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EPFO issues Circular clarifying TDS on interest on PF contributions

> Employee Provident Fund Organisation (EPFO) issued a circular dated 06th Apr 2022 which clarifies about the calculation and deduction of tax on taxable interest which is relating to contribution in provident fund pursuant to CBDT Notification No. 95 of 2021-Income Tax.

> This circular is applicable to all EPF subscribers with effect from 01.04.2022 for FY 2021-­22.

> As per the circular, the effective date for TDS in case of final claim settlement shall be :

01.04.2022 or final settlement/ transfer – whichever is later,

And in all other case,

TDS shall be on the date of credit of interest.

> The CBDT notification requiring tax deduction at source would be applicable in case of :

  • PF settlement
  • Transfer claims
  • Transfer from exempted establishment to EPFO or vice-versa
  • Transfer between trusts, past accumulation transfer and
  • Also applicable in death cases in case of the live member;

explains the methodology of computing TDS, states that taxable part of contribution will be subject to separate accounting of interest and maintenance as closing balance of taxable part will earn interest and subject to TDS.

> Accordingly, the interest on contribution and claim for refund shall be divided into two components – Taxable and Non-taxable for the purposes of deduction of tax.

> TDS rate shall be :

  • 10% if PF account is linked with valid PAN,
  • 20% if PF account is not linked with valid PAN(i.e TDS rate would be double)
  • 30% under Section 195 subject to provisions of DTAA; in case of non-resident . > Further, it will be applicable to international workers as well.

> Calculation of taxable interest relating to contribution in a provident fund or recognised provided fund, exceeding specified limit has been given under Rule 9D in the income tax rules,1962.

> The threshold limit shall mean:

  • Five lakh rupees, if the second proviso to clause (11) or clause (12) of section 10 is applicable; and
  • Two lakh and fifty thousand rupees in other cases.”

Illustration :

Suppose, Mr A’s monthly contribution to EPF account is Rs 30,000 (Rs 3.6 lakh yearly). The closing balance of his/her EPF account on March 31, 2021 is Rs 50 lakh. The calculation of taxable & non­taxable portion of contribution will be as follows:

Interest @ 8.1%

Month Contribution Non Taxable (NT) Taxable (T) Interest on “NT” Interest on “T”
Apr-21 30,000 30,000 203
May-21 30,000 60,000 405
June-21 30,000 90,000 608
July-21 30,000 1,20,000 810
Aug-21 30,000 1,50,000 1013
Sep-21 30,000 1,80,000 1214
Oct-21 30,000 2,10,000 1417
Nov-21 30,000 2,40,000 1620
Dec-21 30,000 2,50,000 20,000 1688 135
Jan-21 30,000 2,50,000 50,000 1688 338
Feb-21 30,000 2,50,000 80,000 1688 540
Mar-21 30,000 2,50,000 1,10,000 1688 743
Total 3,60,000 2,50,000 1,10,000 14042 1755

Thus, the amount available under taxable account on March 31, 2022 will be :

Closing balance as on March 31, 2021 Rs 50,00,000
Add: Contribution during FY 2021-22 Rs 2,50,000
Add: Interest accrued Rs                             14,042
Total amount at the end of FY 2021-22 Rs 52,64,042
TDS @10% (where PAN is available) Nil
Opening balance as on April 1, 2022 Rs 52,64,042

The amount available under non taxable account on March 31, 2022 will be :

Closing balance as on March 31, 2021 Rs 50,00,000
Add: Contribution during FY 2021-22 Rs 2,50,000
Add: Interest accrued Rs                             14,042
Total amount at the end of FY 2021-22 Rs 52,64,042
TDS @10% (where PAN is available) Nil
Opening balance as on April 1, 2022 Rs 52,64,042

The amount available under non taxable account on March 31, 2022 will be :

Closing balance as on March 31, 2021 Nil
Add: Contribution during FY 2021-22 Rs 1,10,000
Add: Interest accrued Rs 1,755
Total amount at the end of FY 2021-22 Rs 1,11,755
TDS @10% (where PAN is available) 176
Opening balance as on April 1, 2022 Rs 1,11,580

*Note: Where pan is not available or PF account is not linked with valid PAN, TDS rate is 20%.

30% under Section 195 subject to provisions of DTAA; in case of non-resident .

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