The Finance Bill 2021 was amended on Tuesday, doubling the minimum employee contribution to provident fund to over Rs 5 lakh for taxation purposes, paving the way for the listing of Life Insurance Company (LIC), exempting Indian-owned properties sold on digital platforms from equalisation levy, and providing tax holidays for the proposed DFI.
According to some experts, the employee provident fund (EPF) relaxation can only help government workers who contribute to the statutory provident fund and the central provident fund. According to amendments suggested by Finance Minister Nirmala Sitharaman and passed by the Lok Sabha, an employee who receives interest on a donation to the EPF or related funds of over Rs 5 lakh per year will have to pay tax if the employer does not contribute. The Rajya Sabha does not have the authority to amend the Bill.
The finance minister proposed taxing interest received on EPF contributions of more than Rs 2.5 lakh annually in his Budget presentation last month. The cap will remain at Rs 2.5 lakh in cases where employers contribute, but the employers’ contribution will not be counted.
“While private sector workers who receive interest on provident fund contributions exceeding Rs 2.5 lakh will have to pay tax on the interest earned on the excess contribution, the monetary limit for government employees will be Rs 5 lakh,” said Neha Malhotra, director at Nangia Andersen LLP.
“In cases where employers do not contribute to the PF, minor relief is given by raising the employee contribution threshold to Rs 5,00,000,” said Gopal Bohra, partner NA Shah Associates.
The revisions to the Life Insurance Corporation (LIC) Act is one of the most significant changes. It aims to amend the LIC Act of 1956, bringing provisions in line with the Securities and Exchange Board of India’s listing and corporate governance standards (Sebi). The February Budget introduced 27 revisions to the Act to make it easier for the insurance behemoth to list on stock exchanges. The government can sell LIC shares via this path.
The amendments suggested adding additional sections to the LIC Act that would allow for disqualifications from serving as a director, declaration of interests by directors and senior management, related-party transactions, and adjudication of penalties for contraventions or violations subject to a penalty under the LIC Act.