New PF tax rules from April: How it will impact you
New PF tax rules from April: How it will impact you
The salaried employees who use Voluntary Provident Fund to invest more
than mandatory 12% of basic pay, will also be impacted by this new rule
Finance minister Nirmala
Sitharaman announced in Budget 2021 that interest on employee
contributions to the provident fund of over ?2.5 lakh per annum would be taxed, starting from 1
April. Up to ?2.5 lakh has been kept as the
deposit limit for which interest is tax-exempt, the finance minister said. At
least 12% of an employee's basic salary and
performance wages is compulsorily deducted as provident fund, while the employer contributes another 12%
"As paying tax-free interest on provident fund becomes more
and more unsustainable, the government wants to curb high-income
earners from self-contributing more to their PF accounts,"
This move will affect high-income earners and High Net-worth
Individuals (HNIs). Anyone who earns more than ?20.83
lakh a year will attract his or her interest
in EPF contribution being taxed. "It may be noted that the new provision
only takes into account employees’ contribution and not the total contribution
to the fund during any year,"
"Under the existing
tax provisions, interest received/accrued from employee’s provident fund (EPF)
is exempt from tax. It is proposed that the interest earned on the EPF
contributions (only employee contribution) above ?2.5 lakh a year will now be taxable. This could
potentially impact employees in high-income bracket or employees making large
voluntary employee provident fund contributions,"
"Under the existing
tax provisions, interest received/accrued from employee’s provident fund (EPF)
is exempt from tax. It is proposed that the interest earned on the EPF
contributions (only employee contribution) above ?2.5 lakh a year will now be taxable. This could
potentially impact employees in high-income bracket or employees making large
voluntary employee provident fund contributions,"
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