PF contribution is more than 2.5 lakhs, tax will be levied on interest, learn about the new rule

There are many options available in the market to protect your future financially after retirement. Investments in these can be spent for life after retirement. Among these, the Employees’ Provident Fund is considered a better option. Finance Minister Nirmala Sitharaman had announced in Budget 2021 that the interest paid on investments up to Rs 2.5 lakh per annum in PF will be tax-free, but whatever interest will be paid on the investment made above it. have to give

New rules of PF

  1. This new proposal will be applicable to the PF Contribution to be held on or after 1 April 2021.
  2. This new proposal will not be applicable to the PF Contribution to be held till 31 March 2021.
  3. You will have to pay tax on PF contravention above 2.5 lakh rupees per annum.

Suppose the basic annual salary (basic) of XYZ is 25 lakh rupees. His contribution to PF is Rs 3 lakh at the rate of 12 percent in FY 2021-22. If the interest rate on EPF is assumed to be 8.5% per annum, then their tax liability will be calculated in the following way.

  • His contribution to the fund = 25 lakhs * 12% = Rs 3 lakhs
  • Additional Contribution with a limit of Rs. 2.5 = Rs. 50 thousand
  • Interest on additional contribution = 50,000 * 8.5% = Rs 4250. This amount will be added to the employee’s taxable income.

2.5 lakh rupees free limit will benefit most people, who are subscribers and the interest they get will be absolutely tax-free. Therefore small and middle-class taxpayers will not be affected by the new rule. This will mainly affect high-income employees.

Under the Employees Provident Fund, employees are required to deposit at least 12 percent of their salary from their salary. The employer also puts the same amount in the EPF of the employee. This contribution is in the retirement fund of the employee. After the age of 58, the entire amount of EPF Fund can be withdrawn. However, there is a provision to withdraw partial amount for medical expenses, house building, education etc.

Recently, the central government has made tax-free interest on a specific category of interest on PF up to five lakh rupees annually. But it will only benefit those people in which no contribution is given by the employer.