Changes in the tax rule on PF (Provincial Fund). read 10 points

Changes in the tax rule on PF (Provincial Fund).  read 10 points

Tax Change Rules for PF (Provincial Fund)

Employees’ Provident Fund (EPF) is one of the most important financial planning and retirement investment options for lakhs of employees.

With assured returns and tax benefits, EPF is an investment for most of the people. Tax exemption was also available on exemptions, exemptions, contributions made to the fund under the Exemption Scheme (EEE) and withdrawals from accruals.

But the government had brought amendments in the tax benefits available to employers and employees for contribution to EPF. With effect from April 1, 2022, provident fund accounts have been divided into taxable and non-taxable accounts.

Under Budget 2021, the government has decided to reduce the tax benefits to target the high-income people who are benefiting from the EEE scheme.

Here are ten points to know about EPF:

  1. Any interest on contribution made to EPF of an employee remains tax-free only for contributions up to Rs 2.5 lakh.
  2. Interest on contributions above Rs 2.5 lakh is charged to tax annually from the employee.
  3. If an employer is not contributing to the EPF of an employee, the contribution limit has been increased to Rs 5 lakh.
  4. Tax is levied only on the excess contribution above the limit and not on the total contribution.
  5. The additional contribution and the interest earned thereon will be kept in a separate account with EPFO.
  6. Employer’s contribution to Provident Fund (PF), NPS and retirement aggregating to Rs 7.5 lakh per annum is exempt from taxes.
  7. Since employers will withhold tax on accrual basis, these details have to be filled in Form 16 and Form 12BA.
  8. Employers have to mandatorily make EPF contribution for employees whose monthly income is up to Rs 15,000.
  9. Taxes withheld in this way need to be reported by employees as “income from other sources.”
  10. The EPFO ​​has reduced the interest rate for the financial year 2021-22 to a four-decade low of 8.1 percent.

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