Being Retirement Ready

WTW is delighted to introduce “Being Retirement Ready” – Key retirement regulatory updates for India. This is in response to our client’s requirement to be kept abreast with regulatory developments and WTW initiatives in the retirement space. This will cover areas like Provident Fund, Superannuation / Pension Fund, Gratuity Trust, Benevolent Funds, National Pension System, actuarial valuations, financial wellbeing and other regulatory updates. These snippets would be augmented with inter-related income-tax, accounting and reporting matters.

Our aim is to systematically lay out salient features of the developments in an informative and concise manner. For more information, please contact wtwindia@willistowerswatson.com.

Who should subscribe?

C-suite employees / Trustees of Retirement Benefit Trusts, HR Heads, Compensation & Benefits or Rewards team / Retirement or HR Operations team / Finance team or anyone who leads and coordinates retirement benefits in their organisation.

1. Exempt PF Trust: Bulk upload of past accumulation
   

   The Employees Provident Fund Organisation (EPFO) has released new circular e-file no.27448/1534 09-09-2022 dated 09/09/2022 conveying a new functionality been introduced in the EPFO Application to facilitate bulk upload of past accumulation statement of PF subscribers/ members of exempted PF Trust in event of an application being submitted by exempt establishment for cancellation/ withdrawal/ surrender of exemption from EPF Scheme, 1952.

   Date of issue: 09 September 2022

   • Till now exempted establishments had to approve and transfer the funds one-by-one for each member. Consequently, larger establishments requiring to transfer the funds of many employees each day, found the process very cumbersome and time taking.
   • Under the new facility, exempted establishments can bulk upload data and transfer the funds for large number of members, through a single payment. This will enhance ease of doing business by increasing the speed of funds transfer for exempted establishments.
   • The member ID of the member whose accumulations are being transferred should be available in the system with the UAN. Therefore, for the members in respect of whom ECR was not filed by the Employer as exempted establishment for the period post March 2012, member id is required to be created through the functionality ‘UAN Generation for existing member id’ at FO Interface, by the Regional Office.
   • The User Manual is enclosed in the Circular of a ready reference to the exempted PF Trust who are undergoing the cancellation/ withdrawal/ surrender of exemption from EPF Scheme, 1952.

   Source: https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2022-2023/Instruction_Manual_Past_Accumulation_14092022.pdf

2. Declaration of rate of interest for the Employees’ Provident Fund members account for the year 2021-22
   

   The Employees Provident Fund Organisation (EPFO) has released new circular HO No. INV-11/2/2021-INV/4670 dated 03 June 2022 conveying the Government of India approval to the Ministry of Labour and Employment to credit 8.1% interest on EPF deposits for 2021-22, as per the provisions of Para 60 of EPF Scheme, 1952.

   Date of issue: 03 June 2022

   • Earlier in March 2022, the Employees' Provident Fund Organisation (EPFO) had decided to lower the interest on provident fund deposits for 2021-22 to 8.1 per cent from 8.5 per cent provided in 2020-21.
   • In this regard, the Ministry of Labour and Employment has conveyed the approval of the Central Government vide its letter dated 31 May 2022.
   • The said declared rate shall be applicable to unexempt and exempt PF Trust administrated under the EPFO.
   • The 8.1% EPF rate of interest is the lowest since 1977-78, when it stood at 8%.
   • Here’s a quick look at the PF interest rates in the last few years:
     • 2020-21: 8.50%
     • 2019-20: 8.50%
     • 2018-19: 8.65%
     • 2017-18: 8.55%
     • 2016-17: 8.65%
     • 2015-16: 8.80%
     • 2013-15: 8.75%
     • 2012-13: 8.50%
     • 2011-12: 8.25%
     • 2010-11: 9.50%
     • 2005-06 to 2009-10: 8.50%
   • The EPFO has requested all RPFC to take the circular on record and start crediting the fixed rate of interest at 8.10% for the fiscal FY 2021-22 into the EPF accounts.

   Sources:

   1. https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2022-2023/ROI_FY_2021-22_03062022.pdf
   2. https://www.epfindia.gov.in/site_docs/PDFs/MiscPDFs/
      InterestRate_OnPFAccumulationsSince1952.pdf
3. EPFO releases circular clarifying computation of interest on PF contributions exceeding prescribed limit
   

   The Employees Provident Fund Organisation (EPFO) has released new guidelines HO No. WSU/6(1)2019/Income Tax/Part-I (E-33306)/4581 dated 06/04/2022 on calculation and deduction of taxable interest related to contribution in a provident fund exceeding specified limit.

