The Central Board of Direct Taxes (CBDT) has decided the formula for calculation of tax on the interest of Provident Fund i.e. PF. According to the new formula, for the taxable and non-taxable contribution by the individual for the financial year 2021-22, another account will be opened in the PF account itself. Related income will be accounted for in this account.
In the Finance Act 2021, a provision of tax was made on those who contributed more than 2.5 lakhs in a year. In view of the same, now the formula for calculation of tax on PF earnings has been notified by CBDT. According to the Finance Act 2021, interest earned on contribution to PF account after a certain limit will also be taxable. Till present, the contribution to PF and the interest earned on it is tax free, but the high earners will now have to pay more tax. It is noteworthy that due to tax exemption on investment in PF, higher earners were getting more benefits. The government was trying to find a solution for this for a long time.
Look at the big earners
The eyes of the government are on those taxpayers who are taking advantage of tax exemption on EPF, who earn big money. According to government data, out of the total subscribers of EPF, there are about 1.23 lakh subscribers who are getting tax free annual income up to Rs 50 lakh by taking advantage of tax rules. The government believes that higher tax should be charged from such taxpayers. This is the reason why the government has changed the rules.
Finance Minister had announced in the budget
Finance Minister Nirmala Sitharaman had announced this in the budget this year. Under this, a provision of tax was made in the Finance Act 2021 on those who contributed more than 2.5 lakhs in a year. The government believes that despite having high income, more benefit of tax exemption is being availed by such a section, which should pay more tax.
how much will be affected
Tax advisors say this will not hurt the low-income earners. He says that the pockets of taxpayers earning more than Rs 20 lakh annually will be lightened by this rule because their contribution to PF is more. This will not affect the common taxpayers.
Trading facility will be closed if Aadhaar-PAN is not linked
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