Taking advantage under Social Security Legislation (EPF) By Amending Income Tax Rules, 1962 By Inserting Rules 9D. NOW its EXEMPT, TAX, TAX (which was Earlier EXEMPT, EXEMPT, TAX – Before 5 years). Organized Sector Employees will be Deprived and Employers will be Hassled by Maintaining Two Accounts (2020-21 – Subsequent Previous Years Calculation of Interest)

In a Notification published on 31st August, 2021 by the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes has initiated an amendment in the Income Tax Rules, 1962 by inserting Rules 9D after Rules 9C and the new Rules to be titled as the Income Tax (25th Amendment) Rules, 2021.

Whereas the insertion of Rule 9D is specifically framed for calculation of taxable interest relating to contribution in a provident fund or recognized provident fund where the contribution of employees (12%) exceeds Rs.2.5 lacs or Rs.5.0 lacs in a year (where the employer do not contribute or to mean the VPF which is made solely & voluntarily by the employee in excess of his regular/stipulated rate of 12% contribution and the employer is not obliged to make a matching contribution to VPF).

This current amendment has further directed both the un-exempted and exempted PF Account to split the PF account to maintain ‘non-taxable contribution’ and ‘taxable contribution’ separately for the FY 2020-21 and all subsequent previous years, thus casting an enormous herculean task on both EPFO as well as Employers holding ‘Exempted’ Fund and to remain responsible for deducting taxes at source from “Taxable Interest accrued on contribution exceeding Rs.2.5 lacs or Rs.5.0 lacs, as the case may be” from the employee’s account and remit the same to the Income Tax Department.

Now the obvious question arises as to whether statutory coverage of employees in a covered establishment under the EPF&MP Act, 1952 for which the employees are statutorily forced to contribute in the PF Account and earning interest on contribution exceeding Rs.2.5 lacs (EPF) or Rs.5.0 lacs (VPF) as the case may be, with a view to secure his / her future in a legalized manner, if made him or her to pay taxes – does the legislation really acts as a Social Security or Welfare legislation which was framed to protect and secure future life of an employee? Will this Notification not demotivate employees to contribute in PF anymore?

Finally, can a State through a welfare and social security legislation force employees to suffer loss on his ‘interest income earned on his/her corpus, which is constituted and validated by the Government, to ensure the best warranted future post retirement life?

Since PF membership is not an option but a compulsion under the EPF&MP Act, 1952, it does not leave any alternative to protect & preserve employee savings from further erosion on account of any nature of levying taxes on accrued interest thus causing members captivated in helpless state.

Combined reading of all relevant queries can only be translated to a gross plight to EPFO employee members which the CBDT should revisit the amendment, as it is the only viable opportunity for employees to save money, build up future life and as a responsible stakeholder, the onus exclusively lies on the ministry to ensure that the very interest of the working class is duly protected.