Finance Bill gives relief on digital tax, provident fund threshold

 Tax breaks for DFIs; way for LIC listing cleared

Parliament on Tuesday cleared changes to the finance Bill 2021, doubling the minimum limit of employee contribution to the provident fund to over Rs 5 lakh for the purpose of taxation with some riders, paving the way for the listing of Life Insurance Corporation (LIC), exempting Indian-owned assets sold on digital platforms from equalization levy, and giving tax holidays for the proposed development finance institutions (DFIs).

However, the employee provident fund (EPF) relaxation may benefit only government employees who contribute to statutory provident fund and central provident fund, some experts said.

Now, an employee getting interested on his contribution to the EPF or similar funds of over Rs 5 lakh a year will have to pay tax in case there is no contribution from the employer, according to the amendments proposed by Finance Minister Nirmala Sitharaman and passed by the Lok Sabha. The Rajya Sabha does not have the power to make changes to the Bill.

In the Budget presented last month, the finance minister had proposed to tax interest earned on EPF contributions of more than Rs 2.5 lakh annually. However, in the cases where employers contribute, the limit will remain Rs 2.5 lakh only, but the employers' contribution will not be counted.

"While private-sector employees earning interest on provident fund on annual contribution exceeding Rs 2.5 lakh would be required to pay tax on interest accruing on the excess contribution, for government employees, the monetary ceiling will be Rs 5 lakh," said Neha Malhotra, director at Nangia Andersen LLP.