The Centre has planned to tax Employees Provident Fund (EPF) contributions exceeding Rs. 2.50 lakh yearly. For government employees, the limit has been set at a higher end of Rs. 5 lakh.
Under new Income Tax (I-T) Rules, PF accounts are likely to be divided into two parts one is taxable and the other is non-taxable contribution accounts from April 1, 2022.
For the sake of calculation, separate accounts within the provident fund account shall be maintained starting 2021-2022.
All subsequent years for taxable contribution and non-taxable contribution made by a person, say tax experts. Explaining in other words, the provident fund office or the employee PF trust will maintain two accounts for this purpose: One with contribution within the threshold and the other (second) for contribution over the threshold.
Explanation of New Rules that may apply to EPF interest:
According to the new rules, 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. Any interest on an employee’s contribution over 2.50 lakh shall be taxed in the hands of the employee year after year.
If the employer doesn’t contribute to the provident fund of the employee, then the threshold applicable will be Rs. 5 lakh of the employee’s contribution, says tax expert Balwant Jain.
The limit of Rs. 5 lakh covers around 93% of EPFO subscribers. They will continue to get assured tax-free interest, according to the interest rate announced by EPFO every year.
Non-government employers deduct 12 per cent of basic salary as EPF contribution every month while adding a similar figure to it and then depositing it with the EPFO.
It also mentioned that all contributions until March 31, 2021, will be treated as non-taxable contributions.
For the implementation of new rules on PF income from employees’ contributions exceeding Rs. 2.50 lakh per annum, 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.
