Finance minister Nirmala Sitharaman introduced in Budget 2021 that curiosity on worker contributions to provident fund of over ₹2.5 lakh each year can be taxed, ranging from 1 April. Up to ₹2.5 lakh has been stored because the deposit restrict for which curiosity is tax exempt, finance minister mentioned. At least 12% of an worker’s fundamental wage and efficiency wages is compulsorily deducted as provident fund, whereas the employer contributes one other 12%.
“As paying tax free interest on provident fund becomes more and more unsustainable, the government wants to curb high income earners from self contributing more to their PF accounts,” mentioned Archit Gupta, founder and chief govt officer, ClearTax.
This transfer will have an effect on the high-income earners and High Net-worth Individuals (HNIs). Anyone who earns greater than ₹20.83 lakh a 12 months will appeal to his or her curiosity on EPF contribution being taxed. “It may be noted that the new provision only takes into account employees’ contribution and not the total contribution to the fund during any year,” mentioned Gaurav Saraf, companion, VPTP & Co.
“Under the existing tax provisions, interest received/accrued from employee’s provident fund (EPF) is exempt from tax. It is proposed that the interest earned on the EPF contributions (only employee contribution) above ₹2.5 lakh a year will now be taxable. This could potentially impact employees in high income bracket or employees making large voluntary employee provident fund contributions,” mentioned Parizad Sirwalla, companion and head, international mobility services- Tax, KPMG in India.
“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,” finance minister mentioned.
The salaried staff who use Voluntary Provident Fund to take a position greater than obligatory 12% of fundamental pay, will even be impacted. “A large tax free interest accrual which is not taxed on withdrawal either, is now being rationalised and will mostly impact the high income bracket,” Gupta added.
The methodology of calculation will likely be specified later, Gupta added.
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