Under the new rules, existing PF accounts are likely to be divided into two parts.
New Delhi:
The Centre has planned to tax Employees Provident Fund (EPF) contributions exceeding Rs 2.50 lakh yearly. For government employees, the limit has been set at a higher end of Rs 5 lakh. Under the set of new Income Tax (I-T) Rules, PF accounts are likely to be divided into two parts — taxable and non-taxable contribution accounts from April 1, 2022.
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This comes at a time when retirement body EPFO has reduced interest rates to the lowest in more than 40 years for the ongoing financial year 2021-22 (FY 22).
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The reduction marks the lowest interest rate since 1977-78 when the figure stood at 8 per cent. EPFO is the top decision-making body Central Board of Trustees (CBT).
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Threshold Limits Under I-T Rules: For instance, a non-government employee puts Rs 5 lakh in PF account, Rs 2.50 Lakh will be subject to tax;and if a government worker, puts Rs 6 lakh in PF, Rs 1 lakh will be subject to tax. Government employees contribute to the General PF or GPF, where just employees make PF contributions.
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With the new rules, the Centre aims to prevent high earning people from taking advantage of government welfare schemes.
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Previously, the government had mentioned that the move would impact less than 1 per cent of taxpayers.
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For the implementation of new rules on PF income from employees’ contributions exceeding Rs 2.50 lakh per annum, a new Section 9D has been included under the Income Tax Rules, 1962, according to a notification issued by the Central Board of Direct Taxes. The CBDT frames policy for the I-T department.
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It also mentioned that all contributions until March 31, 2021, will be treated as non-taxable contributions.
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This implies that contributions for the current financial year (April 1, 2021, to March 31, 2022) will be handled as taxable contributions.
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Usually, non-government employers deduct 12 per cent of basic salary as EPF contribution every month while adding a similar figure to it and then depositing it with the EPFO.
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EPF accounts are mandatory for employees earning up to Rs 15,000 per month in any firm with over 20 workers.
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