The government may double the limit for tax-free contribution to the Employees’ Provident Fund (EPF) for salaried employees in the private sector.
At present, this limit for private sector employees is Rs 2.5 lakh per financial year, while for government employees the maximum is Rs 5 lakh per year. Experts say that in view of the demand arising from various segments, the limit of tax-free contribution to the Employees Provident Fund has also been increased for the salaried employees of the private sector at par with government employees i.e. Rs 5 lakh per year. can go.
It is noteworthy that every company in the organized sector coming under the purview of EPFO ​​is required to give the benefit of EPF (Employee Provident Fund) to its employees. EPF is contributed by both the employer and the employee, which is 12-12 per cent of the basic salary + DA of the employee. However, out of 12 per cent of the employer’s contribution, 8.33 per cent goes to the Employee Pension Scheme (EPS), and the rest to the employee’s PF.
Tax benefit on investment and interest in EPF
Investment in EPF gets the benefit of tax deduction under section 80C of the Income Tax Act. That is, deduction up to Rs 1.50 lakh can be claimed in a financial year. The maturity amount received from EPF and withdrawal made after completion of 5 years of service is not tax deductible. However, the rules regarding tax on interest have changed now.
In Budget 2021, Finance Minister Nirmala Sitharaman proposed that the tax exemption be limited to Rs 2.5 lakh per annum contribution in case of interest income on employee contribution to various PFs. That is, only the interest received on annual contribution up to 2.5 lakh rupees in one’s EPF and VPF account should be tax free. Interest earned on contributions above this limit is taxable. This threshold limit of Rs 2.5 lakh is for non-government employees. For government employees, interest earned on annual contribution up to Rs 5 lakh in EPF and VPF account has been made tax free.
The new rule has come into effect from April 1
This rule has come into effect from 1st April 2021 and is valid for PF contributions made on or after 1st April 2021. CBDT notified this in August 2021. This new rule will directly affect those employees, whose income is high and they get huge tax free interest income through Voluntary Provident Fund. Contributions made in EPF and VPF accounts till March 31, 2021 will not be affected by this new rule.
