The government is cutting down all forms of tax evasion done by using clauses and loopholes. Tax will have an impact on those employees who possess a EPF but have not completed 5 years service within the organisation.
Affects on EPF
The government is currently finding itself fighting tax evasion through loopholes and clauses carried out by foreign investors and to add to the troubles, the finance bill has a clause which can unravel all the work against tax terrorism carried out by the Indian Government so far. In fact, their battle against tax terrorism has so far projected only a poor stand taken by the government and the said clause in the finance bill can affect the retirement savings of workers. Even if they earn a small amount, this clause can bring their retirement savings under the encompassing net of income tax. Rs 2.5 Lakh per year or Rs 21,000 per month is the income level above which any income will be taxed
The tax will have its effect on those employees who have a provident fund but have not completed a service of 5 years within the organization. Taking effect from June 1, those employees whose retirement savings exceed Rs 30,000 will now be taxed anywhere from 10.3% to 30.6%. The highest bracket of tax is reserved for the EPF account balances of employees who do not possess a PAN Card. The PAN Card is a must have document that is used to identify taxpayers and is laid down as a rule in the income tax act. But those who do have a PAN card are not that well off either. Those individuals who have paid income tax are required to file the previous tax returns in which they claimed deductions against contributions made to the EPF
The labour and employment minister, Bandaru Dattatreya who heads the EPFO board has already raised this issue with the finance ministry recently as it comes in stark contrast to the announcement made by the finance ministry to review the new foreign travel IT return forms
The Finance bill has one other provision that is garnering negative reviews. The provision states that consumers have to quote PAN Card to purchase jewellery worth over Rs 1 Lakh. This provision is being applied EPF members in a noble effort to avoid hassles but given majority of the members do not have a PAN card, the provision is turning out to quite the opposite.
The EPF account is to be mandatorily opened for those individuals that earn above Rs 15,000 a month and are employed in companies with a workforce of over 20 employees. Close to 24% of an Employee’s salary is to be sent to their PF account to act as social security.
The new limit set at Rs 30,000 in the Finance Bill will result in tax deductions on PF contributions even as meagre as Rs 508 for a span of 59 months and those employees earning a little over Rs 2120 a month will have to pay tax of 30.9% if they fail to produce a PAN card. Tax deduction from employees who do not possess a PAN card are required to submit forms 15G, 15H and 60 to the income tax department.