The Central Board of Direct Taxes (CBDT) notified new rules regarding the taxation on the ‘interest income’ which is earned through the Employees Provident Fund (EPF) contributions, beyond Rs 2.5 lakh a year and Rs 5 lakh a year.
- ₹2.5 lakh annual contribution limit shall apply for EPF members, while in General or Statutory Provident Fund (GPF) or other Provident Fund (PFs) where there is no contribution from the employer, the threshold has been set at ₹5 lakh.
- The government has made amendments over the Income-tax (IT) named IT (25th Amendment) Rules, 2021 to include the new IT rule (Rule 9D) over PF income.
- The government had in the Finance Act of 2021 introduced a new provision that makes interest accrued in the PF account on contribution above ₹2.5 lakh a year taxable.
- The new income tax Rules on PF income will be applicable for contributions made from FY22 onwards (i.e. from April 2021).
- The government has removed the benefit of exemption from taxation which was earlier available for an interest income earned by the taxpayers on their PF contribution.
Key Points:
i.Background: In the Budget 2022, Finance Minister Nirmala Sitharaman had proposed the taxability of interest on PFs, where the specified limit exceeds.
ii.Objective: To cut down the fixed tax-free income generating avenues for high net worth individuals (HNIs).
- The HNIs account for about 0.27 percent of the 4.5 crores of EPF account holders.
iii.Separate Account:
- To be in line with the new rules, the government has decided to split the existing PF accounts into 2 separate accounts viz taxable and non-taxable.
- The separate Taxable PF account would be used to calculate the amount of interest that is to be taxed on PF income arising out of employee contributions exceeding Rs 2.5 lakh and Rs 5 lakh a year.
- From FY22, interest will be calculated separately on both EPF accounts.
- All the contributions made by an individual till March 31, 2021, will be considered non-taxable contributions.
Recent Related News:
The Labour Ministry has notified the changes in the investment pattern of the Employees Provident Fund Organisation(EPFO), which allowed it to make an investment of up to 5 percent of its investible surplus in Alternative Investment Funds (AIFs).
About Central Board of Direct Taxes (CBDT):
Headquarter – New Delhi
Chairperson – J.B. Mohapatra
