Provident Fund (PF) contributions above this amount to be taxed from next month. 10 points
PremiumProvident Fund: From 1 April 2022, PF accounts are likely to be divided into two parts - taxable and non-taxable accounts
The central government will impose taxes on Employees Provident Fund (EPF) contributions above ₹2.5 lakh from this financial year. For government employees, the limit has been set at ₹5 lakh. Employees across India are required to have a PF account. From 1 April 2022, PF accounts are likely to be divided into two parts - taxable and non-taxable accounts under the set of new Income tax rules
1) Any interest credited to the provident fund account of an employee shall be tax-free only for contributions up to 2.50 lakh every year and any interest on an employee's contribution over 2.50 lakh shall be taxed in the hands of the employee year after year.
2) For government employees, the limit has been set at ₹5 lakh.
3) “After rationalization of Provident Fund in budget 2021, PF interest rate earned on investment beyond ₹2.5 lakh per annum is taxable if both employee and employer contributions in PF or EPF account," said SEBI registered tax and invested expert Jitendra Solanki
4) The employer contributes 12% of basic salary plus dearness allowance to EPF and deducts another 12% from the employee’s salary; 8.33% of the employer contribution goes to Employees Pension Scheme (EPS).
5) For the implementation of new rules, a new Section 9D has been included under the Income Tax Rules, 1962, according to a notification issued by the Central Board of Direct Taxes. The CBDT frames policy for the I-T department.
6) Previously, the government had mentioned that the move would impact less than 1 per cent of taxpayers.
7) It also mentioned that all contributions until March 31, 2021, will be treated as non-taxable contributions.
8) EPF accounts are mandatory for employees earning up to ₹ 15,000 per month in any firm with over 20 workers.
9) The EPFO, earlier this month, decided to lower the interest rate to a four-decade low of 8.1 per cent for 2021-22.
10) The rate was 8.5 per cent for 2020-21.
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