Over 48 lakh subscribers of many of the 2,700 private provident fund trusts may now have to shell out tax on their retirement savings. This is because Budget 2012-13 has not extended a crucial tax exemption to such trusts which is essential for them to retain tax benefits.
The move comes days after the interest rate on deposits to the EPFO was slashed by 1.25 per cent to 8.25 per cent for 2011-12. Provident fund contributions are mandatory for all companies with over 20 workers. The fund is managed by the EPFO but many firms prefer to set up their own PF trusts.
Until now,tax benefits to retirement savings with recognised private PF trusts were at par with those under the Employees Provident Fund Organisation both enjoyed the Exempt-Exempt-Exempt tax regime,where in contributions,interest component as well as withdrawals are tax-free.
However,in Budget 2006-07,the then finance minister P Chidambaram had asked these trusts to get fresh exemption certificate from the labour ministry within a year to retain tax benefits granted for retirement fund contributions under the Income Tax Act,1961.
With the labour ministry dragging its feet,this deadline had to be extended five times. Just about 250 of the 2,700 odd such trusts have been given an exemption certificate till date.
Giving an exemption certificate is a time taking process,which involves inspection and audit of the trusts books of account. It cant be given overnight, an EPFO official said.
The finance ministry contends that it cannot keep extending the deadline and the labour ministry should have handed out exemption certificates to all trusts by now.
With just five days remaining of this fiscal,this provision will create practical difficulties. These trusts will be derecognised and wont get the tax benefits. We can only hope it will be rectified when the Finance Bill gets enacted, said Kuldip Kumar,executive director,PwC.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines