Employee Provident Fund Organisation (EPFO) issued a circular dated 05th Apr 2022 which clarifies the calculation and deduction of tax on taxable interest which is relating to contribution to the provident fund.
Highlights of the PF TDS Circular:
- This circular applies 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 cases, 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 the 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 the contribution will be subject to separate accounting of interest and maintenance as the 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 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 apply to international workers as well.
- Calculation of taxable interest relating to contribution in a provident fund or recognized provided fund, exceeding specified limit has been given under Rule 9D in the income tax rules,1962.
- The threshold limit specified as Rs. 5 Lakh is applicable for Central Government Employees / armed Forces, etc.. & for Private Ltd. Employees the threshold is 2.5 Lakhs.
- Necessary software change is expected to be implemented by EPFO to modify the Member accounts and Annual Accounts.
- Necessary illustration and FAQ to be referred in the enclosed circular.