May 16: Giving relief to 4.71 crore subscribers of EPFO, the government has allowed tax exemption on the 9.5 per cent interest income on PF deposits for 2010-11. The finance ministry notification last week raises the income-tax exemption to 9.5 per cent interest income from 8.5 per cent. The decision clears the air for the EPFO subscribers who were given increased interest rate by one percentage point for 2010-11, but the finance ministry had not matched the interest hike with a commensurate tax exemption.
In the absence of the commensurate tax exemption, the subscribers were earning higher returns even as it was liable to tax. EPFO had decided to provide 9.5 per cent interest rate on PF deposits for 2010-11 after which it was endorsed by the finance ministry in March this year. In 2001, the finance ministry had allowed tax exemption on interest of up to 12 per cent on PF deposits.
This exemption prevailed till August 31,2010. In August last year, the finance ministry had notified tax exemption of up to 8.5 per cent tax on interest on PF deposits from September 1, 2010, onwards which now stands superseded. EPFO had decided to pay 9.5 per cent rate of return for 2010-11 after it found a surplus of Rs 1,731 crore. But the rate was stagnant at 8.5 per cent for five years since 2005-06.
EPFO had also maintained a rate of 9.5 per cent for three consecutive fiscals from 2002-03. The rate of return was 11 and 11.25 per cent in 2000-01 and 2001-02 respectively.