PF Interest: In the budget of the year 2021, the Finance Minister of the Central Government Nirmala Sitharaman had announced tax on the interest received on the amount deposited in the PF account.
According to the new rules, now the interest earned on the amount above Rs 2.5 lakh deposited in the PF account will be taxable. These new rules will come into effect from April 1, 2022.
New Delhi: In the budget of the year 2021, the Finance Minister of the Central Government Nirmala Sitharaman had announced tax on the interest received on the amount deposited in the PF account. According to the new rules, now the interest earned on the amount above Rs 2.5 lakh deposited in the PF account will be taxable.
These new rules will come into effect from April 1, 2022. Now the amount deposited in your PF account will be taxed. But this rule will be applicable only to those accounts, which contribute more than Rs 2.5 lakh in PF account in a financial year. Let us know how the tax will be calculated on the amount deposited in your PF account:
Tax will be applicable on this amount
If a PF account holder deposits more than Rs 2.5 lakh in his account in a financial year, then the interest earned on the amount above Rs 2.5 lakh will be taxable. For example, if you deposit Rs 3.5 lakh in your PF account, then the interest earned on Rs 1 lakh will be taxable. On the other hand, if your employer company does not contribute to the PF account, then this limit increases from Rs 2.5 lakh to Rs 5 lakh.
Know what is Rule 9D, in which there will be two provident funds
According to the new rules, now the provident fund of the PF account holder will be created, one of which will be taxable and the other will be non-taxable CBDT has also notified Rule 9D for this. Under this rule, you can know how the tax will be calculated on the interest you get on the amount deposited in PF. Let’s understand how these two accounts will work:
The first is non-taxable
If you have already deposited Rs 5 lakh in your PF account, then according to the new rules this amount will not come under the tax net and it will be deposited in the non-taxable account. No tax will be levied on this deposit.
The second is taxable account,
if a PF account holder deposits more than Rs 2.50 lakh in the PF account in the current financial year, then the interest earned on the amount above Rs 2.50 lakh will be taxable. Therefore, this amount will be deposited in the taxable account and tax will be deducted on the interest earned on it.
How will be the calculation of tax on the amount deposited in PF
If you have Rs 5 lakh deposited in your PF account till March 31, 2021 and make a contribution of Rs 3.5 lakh in this financial year, then this amount of Rs 3.5 lakh will be taxable. Know how the calculation will be done on this:
Tax will be levied on this amount
- 3,50,000-2,50,000 = Interest earned on an amount of Rs 1,00,000 lakh will be taxable.
- This amount will not be taxed
- 5,00,000 + 2,50,000 = Rs.750000 whatever interest will be received, but there will be no tax on it.
For this reason, the government will levy tax on interest
Till now, there was no tax on the amount deposited in the PF account. But taking the wrong advantage of this, many people were depositing crores of rupees in the PF account as contribution, so that they can get maximum interest on the deposited amount and also keep it out of the tax net. While many people were depositing only Rs 2 lakh. To eliminate this inequality and misuse of PF account, the government has implemented these new rules.
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