Explainer: Provident Fund Contributions Above Rs 2.5 Lakh To Be Taxed

The authorities will tax Provident Fund (PF) contributions exceeding ₹ 2.50 lakh yearly – together with the worker and the employer contributions, and the curiosity earned. The restrict has been set increased for presidency workers at ₹ 5 lakh.

The centre introduced the tax levy, citing a number of instances of abuse by rich and excessive net-worth people who’ve deposited huge sums of cash into their PF accounts to keep away from paying taxes on the revenue earned through the yr.

That comes at a time when the retirement physique Employees Provident Fund Organisation (EPFO) has lowered rates of interest to the bottom in additional than 40 years for the present monetary yr 2021-22 (FY 22).

What does the newest PF tax imply to you?

Under the brand new Income Tax (I-T) Rules, PF accounts are prone to be divided into taxable and non-taxable contribution accounts from April 1, 2022. With the brand new guidelines, the centre goals to stop excessive incomes individuals from making the most of authorities welfare schemes.

Any contributions above Rs 2.5 lakh into your PF accounts – together with the worker, the employer contributions, the voluntary, private and the curiosity earned – shall be handled as taxable revenue.

“The tax on the PF contributions over Rs 2.5 lakh will be based on the income tax slab you come under and will be taxed accordingly,” stated Kiran Kumar, an Independent Tax Consultant.

For extra particulars, see: Provident Fund Contributions Above ₹ 2.50 Lakh To Be Taxed: 10 Points.