Employees Provident Fund (EPF) contributions exceeding ₹ 2.50 lakh yearly will be taxed from today, i.e., April 1, 2022. That limit has been set for government employees at a higher end of ₹ 5 lakh.
With the new rules, the centre aims to prevent high earning people from taking advantage of government welfare schemes.
Central Board of Direct Taxes (CBDT) had issued the rules and said separate accounts within the PF account should be maintained.
Under the new Income Tax (I-T) Rules, PF accounts will be divided into taxable and non-taxable contribution accounts from April 1, 2022. It also mentioned that all contributions until March 31, 2021, will be treated as non-taxable contributions.
The centre had notified new income tax rules in August 2021. The existing provident fund (PF) accounts will be split into two accounts to enable the government to tax PF income generated from employee contributions that exceed ₹ 2.5 lakh annually.
Subsequently, all existing employees’ provident fund (EPF) accounts will be divided into taxable and non-taxable contributions.
The non-taxable accounts will include their closing account as it stood on March 31, 2021.
The Finance Ministry had notified the new rules on August 31, and subsequently, the Income Tax department too was informed.
To implement the new tax on PF income from employees’ contributions exceeding ₹ 2.5 lakh annually, a new Section 9D in the income tax rules has been included.
To calculate the taxable interest, two separate accounts will have to be maintained within the existing provident fund account during the recently concluded financial year and all the preceding years to assess the taxable and the non-taxable contribution made by a person.
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.
EPF accounts are mandatory for employees earning up to ₹ 15,000 per month in any firm with over 20 workers.
That comes 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).
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).