You might have two PF accounts from FY 2021-22, says tax division
NEW DELHI: If a person’s contribution to the Employee Provident Fund (EPF) exceeds Rs2.5 lakh in a monetary yr, the particular person might be required to take care of two separate accounts starting this fiscal, as per a notification from the Central Board of Direct Taxes (CBDT).
The guideline has been issued following the introduction of a brand new provision in Budget 2021 that made curiosity on PF contributions above Rs2.5 lakh taxable. The two accounts will keep taxable and non-taxable contributions individually to facilitate ease of calculation for the taxpayer.
Shailesh Kumar, companion, Nangia & Co LLP, mentioned the notification issued by CBDT has lastly put an finish to the paradox that arose throughout the Union Budget which didn’t make clear the style by which the curiosity on the contribution above the brink might be taxed.
As per the notification, the rule will kick in from monetary yr 2021-22, so contributions made until 31 March 2021 are non-taxable. If your account doesn’t get employer contribution, this restrict is ₹5 lakh.
Sudhir Kaushik, co-founder and CEO, Taxspanner, mentioned the second account comprising the taxable contribution will open robotically. “An account holder or an employer isn’t able to open this account on his personal. By the regulation, the onus is on the PF authorities to take care of it.”
The non-taxable account will comprise the closing stability of your PF account as on 31 March 2021, contribution made inside the threshold restrict in 2021-22 and within the subsequent years and the accrued curiosity, as per the notification. It added that the tax to be paid might be calculated after deducting withdrawals constituted of the taxable account.
Kaushik mentioned this transfer is geared toward rationalising taxation of PF to carry it on a par with different funding choices. “This new rule is barely step one and I anticipate curiosity on PF to get utterly taxable within the years to come back. It can’t take pleasure in full tax-free standing whereas all the opposite choices entice some type of taxation.” In view of this, he added, traders ought to think about different funding alternate options, similar to NPS, which isn’t solely tax-friendly but in addition able to yielding higher returns in comparison with PF.
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