Funds 2023 revenue tax: Plug this Provident Fund double taxation chance on early exit

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Union Funds 2023: Do you know that your Provident Fund could be “double-taxed” underneath sure circumstances? In a pre-Funds 2023 interview with TOI, Poorva Prakash, Companion, Deloitte India, says that amendments on the taxability of Provident Fund, introduced in by the Finance Act 2020, may result in sure conditions of double taxation.
Poorva goes on to clarify that Funds 2020 offered that an employer’s contribution to the Recognised Provident Fund (RPF), superannuation fund and Nationwide Pension System (NPS) exceeding Rs 7.5 lakh in a tax yr, will probably be taxable within the yr of contribution.
Additionally, accretion by means of curiosity, dividend or every other quantity of comparable nature on contributions made by the employer in extra of Rs 7.5 lakh will probably be taxable within the yr of contribution.

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“The Income Tax Act supplies sure conditions, the place the PF contribution might turn out to be taxable if sure circumstances aren’t met, for e.g. if the worker leaves earlier than 5 years of service,” says Poorva. She factors out that it may result in double taxation on the withdrawal stage to the extent the contribution/accretion has already been taxed, as there isn’t any particular exemption offered for excluding the contribution/accretion already taxed.
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This may be defined higher with the assistance of an instance:

  • Employer’s contribution to Provident Fund or PF in FY 22-23 (A): Rs 900,000
  • Taxable quantity of Employer’s contribution to PF (exceeding Rs 7.5 lakh) at contribution stage i.e. in FY 22-23 (B): Rs 150,000 (Rs 900,000 – Rs 750,000) + accretion i.e. curiosity on employer’s contribution to PF of Rs 150,000 in FY 22-23 (as per Rule 3B of Revenue-tax Guidelines)
  • Taxable quantity of Employer’s contribution to PF at withdrawal stage (earlier than rendering 5 years of service) in FY 23-24 (C): Rs 900,000 + accretion i.e. curiosity on employer’s contribution to PF
  • Double taxation: (B+C) – (A) = Rs 150,000. As well as accretion (curiosity) on the employer’s contribution to PF of Rs 150,000 may also get doubly taxed.

“The federal government ought to present a particular exemption to make clear that PF and its accretions which have been taxed earlier, shouldn’t be taxed once more” Poorva tells TOI. She is of the view {that a} clarificatory modification on this regard can be very useful in avoiding the double tax state of affairs.

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