Rs 103 cr in one PF account, Rs 86 cr in others led to cap on tax free interest

New Delhi, Feb 4 : The government was pushed into putting restrictions on tax free interest earnings on employees’ contribution to various provident funds in this year’s Budget after a scrutiny of accounts revealed that certain high networth individuals (HNIs) were using the saving scheme to pump money running into hundreds of crores to escape paying taxes and get assured returns.
Sources in the Department of Revenue said the scrutiny of accounts brought out interesting facts about certain HNIs where one of the highest contributors has more than Rs 103 crore in his provident fund account followed by two second highest ones having more than Rs 86 crore each.
The top 20 HNIs whose records were seen had about Rs 825 crore in their accounts while top 100 HNI contributors have more than Rs 2,000 crore.
Presenting the Budget 2021-22, Finance Minister Nirmala Sitharaman said that in order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of Rs 2.5 lakh. This restriction shall be applicable only for the contribution made on or after April 1, 2021.
The budget proposal evoked sharp reaction from a cross section of individuals who saw the move a disincentive to save, especially for middle income earners having limited avenues of savings and investment providing tax relief as well as assured returns of close to 8 per cent.
Department of Revenue sources said that the aim of changes proposed in the Budget was to remove disparity among contributors and to ensure that the HNIs who park huge sums of more than a crore of rupees per month to misuse and game the provision of assured high interest are checked and do not distortedly earn at the cost of other honest taxpayers’ money.