Subscribers of private PF trusts may lose tax benefits

The Employees’ Provident Fund Organisation (EPFO) is trying to expedite cases for exemption certificates for private provident funds after the Interim Budget failed to extend a crucial deadline that expires on March 31, leaving employees of at least 50 firms without tax benefits.

“We are trying our best to clear all such cases for exemption and are continuously monitoring the process. We have also empowered a committee on exempted establishment to review these cases,” said KK Jalan, Central PF Commissioner.

Private PF trusts are floated by companies, including multinational firms that wish to manage retirement savings of their employees independent of the EPFO. Around 2,700 such trusts are present in the country and follow the same investment pattern as that of the EPFO, but invest their funds separately.

Finance minister P. Chidambaram had, in 2006, made it mandatory for these trusts to seek an exemption certificate from the labour ministry or the state labour department within a year to enjoy income-tax benefits. Since then, the finance ministry has kept extending the deadline through the Finance Act. However, the deadline is set to expire on March 31, leaving over 100 private PF trusts without tax exemption.

“The Interim Budget did not make amendments to the Finance Act,” said a senior finance ministry official. “There are cases where the companies have not provided relevant information, without which the exemption can’t be given. They can still lose the tax benefit and the firms will have to seek an extension from the ministry,” said Jalan, adding that the EPFO will not approach the ministry on the issue.

The option to extend the deadline can be taken up in the full Budget 2014-15, but it could mean that subscribers of these PF trusts, who choose to withdraw their savings between April and July, may have to pay tax. In the absence of the exemption, annual contribution to the PF is considered part of salary and is thus taxable. Secondly, income generated out of investment of the trust would also attract tax. Moreover, deduction allowed to employers on contribution to the PF fund would also go in the absence of waiver.

Significantly, the EPFO had last year asked field offices to process the long-pending exemption certificates to about 295 PF trusts by November 15, 2013, that were operating on a “deemed” exemption basis. These included blue chip firms like Honda Siel Power Product, GAIL, BHEL, MTNL, Reliance Industries, Adobe Systems and education institutes as well as NGOs.

Since then, the EPFO has cleared some proposals but officials said that a majority of them still need to provide relevant information for the exemption. “Clearance for about 100 such trusts is still pending. The rest are being placed before the Central Board of Trustees for approval,” the official said.

Deadline nears

* The Finance Act has made no mention of extending a crucial deadline for availing tax exemption certificates

* As a result, employees who have parked savings with private PF trusts will have no tax benefits as contributions would be treated as income

* In 2006, it was made mandatory for these private PF trusts to seek exemption certificates within a year to get tax benefits

* The option to extend the deadline can be taken up in the full Budget, but subscribers who withdraw between April-July may have to pay tax