New PF Tax Rules: The Central Board of Direct Taxes (CBDT) has issued new rules regarding the contribution made to the Provident Fund (PF) and the interest earned from it. Let’s understand them.
New PF Tax Rules: Provident Fund- Your savings, retirement plans are also under the purview of tax. However, some rules have been added to it. Till now, there was no tax on the contribution of Provident Fund or the interest received from it. But, in Budget 2021, Finance Minister Nirmala Sitharaman announced that interest earned on contribution above Rs 2.5 lakh would be taxable.
However, there was a lot of opposition to this rule. The government also reviewed it. Now the Central Board of Direct Taxes (CBDT) has issued new rules for tax on EPF. The rules were informed through a circular on August 31. Let’s understand what is the New Testament? How will this affect you?
What is the new rule regarding EPF?
A new provision was added in the Finance Act 2021. It said that if an employee contributes more than Rs 2.5 lakh in his provident fund in a financial year, then the interest earned on the investment above Rs 2.5 lakh will come under the purview of tax. Simply put, if someone invests Rs 3 lakh, then the interest earned on additional Rs 50000 will be taxed. However, in the case of employees who do not have any company contribution to the Provident Fund, the limit will be increased from Rs 2.5 lakh to Rs 5 lakh. At the same time, for central employees also this limit will be 5 lakh rupees.
Two provident fund accounts will be ready
According to the new rules, now two accounts will be created in the Provident Fund. First- taxable account and second- non-taxable account. CBDT notified Rule 9D for this, in which tax will be calculated on the interest received on the Provident Fund contribution (Tax on EPF contribution). The new Rule 9D explains how the taxable interest will be calculated. Also how to manage two accounts and what companies will have to do.
Non Taxable:
Understand that if someone has Rs 5 lakh deposited in his EPF account, then under the new rule, the amount deposited till March 31, 2021 will be deposited in the account without tax. There will be no tax on this.
Taxable:
In the current financial year, if more than Rs 2.50 lakh is deposited in one’s EPF account, then the interest received on the additional amount will be taxable. The rest of the money will be deposited in the taxable account for calculation on this. Tax will be deducted on the interest earned in it.
How will tax be calculated on your EPF?
If there is 5 lakh rupees in the Provident Fund account by 31 March 2021. There is a contribution of Rs 3 lakh in a financial year. If the same amount is put in the account on behalf of the company, then the calculation of tax on the same taxable and non-taxable will be something like this.
Taxable Contribution
300000-250000 = Interest getting on Rs 50000 lakh is in the purview of tax non taxable contribution
500000 + 250000 rupees = 750000 rupees will get interest
What is the rule for PF?
Those companies come under the purview of EPFO, which have more than 20 employees. At the same time, what kind of EPF becomes mandatory for the employees working in these companies whose salary is less than 15 thousand rupees. The contribution of 12% of the basic salary and dearness allowance of the employees is deposited in the PF account. 12% of the company also contributes. The Employees’ Provident Fund Organization (EPFO) manages the EPF accounts of the private sector. At the same time, the accounts of government employees are managed by the General Provident Fund (GPF). The new rule will be applicable on all these accounts.
