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Interest on Provident Fund Likely to be Taxed From April 1: Check New Guidelines
Now from April 1, 2022, the PF accounts are likely to be sectioned into taxable and non-taxable contribution accounts under the set of new Income Tax Rules
Provide Fund Alert: The employees who are saving a portion of their earnings every month in Provident Fund must note that starting from April 1, it is likely that the provident fund could be taxed as per the Central government’s new guidelines. According to the announcements made by Finance Minister Nirmala Sitharaman during her last Budget 2022 presentation, the Central government is putting in place a plan to charge taxes on Employees Provident Fund (EPF) contributions above Rs 2.50 lakh in one year. However, for government employees, the limit has been set higher at Rs 5 lakh when this rule comes into place
The Employees Provident Fund (EPF) has been designed by the Employees Provident Fund Organisation (EPFO) so that employees can withdraw money that they have saved during their lifetime.
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Now from April 1, 2022, the PF accounts are likely to be sectioned into taxable and non-taxable contribution accounts under the set of new Income Tax Rules. The employees need to know that the new rules will apply to the contributions made by them and not by the employer.
Who will pay PF tax? The contributions made by the employee will be taxed and the employer contribution will remain tax-free. Notably, the new PF tax rule will be applicable to only those with an annual income of Rs 20.83 lakh or more and thereby is only going to affect a few high-income earners.
Why PG contribution to be taxed? The purpose of this new rule is that the Central government wants to curb high income earners from self-contributing more to their PF accounts. Several employees were seen making more contributions than the actual requirement to their PF accounts to save income tax.
Giving details, the Centre had earlier said that the move will affect less than 1 per cent taxpayers in India. The Central Board of Direct Taxes in an order has notified the creation of a new Section 9D under the Income Tax Rules, 1962, to implement the new rule. However, the CBDT made it clear that the PF contributions up to March 31, 2021 will remain tax-free.
What are the new PF rules?
* The current PF accounts will be divided into taxable and non-taxable contribution accounts.
* As per the new rule, the non-taxable accounts will include their closing account as its date is March 31, 2021.
* According to CBDT, a new section 9D has been inserted under IT rules to introduce a new tax on PF income from employee contributions above Rs. 2.5 lakh per annum.
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