   Date of issue: 06 April 2022

   • The CBDT, vide notification dated 31st August 2021, provided that the interest relating to contribution in EPF funds exceeding Rs 2.5 lakh (for non-government employees) or Rs 5 lakh (for government employees) shall be taxable in the hands of EPF account holder. Regarding the same, EPFO, on 6th April 2022 has issued much-needed clarity regarding calculation and deduction of taxable interest relating to contribution in EPF exceeding specified limit.
   • The tax on EPF incomes for contributions will kick in from this assessment year and apply to contributions made through 2021-22.
   • The TDS will be deducted at the time of credit of interest in the EPF account. If there is a pending final settlement or transfers, then TDS will be deducted at a later date in the case of the final settlement.
   • Detailed instructions about effective date, applicability of TDS on excess contributions such as at the time of credit of interest, transfer of EPF accounts due to job change etc., methodology of computing TDS along with illustrations under various circumstances have been given in the circular.
   • If the recommendations are implemented as prescribed, the deductees would not face any issue in relation to TDS deduction on excess contribution made by them.

   Source: https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2022-2023/WSU_IT_PF_TDS_4581.pdf

4. UAN-Aadhaar linking deadline extended till December 31, 2021
   

   Employee Provident Fund Organisation vide circular No.: HO No. BKG-27/5/2021-BKG/ dated 11/09/2021 has extended the deadline for Aadhaar linking of UAN till December 31, 2021 for certain establishments and zones.

   Date of issue: 11 September 2021

   • EPFO vide Circular No. BKG-27/5/2021-BKG dated 11/09/2021, considering the challenges faced by the employers & employees, has granted some extension in dates for North-East Zone and special category of industries which are briefed as under:
     1. Since Aadhar penetration is low in North-East Zones comprising of States like Assam, Arunachal Pradesh, Manipur, Meghalaya, Tripura, Mizoram and Nagaland, the time for mandatory seeding Of Aadhar with UAN for filing ECR has been extended to 31/12/2021.
     2. Certain class of industries like Beedi Making, Plantation industries, Building & Construction has also been extended to 31/12/2021.
   • For other than above (1 & 2), delay in filing of ECRs for wage months August 2021 and September 2021 have been waived off for penal damages.

   Source: https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2021-2022/Aadhaar_seeding_UAN_11092021.pdf

5. EPFO launches a drive to promote employee e-nominations
   

   Employee Provident Fund Organisation vide circular HO No. Pension-3/E-nomination Monitoring Cell/ Pt. (35734)/ 1770 dated 23 August 2021 has directed all field offices to pursue members to file e-nomination under subject known as Bharat Ka Amrit Mahotsav.

   Date of issue: 23 August 2021

   • In this regard, members who do not have ready access to desktop/mobile may be facilitated by the concerned field office for getting their nomination filed online when they visit the office.
   • Hence, employers are requested to make note of the above and facilitate filing e-nomination for their employees.

   Source: https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2021-2022/Pension_eNomination_BKAM_1770.pdf

6. EPF Scheme amended to allow withdrawal of non-refundable advance by EPF members in the event of outbreak of pandemic
   

   The Ministry of Labour and Employment, Government of India by way of a notification no. GSR.225(E) published in the Official Gazette on 27 March 2020 introduced amendments to provide for non-refundable advance to EPF members in the event of outbreak of epidemic or pandemic.

   Date of issue: 27 March 2020

   • The Employees' Provident Fund Organisation (EPFO) allows subscribers to take advance from their provident fund accumulations in prescribed situations. A subscriber can take non-refundable PF advances during the service period for various purposes such as illness, marriage, education and purchase of house.
   • Sub-Para (3) inserted under Para 68L of the EPF Scheme, 1952 to provide for non-refundable advance to EPF members not exceeding the basic wages and dearness allowances for three months or upto 75% of the amount standing to member’s credit in the EPF account in the event of outbreak of epidemic or pandemic.
   • EPF members to submit online claims and the services of EPFO also has been integrated and offered through UMANG application of the Government of India and the entire payment to EPF members to be done electronically through Nation Electronic Fund Transfer (NEFT) System.
   • The amended scheme comes into force from 28 March, 2020.

   Source: https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2019-2020/Gazette_notification_pandemic.pdf

1. EPFO hikes death insurance under Employees’ Deposit Linked Insurance (EDLI) scheme to ₹7 lakh
   

   The Ministry of Labour and Employment, Government of India by way of a notification no. HO No. EDLI/Committee-Exem./Extension/2019/27058 published in the Official Gazette on 29 April 2021 introduced amendments to the EDLI Scheme (EDLI Amendment).

