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New Delhi: Finance Minister Nirmala Sitharaman on Tuesday raised the limit for tax exemption on interest earned on provident fund contribution by employees to Rs 5 lakh per annum in specified cases as against Rs 2.5 lakh proposed in the Budget.
However, the minister in her reply to discussion on Finance Bill 2021 in the Lok Sabha said the concession would be available to employees only in cases where his or her employer does not make any contribution to the retirement fund.
The Finance Bill was later passed by the Lower House with 127 official amendments by voice vote.
With the passage of the Finance Bill, which contains tax proposals for the next financial year, the Lok Sabha has completed the budgetary exercise for 2021-22.
The Bill is scheduled to be taken up by the Rajya Sabha on Wednesday.
Replying to the debate, she said the Budget proposal taxing interest income on contributions more than Rs 2.5 lakh per annum would affect less than 1 per cent of the total number of EPF subscribers.
But there were also cases where EPF contributions were as high as Rs 5 crore, she said.
"This Rs 2.5 lakh (limit) is covering majority of 92-93 per cent of the people who are depositing and for whom assured interest is tax free under this scheme. So the limits have been kept keeping in mind that small and medium taxpayers are not impacted by the step," she said.
The Employees' Provident Fund Organisation (EPFO) has over six crore subscribers.
"I intend to raise this limit to Rs 5 lakh only in those cases, where there is no contribution by the employer in that fund.
"So, most often, it is employee contribution and employer's contribution, but there are contributions which are only employee and no employer contribution is made, in such cases that amount is raised to Rs 5 lakh," she said.
This would come into effect from April 1.
"In order to rationalise tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees' contribution to various provident funds to the annual contribution of Rs 2.5 lakh," Sitharaman said in her Budget 2021-22 speech.
With regard to taxes, the finance minister said there are certain changes being made to the Income Tax Act which are largely focused on the issue of ease of doing business and improving compliance.
She also said the government will be undertaking rationalisation of the existing Customs Act from April 1 till August.
"We shall continue with that exercise of rationalising and simplifying customs. So eventually we hope to have a complete structure for customs which is going to be absolutely simple," she said.
With regard to Tax Collected at Source (TCS), she said, it was imposed last year in the Finance Act of 2020 with intension to widen the tax net.
"We need to widen the tax base and TCS... never was an additional tax. It is levied, but you can always reconcile with actually what you have to pay. So credit for tax collected is allowed, and hence it is not an additional tax," she said.
She clarified that income tax assessment can be opened for up to 10 years only where up to Rs 50 lakh of undeclared income is in question.
Even there, the opening can happen only with the approval of the principle commissioner, she added.
With regard to disinvestment, Sitharaman expressed hope of meeting the target set for the next financial year as the market is buoyant.
"I fully concede that in a year where your disinvestment was to be achieved, but when the markets were tepid, we couldn't move...I'm hopeful now, because even during corona we saw the way in which the market has been buoyant. So I'm hopeful that we'll be able to achieve that," she said.
The government has budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including two PSU banks and one general insurance company, in the next fiscal year beginning April 1.
The amount is lower than the record Rs 2.10 lakh crore which was budgeted to be raised from CPSE disinvestment in the current fiscal year.
For fiscal year 2021-22, out of the total Rs 1.75 lakh crore, Rs 1 lakh crore is to come from selling government stake in public sector banks and financial institutions. Rs 75,000 crore would come as CPSE disinvestment receipts.
She also criticised a member for talking about a report by Freedom House, saying the MP should take up the matter of showing incorrect map of India with the think-tank.
