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Facing sharp criticism over bringing employee provident fund withdrawals under tax net, Finance Minister <keyword id="42575" type="PERSON" weightage="20" keywordseo="Arun-Jaitley">Arun Jaitley</keyword> is mulling over a partial rollback. 
 
Jaitley said he will announce the final decision on the matter during Budget debate in the Parliament. 
 
While announcing the Budget 2016-17, Jaitley proposed taxing 60 per cent of the withdrawal from Employee Provident Fund (EPF) on contributions to be made after April 1. 
 
The decision attracted criticism and many petitions against the same. 
 
In his clarification, Jaitley said the move was aimed at high-salaried class and not the overwhelming section of 3.7 crore EPF members. 
 
"The revenue department had considered various aspects of the National Pension Scheme and Employee Provident Fund Organisation (EPFO). Their intention is not revenue raising, that was not the principal intention," he said. 
 
With the proposal being attacked by various employees unions including RSS-backed BMS and political parties who termed it as "an attack on the working class and a clear case of double taxation," the government yesterday said it was to limit the tax only to the interest accrued. 
"Now there has been some reactions. When the debate comes up in Parliament I will give the government's response as to what decision we finally take in this matter," he said. 
 
Jaitley said the objective behind the proposal was that no tax is levied on 40 per cent of the withdrawal which can be used for meeting retirement commitments. 
 
(Image: Indiatimes)

Govt
rethinking its decision to tax interest on EPF

Earlier this year, an application presented before the Authority for Advance Ruling sparked the interest of businesses across India. The appeal was made by a Global Investment Bank seeking clarification on applicable liabilities on the car lease scheme offered to its employees. The AAR held that any services provided by the employer to the employee in the course of employment do not amount to service provision and thus do not fall under the tax radar. However, in a contrasting ruling, the Hyderabad office of the Customs, Excise and Service Tax Appellate Tribunal, while determining the eligibility to avail of the input tax credit on services procured to provide facilities to employees, held that to the extent of the amounts recovered from employees, the employer-employee relationship does not exist. They step into the shoes of a service provider and a service recipient in such a situation. Very often companies get generous and present end of the year gifts, bonuses, and other employee benefits during the holidays. Did you know that these end of the year bonuses could cost you in tax liabilities? Since the scope of services under India’s Goods and Services Tax has extensive coverage and encompasses all forms of supply, with deemed inclusions and specified exclusions, the question of whether or not year-end gifts or prerequisites are taxable is still debatable. In legal terms, a prerequisite is defined as a non-cash benefit granted by an employer to its employee. As specified by the Income Tax Act, it is a benefit that an employee avails of or is entitled to on account of the employee’s job or position within an enterprise. Since services by an employee to an employer fall outside the purview of the Goods and Services Tax, the law follows that supply by the employer to the employee is made as per terms of a contractual agreement and therefore will not be subject to GST. However, the law also states that GST applies to the supply of goods and services. As per GST laws, supply includes all sale, transfer, exchange, barter, license, rental, lease, or disposal – made for consideration and shall be in the course or furtherance of a business. Supply can be from employee to the employer or from employer to its employees. Any supplies made by an employer to its employees will be taxed under GST. Back in 2017, the GST Council had issued a press release clarifying that supplies made by the employer to the employee in terms of the employment agreement will not be subjected to GST. Unfortunately, this clarification did not yield the desired result, and whatever clarity it offered was rendered moot by clashing AAR rulings. In separate rulings, the AAR benches of Kerala, Gujarat, and Haryana have held that the provision of cafeteria or canteen facilities to employees falls undersupply. This is because the supply of food is a transaction incidental to the main business and furthers the company. In a different ruling, the Maharashtra and Uttar Pradesh benches of the AAR held that recovery made towards premium paid for medical insurance does not fall undersupply as it is not connected to the main business. The same benches of the AAR, in different cases, held that the provision of transport facility was not considered as supply as it didn’t further the business - but the Haryana AAR passed a contrasting ruling stating that the transaction furthered the business. Contrasting AAR rulings on what falls under the purview of supply in an employee-employer transaction and vice versa have led to several businesses waiting for directives from higher jurisdictional authorities like High Courts and the Supreme Court. Eliminating bonuses and benefits can lead to a severe fall in employee morale and is not an option for most businesses. In a time when employee recruitment is more expensive than employee retention, companies prefer to have employees stay longer than hire new resources. The lack of clarity on whether or not bonuses, gifts, or other prerequisites fall undersupply leads businesses getting creative during the holidays. Instead of offering bonus amounts to their employees, employers provide their employees alternative benefits, including rewards like staycations, gym memberships, subscriptions to entertainment platforms like Amazon and Netflix, high discounts on company products like smartphones, tablets, clothing, etc. While alternative gifting seems like a good solution, it is likely to be short-lived and limited to a specified amount. Remote working has already shown a drop in employee morale. Businesses will have to keep coming up with innovative employee benefits to ensure better employee retention until the GST council irons out the saga on taxable prerequisites. Note: This is an opinion piece by Anil Paranjape, Director, Avalara India. SEE ALSO: <a href="https://www.businessinsider.in/personal-finance/news/due-date-for-filing-income-tax-returns-extended-to-march-15-2022/articleshow/88836918.cms">Due date for filing income tax returns extended to March 15, 2022 for individuals whose accounts are to be audited</a> <a href="https://www.businessinsider.in/personal-finance/news/premiums-on-new-life-insurance-premiums-for-both-term-plans-and-endowment-are-rising/articleshow/88889744.cms">Premiums on new life insurance premiums for both term plans and endowment are rising</a> <a href="https://www.businessinsider.in/personal-finance/news/epf-heres-how-to-withdraw-money-from-your-account-online/articleshow/88295260.cms">Here’s how to withdraw money from your EPF account online</a>

OPINION: Received a year-end bonus? What will be the impact of perquisite tax in the new year?

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Govt rethinking its decision to tax interest on EPF

BI India Bureau

OPINION: Received a year-end bonus? What will be the impact of perquisite tax in the new year?

Anil Paranjape

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