With a bulk of over Rs 8.5 lakh crore, the Advisers Provident Armamentarium (EPF) arrangement is one of the highly-preferred agent retirement annual schemes. Beneath this scheme, both the employer and agent accord 12 per cent of pay to the fund, which earns annual accumulative absorption at ante bent by the authorities. The absorption bulk for FY 2017-18 was 8.55 per cent.
From a tax perspective, the arrangement is advised adorable back the employer addition to the admeasurement of 12 per cent of bacon is not taxable. A answer is accessible for agent addition forth with added acceptable investments beneath area 80C of the Income Tax Act, aural the all-embracing beam of Rs 150,000. Absorption accumulations on such balances are additionally tax-free. In added words, EPF contributions adore an Exempt-Exempt-Exempt (EEE) cachet back the contributions, accretions and withdrawals on retirement are tax exempt.
Withdrawal from Provident Armamentarium is acceptable beneath defined affairs such as the alliance of self, children, acquirement of property, amid others. The absolute PF addition can be aloof area the agent resigns and charcoal unemployed for a aeon of 2 months or aloft repatriation from India. It is important to accept that withdrawals from PF will be accountable to taxation beneath assertive circumstances. Further, in the case of advisers who repatriate to added countries, it is important for them to analysis on the taxability of such withdrawals in across jurisdictions as well. The implications from an India taxation angle are discussed below.
Where the agent has been in application for 5 years and the bulk is aloof afterwards the 5-year accessory period, the agglomeration sum bulk aloof is not taxable. Area the 5-year belief is not met, the employer contributions and the absorption becoming on the annual are taxable. The annual of deductions for agent contributions availed in the accomplished is additionally appropriate to be reversed.
Such withdrawals are, therefore, accountable to a tax denial irrespective of whether the contributions were fabricated to the Regional Provident Armamentarium appointment (RPF) or to the PF assurance maintained by the employer.
Taxable withdrawals from the RPF will be accountable to tax denial at 10 per cent if the Permanent Annual Number (PAN) is provided, abroad tax will be withheld at the best bordering rate. No taxes will be withheld if the acquittal is beneath than Rs 50,000. Withdrawals from the employer assurance will be accountable to denial at ante applicative to the employee.
There are assertive situations area abandonment afore 5 years does not activate taxation, e.g. area the annual of the agent is concluded due to ill-health, adjournment of employer’s business or any added acumen above the ascendancy of the employee. Transfer of PF balances area the agent changes application is not accountable to tax.
Given the adorable absorption rates, advisers tend to absorb the PF balances with the fund. An important aspect is the taxation of absorption becoming afterwards abeyance of employment. The Bangalore bank of the Income Tax Appellate Tribunal has afresh captivated that the absorption accumulated in the EPF annual column abeyance of application is taxable.
Hence alike if the accessory aeon is added than 5 years, such absorption will be taxable and needs to be appear in the tax return.
As a admeasurement of added acknowledgment requirements, the tax acknowledgment forms now crave the tax payer to address the year-wise taxable bulk of the PF withdrawals. Tax authorities are additionally aing PF trusts to access advice on absorption acclaim to PF accounts column abeyance of employment.
It is important for advisers to be alert of the tax implications associated with the PF abandonment back this could decidedly bankrupt their life-time savings. Some bulk of planning about the timing can advice them abbreviate the tax impact. Retaining abstracts such as PF statement, Form 16 etc. to abutment the disclosures in the accident of a tax analysis is additionally recommended.
(By Saraswathi Kasturirangan, Partner, Deloitte, and Sumit Jain, Manager, Deloitte Haskins & Sells LLP)
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