NEW DELHI: In the Union Budget 2021, the federal government had proposed taxing curiosity earned on the contribution to the Employee’s Provident Fund (EPF) if the annual contribution exceeded Rs2.50 lakh. However, within the Finance Bill, 2021, handed by the Lok Sabha on Tuesday, the federal government has launched an modification to the rule and elevated the restrict on taxation of curiosity to Rs5 lakh, in instances the place the employer just isn’t making any contribution to the Fund.
Therefore, when an worker’s contribution exceeds Rs5 lakh in a yr, the curiosity accrued can be taxed.
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“The Finance Bill has been amended to direct that if any particular person makes a contribution to a fund through which there isn’t any employer contribution, curiosity revenue accrued on account of worker’s contribution in extra of Rs5 Lakh shall be taxed,” said Neha Malhotra, Director, Nangia Andersen LLP. “The modification shall affect solely the government-sector workers, who contribute to the statutory provident fund/ basic provident fund.”
Private sector workers is not going to get any aid underneath the brand new rule as each employers and workers contribute not less than 12% every of primary wages to the Fund. They must pay tax as per provisions launched within the Budget 2021.
“Private sector workers incomes curiosity on Provident Fund on annual contribution exceeding Rs2.5 lakh can be required to pay tax on curiosity accruing on such extra contribution, for the federal government sector workers, the financial ceiling shall be Rs5 lakh,” mentioned Malhotra.
In case of EPF, the curiosity revenue shall be taxable underneath the top ‘Income from different sources’.
“Such income should be taxable as a residuary income as it is not accruing from a source emanating from an employer and employee relationship. The interest income will become part of the total taxable income of the taxpayer. There is no special rate for the taxability of this interest. Hence, such income shall be taxed at the prevailing income tax rates,” mentioned Taru Kumar, a Delhi-based chartered accountant.
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