HNIs earn ₹50 lakh a year on an average in tax-free PF interest
Top 20 HNI account holders have about ₹825 crore in their PF accounts while top 200 have over ₹2,000 crore
PremiumAbout 123,000 high income earners are making more than ₹50 lakh a year in tax-free interest on an average from their provident fund accounts, said a government official, explaining the rationale behind the budget proposal to deny tax exemptions on interest earned from contributions of more than ₹250,000 a year.
The high networth individuals (HNIs) comprise about 0.27% of the 45 million Employees’ Provident Fund account holders, and their average corpus is ₹5.92 crore each, earning around ₹50.3 lakh per person a year on an average in tax-free assured interest. The anomaly of paying such huge tax-free interest to HNIs at the cost of honest average salaried class contributors and taxpayers has been removed in the budget, he added, seeking anonymity.
One of the highest contributors has over ₹103 crore in his account while two others have over ₹86 crore each, the official said. Top 20 HNI account holders have about ₹825 crore in their PF accounts, while the top 100 account for more than ₹2,000 crore.
“Their (HNI account holders’) total contribution is to the tune of ₹62,500 crore as of now and the government is owing or paying an assured interest at the rate of 8% with tax exemptions to this high income category at the cost of the honest, low- and middle- income, salaried class and other taxpayers," he said.
While the government justifies the decision, citing unfairness in paying huge sums in assured tax-free interest to high income earners, the indication is that the interest liability on the popular retirement saving instrument is becoming unsustainable at a time when the Centre is expecting huge expansion in fiscal deficit to spur economic recovery.
As per the proposal, if a person contributes ₹2.5 lakh or more to the EPF account, the interest earned on the contribution above this threshold will become taxable. Employers’ contribution will not be taken into account for calculations.
With the new pay rules coming into force in April, this could result in taxpayers with annual income of around ₹45 lakhs or more looking at taxable interest income for their contributions to the EPF, said Archit Gupta, founder and chief executive, ClearTax.
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