New EPF Regulations: The government has made significant changes to the rules of PF accounts that will take effect on April 1, 2022. As a result of this, 6 crore employees in the country may be required to pay taxes. Allow us to tell you about it.
New EPF Regulations: If you work somewhere and your PF is deposited, this information is critical for you. The government has altered the rules governing PF. There was no tax on PF contributions or interest earned until now. However, interest earned on contributions exceeding Rs 2.5 lakh will now be taxed. This rule will take effect on April 1, 2022. Let us go over it in detail.
Minister of Finance announced
Let us remind you that in the budget for 2021, Finance Minister Nirmala Sitharaman made an important announcement in this regard. He had stated that the interest earned on contributions of more than Rs2.5Lac made by the employee to the EPF during the fiscal year would be taxed. This rule will take effect on April 1st. This change will have an impact on those who earn more and contribute more to their EPF. However, the government has stated that it will affect less than 1% of those who contribute to the EPF. However, there was a lot of backlash against this rule. The government also looked into it. On August 31, last year, the Central Board of Direct Taxes (CBDT) issued a circular informing about the new rules for EPF taxation.
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Here is the new EPF tax calculation.
The Finance Act 2021 now includes a new provision. It stated that if an employee contributes more than Rs 2.5 lakh to his provident fund in a fiscal year, the interest earned on the investment above Rs 2.5 lakh is taxable. Simply put, if a person invests Rs 3 lakh, the interest earned on the additional Rs 50000 is taxed. However, the limit will be raised from Rs 2.5 lakh to Rs 5 lakh for employees who do not have any company contributions to the Provident Fund. At the same time, this limit will be Rs 5 lakh for central employees.
There will be two types of accounts created.
According to the new rules, the Provident Fund will now have two accounts. The first is a taxable account, and the second is a non-taxable account. For this, the CBDT issued Rule 9D, under which tax will be calculated on the interest received on the Provident Fund contribution (Tax on EPF contribution). The new Rule 9D explains how to calculate taxable interest. Also covered are how to manage two accounts and what businesses must do.
