February 23, 2021 09:40 PM
The central government is going to bring EPFO New regulations from April 1st. Under the current tax regime, employees are not required to pay any tax on interest earned from the Provident Fund. But, from April 1, those earning higher incomes will also have to pay taxes on the interest earned. Union Finance Minister Nirmala Sitharaman recently said that those who deposit more than Rs 2.5 lakh a year in the EPF will have to pay taxes on the interest paid to them.
However, this tax will be calculated only on the amount deposited by the employees. These new regulations will take effect on April 1, 2021. If the employee’s share in the PF is up to Rs 2.5 lakh per annum, the exemption is available as usual under 80C. If the PF employee’s share is more than Rs 2.5 lakh, the interest is taxable.
We know that in addition to the employee in the EPFO New regulations, the company he works for also makes some deposits on behalf of the employee. However, the new rules do not apply to this amount. Only employee share is taxable. However, the Center will soon release guidelines on these.
This move will affect mostly the high-income earners and High Net-worth Individuals (HNIs). Under the existing tax provisions, interest received/accrued from employee’s provident fund (EPF) is exempt from tax. The new rules will potentially impact employees in high income bracket or employees making large voluntary employee provident fund contributions.
Remember that the new provision only takes into account employees’ contribution and not the total contribution to the fund during any year. “The big-ticket money which comes into the fund and gets tax benefit as well as assured about 8% returns that would come under the tax ambit,” the finance minister said.