Union Finance Minister Nirmala Sitharaman
Credit: PTI Photo
New Delhi: Finance Minister Nirmala Sitharaman on Sunday proposed to rationalise provisions for provident funds or PF trusts by dropping the requirement of parity-and percentage-based limits on employer contributions.
This is done with an aim to promote ease of doing business by streamlining the employers' contributions on behalf of the employee into their provident fund accounts.
Presently, there are certain PF trusts, which are recognised by the retirement fund body EPFO and the Income Tax Department.
These employer of these trusts used to contribute lesser or higher amounts than their employees' contribution to PF accounts in accordance with certain limits.
A senior official explained that the proposed changes are aimed at improving ease of administration and putting in place a single regulator to govern these PF trusts.
Besides, he said this will remove legal anomaly with regard to tax breaks on PF contributions by the employers, especially in the higher management.
Higher management officials often used to take big tax breaks under the PF contribution provisions, he explained.
The official also said that the new system will provide a framework for PF contributions by employers, which will not be inferior to the norms of the Employees' Provident Fund Organisation (EPFO).
These trusts used get the recognition under the Schedule XI relating to recognised provident funds.
The finance minister, in her budget speech, said, "It is proposed to amend Schedule XI to rationalise the provisions relating to recognised provident funds by deleting parity-based and percentage-based limits on employer contributions, removing salary-linked relaxations and shareholder-based distinctions, aligning eligibility for recognition with exemption under section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and modifying investment related provisions to remove rigid statutory caps inconsistent with prevailing EPFO norms."
The new system will also put a lesser compliance burden on employers and provide more clarity on matters related to income tax on such contributions, thus reducing the chance of litigation.