trust to another: At the time of transfer, previous Trusts have to intimate to current Exempted Trust about the month wise amount of Employee share of contribution of the member and TDS (if any) deducted. Details of month wise contribution for the previous year 2021-22 and all subsequent previous years have to be shared through Annexure-K or other mode. The detail of total taxable contribution along with its interest and TDS deducted (if any) is also to be shared through Annexure —K. Further, Opening Balance and Closing Balance along with withdrawals (separately from Taxable and Non-Taxable part) will also be shared. On the basis of information provided by the previous exempted Trust, the current Trust will arrive at the total employee share and interest thereof against the member/UAN and TDS amount after subtracting TDS already deducted/ deposited against such member. Exempted Trusts while processing the annual accounts/ settlement/ transfer of PF account of such members will have to deposit the balance TDS on interest in taxable account.

(xi) In case of past accumulations transfer: In case of transfer from previous year 2021-22 or subsequent previous year, only the portion above the threshold limit will be taken into the consideration while calculating the interest and the TDS, thereof including the contribution of previous year 2021-22 or subsequent to previous year is credited in the members PF account.

(xii) TDS deducted will be booked in the books of Account and Balance Sheet under the Account Head – TDS payable -deducted on claim settlement/ member’s Account)- under Head- Current liabilities- Current Liabilities and Provision in Schedule – 05 of Balance Sheet as mentioned in Annexure-C.

(xiii) TDS deductor u/s 195 will have to file Annual Return as prescribed under section 285 BA of IT Act.

(xiv) Nonresident Member for claiming benefit u/s 90 of I-Tax for TDS deduction under DTAA have to file declaration in Form 10F of the IT Tax.

(xv) Frequently asked questions (FAQs) on the said notification are available at Annexure-.D.

(xvi) A flowchart for TDS deduction is available at Annexure-E.

(d) Implementation in the Application Software: – Information Services Division may make necessary changes in the Application software to implement the above mentioned procedure for deduction of TDS as well as reports for the field offices and the following may be kept in view:

(i) The amended provisions apply to EPFO in twin capacities as a statutory provident fund, in terms of section 10(11) of the Income Tax Act and as recognised provident fund, in terms of section 10(12), ibid. (Annexure-B)

(ii) Necessary modifications are required to be made in application software for compliance in respect of both our subscribers and staff.

(iii) The annual provident fund statement is now required to be maintained in two separate parts— taxable and non-taxable contribution accounts— for both our subscribers and staff with effect from financial year 2021-2022 onwards.

(iv) The non-taxable contribution account, starting from financial year 2021-22, shall have details of opening balance, contribution below the threshold, interest earned on such contribution and withdrawals made in the relevant year.

(v) The taxable contribution account, starting from financial year 2021-2022, shall have details of contribution made above the threshold, the interest earned thereon and the withdrawals made in the relevant year.

(vi) Interest earned in the taxable contribution account, being excluded from exempted income in terms of sections 10(11) and 10(12) (Annexure-B), will form a part of the taxable income and will attract taxation at the applicable rates.

(vii) TDS provisions shall apply to the interest credited in taxable contribution account as per requirement of section 194A (Annexure-B) of the Income Tax Act.

(viii) In case of final settlement u/p 69 or 70 and TDS is deducted and remitted/deposited but the amount is received back then only undelivered amount is re-credited in the member’s ledger account.

(ix) It is also requested to modify the report/ returns for field offices, Head office as well as the members /establishments wherever necessary for TDS deducted under section 194 A and 195 respectively of IT Act for claim settlement u/p 69/70 and for TDS deducted while processing annual accounts and Member’s account as prescribed u/p 59 while crediting interest as payable/ credited u/p 60 read with provision of para 72(6) of the EPF Scheme 1952.

(e) Payment of TDS: – The TDS at the time of Annual Accounts will be processed by the system and the field offices will get a daily report on the deducted TDS enabling them to deposit the same within the prescribed time period to the Income Tax department.

(This issues with the approval of Competent Authority)

Encl: As Above

Yours faithfully,

(V. Ranganath)
Additional Central P.F. Commissioner
(WSU-Finance Division)

Copy for kind information to:-
1. PS to CPFC.
2. FA & CAO/CVO/ All ACC-HQs (Head office)/ All ACCs (Head Office) / Director (PDNASS) for information please.
3. ACC-IS for necessary modification in the application software.

Source: EPFO