Employees Provident Fund (EPF) contributions in excess of ₹ 2.50 lakh per annum will be taxed from today, i.e., 1 April 2022. The limit has been set for government employees at the higher end of ₹ 5 lakh.
With the new rules, the center aims to prevent high -income people from taking advantage of government welfare schemes.
The Central Direct Taxation Board (CBDT) has issued regulations and said separate accounts in PF accounts should be maintained.
Under the new Income Tax (IT) Regulations, PF accounts will be divided into taxable and non -taxable contribution accounts from 1 April 2022. It also mentions that all contributions up to 31 March 2021, will be treated as non -taxable contributions.
The center has announced 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 in excess of ₹ 2.5 lakh per annum.
After that, all existing employee provident fund (EPF) accounts will be divided into taxable and non -taxable contributions.
The non -taxable account will include its closing account as at 31 March 2021.
The Ministry of Finance had announced the new rules on 31 August, and subsequently, the Income Tax department was also notified.
To implement a new tax on PF income from employee contributions in excess of ₹ 2.5 lakh per annum, a new Section 9D in the income tax rules has been included.
To calculate taxable interest, two separate accounts need to be maintained in the existing provident fund account during the recently ended financial year and all previous years to assess the taxable and non-taxable contributions made by a person.
Typically, non -government employers deduct 12 per cent of the basic salary as an EPF contribution each month while adding the same figure to it and then depositing it with the EPF.
An EPF account is mandatory for employees earning up to ₹ 15,000 per month in any firm with more than 20 employees.
That happened when the EPF retirement body reduced interest rates to their lowest in over 40 years for the current financial year 2021-22 (FY 22).
The reduction marks the lowest interest rate since 1977-78 when the figure was at 8 percent. EPFO is the top decision -making body of the Board of Trustees (CBT).