New Delhi, January 1, 2017

Move to ease compliance hassles

To provide tax certainty to private provident fund trusts, the Income Tax department has finally notified their new investment pattern. This comes more than a year after the Finance Ministry had tweaked the investment norms to allow up to 15 per cent of fresh accruals into EPF accounts into equity instruments.

“It shall be deemed to have come into force on April 1, 2016,” said the Central Board of Direct Taxes (CBDT) in a recent notification. Fresh accretions to the funds would include un-invested funds from the past and receipts like contributions to the funds, dividend, interest, commission, and amount received on the maturity of investments made before April 1, 2015 and reduced by the obligatory outgo or withdrawals and interest during that fiscal, it said.

The investment pattern for Non-Government Provident Funds, Superannuation Funds and Gratuity Funds was notified by the Finance Ministry on April 1, 2015, and then by the Labour Ministry in June 2015. It came into effect in 2015-16. However, the notification from the CBDT was pending.

Apart from the Employees’ Provident Fund (EPF), a number of companies choose to run their own PF trusts for employees for various reasons such as better returns and less hassle. However, they need to follow norms including the notified investment pattern for such schemes to be recognised under the Income Tax Act and receive the same tax treatment as the EPF.

‘Welcome step’

Experts welcomed the move and said it was long pending. “While we were following the investment pattern of April 2015, the lack of an IT notification created a problem at the time of our annual audits. Though we were following the guidelines of the Finance Ministry, the investment pattern did not have the requisite backing of the tax laws. The issue was always flagged in the audit and compliance norms,” said a manager of a private PF trust.

[The Hindu Business Line]