PF tax prompted by HNIs availing waiver

New Delhi: A government study ahead of the budget found that about 123,000 people had a combined Employees Provident Fund (EPF) corpus of ₹62,500 crore in FY19. This prompted the government to remove the tax exemption on annual contributions of ₹2.5 lakh and above to provident fund accounts in the February 1 budget. The EPF has 63.3 million contributing members.

“One of the highest contributors has more than ₹103 crore in his PF account, followed by two second highest ones having more than ₹86 crore each,” said a government official.

“Top 20 HNIs (high net worth individuals) have about ₹825 crore in their accounts, while top 100 HNI contributors have more than ₹2,000 crore,” the official added.

Interest earned on the provident fund corpus is tax free and no tax is levied at the time of withdrawal, making it an attractive investment option.

‘Misuse of Welfare Facility’
The provident fund return has been in excess of 8.5% in recent years, well above that on the small savings scheme and what’s available on fixed deposits.

“It was unfair to allow a small group of HNIs to misuse a welfare facility and earn wrongfully tax-free income as assured interest return,” said the official. The average EPF or General Provident Fund (GPF) contributor won’t be affected by the move, he said. GPF, which is for government employees, gives the same return as EPF.

“Any tax exemption is taxpayers’ money--assured return being given is again coming out from the taxpayers’ money,” revenue secretary Ajay Bhushan Pandey had told ET in an interview on Tuesday.

“The question is that those who are depositing higher, should they be given the tax concession at the cost of another taxpayer?”

High net worth contributors, who are 0.27% of the total number of EPF account holders, have on average a corpus of Rs 5.92 crore, earning Rs 50.3 lakh tax-free assured interest. The applicable levy will be the marginal income tax rate of the individual.