New Delhi | Jagran Business Desk: The Union government is going to implement the new income tax laws, starting April 1. This will split the existing Provident Fund (PF) accounts under the cap announced by Finance Minister Nirmala Sitharaman on tax-free contributions. The step is going to affect the taxation process in terms of interest earned on PF contributions, including from Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) becoming costlier, beyond a specified limit.
As per the new income tax rules a threshold limit of Rs 2.5 lakh has been set on tax-free contributions for non-government employees and Rs 5 lakh for government employees. As a result, when a non-government employee will deposit a higher amount than the set limit in his/her PF account, the interest earned on it will be subject to tax. Similarly, if a government employee deposits a higher amount than the set limit, the interest earned from the excess amount will be subject to tax.
The new rule will apply from April 1 under which income from excess contributions than specified limits will be taxable. All contributions made by employees until March 31, 2021, will be treated as non-taxable contributions. It must be noted that the interest on the excess amount will be calculated separately for non-taxable contributions and taxable contributions.
The new rule for tax-free contributions is said to provide an easy way for taxpayers to calculate their taxes. It will also help in splitting taxable and non-taxable contributions.
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“This segregation of PF account will provide a convenient way for the taxpayers to calculate their tax and clearly bifurcate the taxable and non-taxable contribution at their end,” said Harshad Chetanwala, co-founder, MyWealthGrowth.com, as quoted by Outlook.
