General, Tax & Compliance

CBDT HAS INTRODUCED NEW RULE FOR CALCULATION AND TAXABILITY OF INTEREST ON CONTRIBUTION MADE MORE THAN 2.50 LAKHS IN EPF.

Author: CS Deepak P. Singh

Dear friends,

The Finance Minstry has came out with Rules for calculating taxable interest in PPF Account on employees contribution more than 2.50 Lakhs during a year.

Please note that the Finance Minstry in Budget for FY 2021-22 has capped maximum amount of interest on Employer as well as employee contribution in EPF during an financial year to the extent of Rs. 2.50 Lakhs.

The Central Board of Direct Taxes (CBDT) on 3rd September, 2021 notified rules for calculating taxable interest in provident fund.

It said for the sake of calculation, separate accounts within the provident fund account shall be maintained beginning FY 2021-22 for taxable and non-taxable contributions made by a person.

Rule 9D inserted in the Income-tax Rules, 1962 has specified that separate accounts within the PF accounts shall be maintained clearing segregating the taxable and non-taxable contributions to PF along with interest thereon.

“This shall provide a convenience of calculation to the taxpayers for segregation of interest to be offered to tax.

Please Note that the threshold for PF accounts with employer contribution is Rs 2.5 lakhs whereas accounts with no employer contribution enjoy an increased threshold of Rs 5 lakhs.

Hence, small and medium taxpayers will not be impacted by the step.

CONCLUSION: from above it means that PF Authority will maintain two accounts within PF account of an employee , in one account investment will be Rs. 2.50 lakhs and rest of investment in excess of Rs. 2.50 Lakhs will be transferred to second account. The interest earned on second account in will be taxable in the hand of employees and interest in first account will be exempted.

DISCLAIMER: Please note that above write up is only for information and knowledge of readers. It is dvisable to take advise of professional before acting any part of write up. The Author can be reached +9920830041/CS.deepakpsingh@gmail.com.

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