New Delhi: Interest earned on provident fund balance will not be exempt from tax with effect from April 1, 2022. The new PF rule will kick in amid the announcement by the Employees’ Provident Fund Organization (EPFO) of 8.1 per cent interest rate on Employees’ Provident Fund (EPF) accumulation in members’ accounts for the financial year 2021-22, as against 8.5 per cent in the previous year.
This is another setback for PF subscribers as the interest earned on EPF contribution above a certain limit will be taxable, as announced in the Budget for 2021.
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Earlier, interest on EPF was completely tax-free before Budget 2021. Finance Minister Nirmala Sitharaman has proposed that PF payments above Rs 2.5 lakh per annum be taxed.
In this regard, the Central Board of Direct Taxes (CBDT) had issued guidelines last year, detailing how interest on provident fund contribution of an employee would be taxed above a specific level.
The CBDT notification has clarified that these rules will come into force from April 1, 2022. economic times report good. It is to be noted that interest earned on additional contribution will be taxable in FY 2021-22 and it needs to be declared in the income tax return filing next year.
This means the contribution for the current financial year (April 1, 2021 to March 31, 2022) will be treated as taxable contribution.
To do the calculations, segregated accounts within the Provident Fund account would be taken starting from 2021-2022 and maintained for all subsequent years for taxable contributions and non-taxable contributions made by an individual.
Also, note that the limit of Rs 2.5 lakh is applicable for non-government employees while it is Rs 5 lakh in case of government employees. This means if the contribution to EPF and VPF exceeds Rs 5 lakh in a financial year then the interest will be taxable.