   Date of issue: 29 April 2021

   • In the unfortunate event of death of an employee who is a member of the EDLI scheme and who has been employed with the relevant establishment for a continuous period of 12 months preceding the month in which he / she died, the nominee / eligible claimant would, in addition to the deceased employee's provident fund accumulations, be paid an assurance benefit of minimum INR 2,50,000 and up to a maximum of INR 6,00,000.
   • The lower and the upper limits mentioned above were introduced by way of a notification by the Ministry of Labour and Employment, Government of India, which was published in the Official Gazette on 19 February 2018. However, the limits were applicable only for a period of 2 years (from 19 February 2018).
   • By way of the EDLI Amendment, the lower limit of INR 2,50,000 has been restored with effect from 15 February 2020. The upper limit of INR 6,00,000, however, has been increased to INR 7,00,000 with effect from 29 April 2021.
   • The EDLI Amendment will operate for a period of 3 years, i.e., up to 28 April 2024.

Source: http://egazette.nic.in/WriteReadData/2021/226788.pdf

1. Separate PF accounts to be maintained for taxable and non-taxable contribution from 2021-22
   

   The Central Board of Direct Taxes (CBDT) by way of Notification No. 95/2021/ F. No. 370142/36/2021-TPL dated 31st August 2021 has notified a new Rule 9D in the Income-Tax Rules, 1962. where the interest income accrued in the provident fund of a person above a threshold limit will be taxed.

   Date of issue: 31 August 2021

   • The Rs 2.5 lakh threshold is meant for non-government employees. In the case of government employees, applicable threshold is Rs 5 lakh, i.e., interest will be taxable in the hands of the employee if contributions to EPF and VPF exceed Rs 5 lakh in a FY.
   • Rule 9D provides for separate accounts to be maintained within the provident fund account with respect to the taxable as well as non-taxable contribution as follows:

   Separate account maintenance mandatory for taxable and non-taxable contributions w.e.f. April 1, 2022

   Taxable Contribution	Non-Taxable Contribution
   Taxable component of the contribution (i.e., contribution exceeding the threshold limit) and interest accrued thereon	Closing Balance of the EPF account as on 31 March 2021
   	Non-taxable component of the contribution and interest thereon
   Less: any withdrawals from such account

   • The new rule shall come into force on April 1, 2022.

   Source: https://incometaxindia.gov.in/communications/notification/notification_95_2021.pdf

2. Taxation of employer's contribution to retiral funds
   

   The Central Board of Direct Taxes (‘CBDT’) vide notification G.S.R. 155(E) [NO. 11/2021/F. NO. 370142/52/2020-TPL], dated 5 March 2021 has inserted a new Rule 3B in the Income-tax Rules, 1962 (“the Rules”) with effect from 1 April 2021 that provided detailed computation mechanism to calculate the annual accretion to the specified funds taxable u/s 17(2)(viia).

   Date of issue: 5 March 2021

   • The Finance Act 2020 introduced a new provision under the Income-tax Act, 1961 (the Act) by virtue of which employer contribution exceeding Rs. 7.5 lakhs p.a. (i.e. excess contribution) in aggregate to the following specified funds is now taxable in the hands of the employee as perquisite:
   • Employer contribution in a recognised provident fund;
   • Employer contribution in National Pension Scheme (‘NPS’);
   • Employer contribution in an approved superannuation fund.
   • While the provisions came into effect from current tax year 2020-21 (assessment year 2021-22), the above captioned CBDT notification has inserted a new Rule 3B in the Income-tax Rules, 1962 (“the Rules”) with effect from 1 April 2021 that provided detailed computation mechanism to calculate the annual accretion to the specified funds taxable u/s 17(2)(viia).
   • Further, the annual accretion by way of interest, dividend etc. to the specified funds attributable to such excess employer contribution is also a taxable perquisite. While the excess employer contribution above Rs. 7.5 lakhs p.a. is taxable u/s 17(2)(vii), the annual accretion attributable to such excess contribution is taxable u/s 17(2)(viia).
   • These provisions are applicable from FY 2020-21 (AY 2021-22) onwards.
   • Rule 3B provides the below formula to calculate the taxable perquisite u/s 17(2)(viia):
     • TP = (PC/2)*R + (PC1 + TP1)*R

   TP	Taxable perquisite under u/s 17(2)(viia) of the Act for the current previous year;
   TP1	Aggregate of taxable perquisite u/s 17(2)(viia) of the Act for the previous year or years commencing on or after 1st day April 2020 other than the current previous year (See Note);
   PC	Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakh to the specified fund or scheme during the previous year;
   PC1	PC1= Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakh to the specified fund or scheme for the previous year or years commencing on or after 1st day April 2020 other than the current previous year (See Note);
   R	R= I/Favg
   I	Amount or aggregate of amounts of income accrued during the current previous year in the specified fund or scheme account;
   Favg	(Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous Year + Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the last day of the current previous year)/2.

   • Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year, then the amount in excess of the amount or aggregate of amounts of the said balance shall be ignored for the purpose of computing the amount or aggregate of amounts of TP1 and PC1.

Source: https://incometaxindia.gov.in/communications/notification/notification_no_11_2021.pdf