The Income Tax Department has allowed recognised provident funds to invest in 'A' or higher-rated debt securities, a move which will give them flexibility to retain their current investments in bonds even where such papers have been downgraded.
Earlier, recognised employees provident fund trusts were required to invest in securities having 'AA' and above rating.
The Central Board of Direct Taxes, in a notification dated Oct. 22, has amended income tax rules allowing recognised PF trusts to invest in 'A' or above rated securities in 2020-21 fiscal.
Currently in order to be treated as a recognised employee provident funds, such funds are required to invest 45-55% of its fund in government securities, 35-45% in debt (bonds and term deposits), 0-5% in short-term debt (money market, liquid funds), 5-15% in equity, asset backed securities (units of REITS, InVITs) 0-5%.
The CBDT has now amended income tax rules, thereby diluting norms for investment purposes to bonds with minimum 'A' rating, against the earlier requirement of 'AA' rating.
"Since the current situation and stress on liquidity and profitability has resulted in downgrade of several debt papers by rating agencies, the relaxation in the PF fund rules will provide flexibility to retain their current investments in bonds even where such papers have been downgraded," Nangia Andersen LLP Partner Sunil Gidwani said.
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