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New PF taxation rules yet to be prescribed

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Is the PF tax proposal in Budget 2021 applicable to PF investments made in the past? Or are they applicable to fresh investments made after April? Is the proposal applicable to the withdrawal of PF corpus?

—Ravi

We assume that the query is in the context of Employee Provident Fund (EPF) contributions. As per the amendment proposed vide Budget 2021, interest accrued on contribution in excess of 2.5 lakh made by an employee to any EPF account for any financial year starting from 1 April 2021 shall now be taxable. Please note the rules governing the manner and timing of computation of such taxable interest have not yet been prescribed.

As this amendment is prospective in nature, the same would apply from 1 April 2021 onwards, i.e. interest on fresh employee contributions made in excess of 2.5 lakh per annum from 1 April onwards.

While there is ambiguity prevailing in terms of timing of tax of such interest income, the existing provisions on taxation/exemption on withdrawal of EPF corpus have not been amended.

I work in the software industry and have income from salary and interest on deposits, etc. Occasionally, I write articles for ancient history magazines and get some payment. Also, about 2-3 times a year, I take two-hour tutoring sessions for software-related subjects, for which also I get some payment. How should I show this income in my income tax returns?

—A.B.

As your primary occupation and source of income is employment and the income earned from writing articles and tutorial sessions are from activities undertaken by you occasionally and not in the nature of regular business or profession, the same can be considered as ‘income from other sources’. Further, any expenditure incurred wholly and exclusively for the purpose of earning such income can be claimed as a deduction against your taxable income. However, if this continues on an ongoing and regular basis, then depending upon facts and quantum/proportion of income, the same may need to be considered as income from business or profession.

Assuming the income is classified as income from other sources, then depending on your other overall sources of income, you would need to file ITR-1 or ITR-2, and the income referred above would accordingly need to be reported. In case ITR-2 is applicable, the details of income would need to be reported under item 1(e) of Schedule OS. Further, details of deductions (if any) would need to be reported under item 3(ai) of Schedule OS. In case ITR-1 is applicable, the details of income and deductions (if any) would need to be reported under item B3 of Part B of ITR-1 form. Please note that the above are with reference to tax return forms pertaining to FY2019-20.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at [email protected]

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