One of the highest contributors has more than Rs 103 crore in his account, and two second highest ones have more than Rs. 86 crore each, the government said, clarifying its decision to tax PF contributions. The government's decision to tax interest earned on Employees' Provident Fund of Rs 2.5 lakh and above a year was based on the principle of equity among the contributors and aimed at ensuring that high networth individuals (HNI) who park huge sums of more than a crore of rupees per month do not earn at the cost of other honest taxpayers' money.
The top 20 HNIs have about Rs. 825 crore in their accounts and leading 100 HNI contributors have more than Rs. 2,000 crore, the government said, without revealing the names of these high networth individuals.
A total of 99 per cent of the EPF-registered members average 2.5 lakh or less, and stand to benefit from the tax exemption provided to those whose contribution is less than Rs 2.5 lakh.
In her budget 2021 announcements, the finance minister had proposed that interest earned on employee's contribution above Rs 2.5 lakh in a year will become taxable in the hands of the employee. The EPF scheme was proposed as a tax safety net for the private salaried employees who have no access to savings after retirement or quitting a job.
The high-networth individual contributors, constituting 0.27 per cent of the total number of EPF account holders, had an average corpus of Rs 5.92 crore per person and ended up earning a huge sum at the rate of Rs 50.3 lakh per such person per annum as tax-free assured interest. These earnings come at the cost of the salaried class and other taxpayers.
As any tax exemption is provided through taxpayers' money, sources said that it was unfair to allow a small group of high-networth individuals to misuse a welfare facility and earn tax-free income wrongfully, adding that normal EPF account holders would not be affected through change in the rules.
The Employees Provident Fund reportedly has more than 4.5 crore contributors' accounts. Out of these, over 1.23 lakh accounts belong to high-networth individuals who contribute huge sums of money on a monthly basis and their total contribution is estimated at Rs 62,500 crore. The top 20 high-networth individuals reportedly have about Rs 825 crore in their accounts, while top 100 HNI contributors have more than Rs 2,000 crore.