Recently, the Central Board of Direct Taxes (CBDT) has announced that employees who are contributing more than Rs 2.5 lakhs in Employee Provident Fund Organisation (EPFO) in a fiscal year are required to maintain two separate accounts from the financial year 2022.
According to Union Budget 2021 guidelines, interest on annual PF contributions of more than Rs 2.5 lakh is taxable.
Now, an individual will have to maintain two separate accounts – taxable and non-taxable which will make it easier for the income tax department to calculate interest on such financial investment instruments.
Through a notification, CBDT has clarified that the new rule will be implemented from the financial year 2021-22, hence contributions made till March 31, 2021 are non-taxable.
According to notification, for those EPFO subscribers who don’t receive any contributions from the employers’ side, the limit on interest on PF investments for them is set at Rs 5 lakh.
Commenting on this development Sudhir Kaushik, co-founder, and CEO, Taxspanner said, “An account holder or an employer is not in a position to open this account on his own. By the law, the onus is on the PF authorities to maintain it”
“This is to be understood that the second EPF account with taxable contribution will open automatically,” he said.
The other non-taxable account will include the closing balance of your PF account as of March 31,2021, contributions that are part of the threshold limit in 2021-22 as well as in subsequent years, and the accrued interest, as per the notification.
