New Delhi, Mar 27: With some 46 lakh employees facing threat of losing income tax waiver on retirement benefits, the government today indicated that the IT exemption to about 2,400 private provident fund trusts would be incorporated in the 2012-13 Budget.
The Finance Ministry is willing to extend tax exemption to private provident fund trusts (PPFTs) in the Budget for 2012-13 in the interest of a “large working population”, an official said. “We may consider it..” he said.
On its part, the Labour Ministry will soon approach the Finance Ministry for continuation of the tax exemption for the PPFTs, as denial of the tax benefits would impact retirement benefits of about lakh employees.
In 2006, former Finance Minister P Chidambaram had made it mandatory for all PPFTs to seek exemption certificates from the Labour Ministry within a year for enjoying the tax benefits.
Since all these trusts could not get the exemption certificates in that year, annual waiver was being given by successive budgets, on request from the Labour Ministry.
However, the Labour Ministry could not send any such request this year with a result that the Budget for 2012-13 did not find a mention about extending the waiver.
“The Labour Ministry will soon approach the Finance Ministry in this regard,” an official in the Labour Ministry said.
Out of 2,700 PPFTs, only 284 have so far been given the exemption certificates from the Labour Ministry while 400 applications are under process.
The issue has serious implications for both employees and employers. In the absence of waiver, annual accretion to the PF is considered part of salary and is thus taxable.
Secondly, income generated out of investment of the trust would attract tax. Moreover, deduction allowed to employers on contribution to the PF fund would also go,officials said.