EPFO to contest tax demand on PF from CBDT, CBEC

The Employees Provident Fund Organisation (EPFO) is ready to take on the tax departments over the issue of income tax and service tax demands raised on the organisation.

The EPFO had approached the finance ministry for help, which advised it to go through the legal procedure. Accordingly, EPFO has gone to the commissioner, appeals, the first step for seeking reversal of any tax demand. Then there are the appellate tribunals and subsequently the high court.

“We are prepared to go to any length,” Central PF Commissioner Samirendra Chatterjee told Business Standard. “We are hopeful that proper justice would be done.”

The income tax demand on EPFO pertains to early withdrawals of PF money by subscribers from their accounts. The organisation will have to pay about Rs 8,000 crore if the income tax department’s argument that it failed to deduct tax is upheld.

The EPFO contends it is exempt from tax and any responsibility for deduction of tax is on employers, as they forward the applications for withdrawals. “How would we know how much tax has to be deducted? The statutory limit for PF is Rs 6,500 salary per month, which is lower than the taxable limit,” Chatterjee pointed out.

Further, the organisation is set to contend strongly that PF is a social security scheme and so, not subject to any tax.

The I-T department’s justification is that under the Income Tax Act, withdrawals of PF money by individuals who have not completed five years of contributions to the EPF should be subject to income tax.

Currently, this tax demand has been raised on only two PF offices and for a two-year period between 2007 and 2009. Obviously, the apprehension is that the same demand can be slapped on all its offices.

In case of service tax demand, the Central Board of Excise and Customs (CBEC) has said as the administrative charges taken by EPFO from employers is for service provided to them, it should pay service tax on that. The service tax demand raised was over Rs 1,000 crore, said an official.

 

The EPFO asks why the issue has been taken up now. The administrative charge is associated with the management of EPFO, which is tax-exempt, and a social security organisation cannot be treated at par with service-oriented commercial institutions.