Delay in Splitting of Provident Fund Accounts

The Employees’ Provident Fund Organisation (EPFO) has not yet split the Provident Fund (PF) subscriber accounts into two for the members who have contributed more than Rs.2.5 lakh last financial year, resulting in tax complications and filing issues. Experts stated that the EPFO is likely to split accounts only when crediting the interest for FY22, which generally takes place between September and December of the following financial year. 

Last month, the EPFO declared an 8.1% interest rate for FY22 at its central board of trustees meeting. The Budget FY22 imposed income tax upon the interest earned on subscriber contributions exceeding Rs.2.5 lakh a year.

Since the taxpayers are required to file income tax returns by 31 July, non-splitting of the PF accounts may create issues if they are unaware of the taxable interest earned on PF contributions.

As per the plan, the EPFO had to split the existing PF accounts with an employee contribution of above Rs.2.5 lakh into two from 1 April 2022. The Central Board of Direct Taxes (CBDT) inserted Rule 9D in the Income Tax Rules, 1962. Rule 9D provides that two separate accounts within the PF account should be maintained to segregate the non-taxable and taxable contributions to PF along with interest paid.

However, there is less clarity on the details of the splitting of the PF accounts. The EPFO has not responded to the possible delay in the split of PF accounts.

A top government official stated that the EPFO is in an advanced stage of developing a system for splitting the PF accounts, and it could be effective anytime. The subscribers with a basic salary of around Rs.21 lakh and more would fall under this net since their 12% contribution would exceed Rs.2.5 lakh. 

For any clarifications/feedback on the topic, don’t hesitate to contact the writer at mayashree.acharya@cleartax.in