Finmin to announce tax exemption on 9.5% PF returns

The Finance Ministry is believed to have agreed to modify its notification for exempting from tax the entire 9.5 per cent interest on provident fund deposits for 2010-11, and will soon announce the good news for EPFO's six crore depositors.

"The Finance Ministry will soon revise the notification brought out on August 26, for giving exemption on returns on provident fund deposits up to 9.5 per cent (rate of return) for this fiscal", an official source said.

The new notification would be out in next 10 days as the ministry has already initiated the process of revising the earlier notification, the source said.

The Finance Ministry had on August 26 -- before the Central Board of Trustees of the EPFO recommended the interest rate hike to 9.5 per cent for the current fiscal -- came out with a notification that said the returns of up to 8.5 per cent on provident fund deposits would enjoy tax exemption.

The notification became effective from September 1, 2010.

Unless the notification is amended, the additional one per cent interest on provident fund would be subjected to income tax affecting 80 per cent of subscribers who otherwise do not pay taxes.

Earlier EPFO's Central Provident Fund Commissioner Samirendra Chatterjee had indicated that he would take up this matter with the Finance Minister through Labour Ministry to get the issue resolved.

Under Schedule IV of the Income Tax Act, 1961, there is provision for exempting returns on retirement fund from taxes.

EPFO's apex decision making body Central Board of Trustees headed by Labour Minister Mallikarjun Kharge on September 15 decided to give a return of 9.5 per cent on the provident fund deposits, up from 8.5 per cent during the last five years.

Earlier, the exemption was provided on interest income of provident fund up to 12 per cent, though only 8.5 per cent was paid to the subscribers.

"This had never happened in the history of the EPFO. The rate announced by the EPFO has been the benchmark rate for exemption. The Finance Ministry will have to revise its notification," A D Nagpal, secretary Hind Mazdoor Sabha and member of the CBT had said.