Explained: How curiosity in PF contributions above ₹ 2.5 lakh can be taxed
The authorities will tax the curiosity earned on Provident Fund (PF) contributions exceeding ₹2.50 lakh yearly. This comes at a time when the Employees Provident Fund Organisation (EPFO) has lowered rates of interest to eight.1% for the present monetary 12 months 2021-22 (FY 22).
“The curiosity earned on the worker’s contribution to the provident fund account can be taxed if the contribution quantity in a monetary 12 months exceeds ₹2.5 lakh. If there is no such thing as a employer contribution within the provident fund account, the edge can be ₹5 lakh a 12 months,” mentioned Archit Gupta, Founder and CEO – Clear.
What does the newest PF taxation imply for you?
The CBDT has notified that organisations want to keep up two separate PF accounts. One of the accounts can be for taxable contributions, whereas the opposite can be for non-taxable contributions beginning 1st April 2021. “The curiosity accrued on the contributions deposited within the taxable account within the EPF can be taxed,” mentioned Archit Gupta.
He additional defined the taxation on Provident Fund contributions above ₹ 2.50 Lakh with an instance. For instance, Sanju is a salaried worker, and he makes a contribution of ₹1.5 lakh in EPF and ₹1.5 lakh in VPF accounts throughout the FY 2021-22. The opening steadiness of the PF account as of 1st April 2021 is ₹20 lakh. The complete contribution to the provident fund account throughout the FY 2021-22 is ₹3 lakh. Hence, ₹2.5 lakh EPF contribution can be credited to the non-taxable account, and ₹50,000 can be credited to the taxable account. The steadiness within the non-taxable account as of thirty first March 2022 shall be ₹22.5 lakh (the opening steadiness as of 1st April 2021 is non-taxable), and within the taxable account shall be ₹50,000. Therefore, the curiosity of 8.5% relevant for FY 2021-22 on ₹50,000 shall be taxable within the palms of Sanju.
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