We would like to bring to your kind attention that The Finance Act 2021 introduced an amendment by way of inserting proviso to the Section 10(12) of the Income Tax Act, 1961 whereby interest accrued on an employee’s annual contribution in the PF account exceeding Rs. 2.50 lacs (Rs. 5.00 lacs if there is no employer contribution) is taxable in the hands of the employee w.e.f. financial year (‘FY’) 2021-22 onwards. While such accrued interest income has been made taxable in the hands of the employee, however there is an ambiguity with respect to (a) Tax Deduction at Source (‘TDS’) obligation/applicability on the said taxable interest income accrued and credited to PF Account of the employee and (b) timing of taxability of such interest in the hands of the employee.
There is lot of anxiety amongst various companies operating their own Recognised PF Trust [exempted/approved u/s 10(25)(ii) of the Act] as well as the Statutory PF Body “Employees Provident Fund Organisation” (‘EPFO’) with regard to the applicability/non-applicability of TDS u/s Section 194A of the Act on such accrued taxable interest.
In view of the above, we request for a clarification from your esteemed department that will help to have uniformity/stability across the industry with regard to the position on non-applicability of TDS in this regard and to avoid potential risk/litigation. It may be clarified that there is no requirement to do withholding by the PF trust on accrual of interest every year and the employee should offer the interest to tax in his own return at the time of withdrawal of accumulated balance.
A detailed representation is attached for favour of your kind consideration.