The Union Budget Minister Nirmala Sitharaman presented a major setback to the account holders of Employees Provident Fund Organization (EPFO) in the General Budget (Budget 2021) presented on Monday. The Finance Minister has proposed to bring the interest of tax on the deposit of PF (Provident Fund) of more than 2.5 lakh rupees per year from the new financial year starting from April 1. Those earning more from this decision of the government will now have to pay tax on the interest on the provident fund.
According to the new provision, now tax benefits will be available only on interest on contributions up to Rs 2.5 lakh in a financial year in various PFs. Employees will have to pay tax on interest received on the contribution of more than this. This proposal of the government is a shock to the high net worth income (HNI) people. The Finance Minister said that in order to make Rational the exemption on income earned by high-income employees, it has now been proposed that the limit of exemption from tax on interest income earned on the contribution of employees in various future funds to 2.5 lakhs. A provision has been made to keep the annual contribution of Rs.
Sitharaman said that this new rule will only apply to contributions to be made on or after April 1, 2021. So far, the interest earned on EPF is completely tax-free. The government said that it has been learned that some employees are depositing large amounts in various provident funds and the entire interest earned on this amount is tax-free under the provisions of section 10 (11) and provision (12) of the Act. Through voluntary contribution, many employees are depositing large amounts in provident fund.
Actually, the amount deposited on your behalf in a PF account is exempted from income tax under section 80C of the Income Tax Act. Tax deductions are also available on the amount deposited by companies in your EPF account. The condition in this is that this amount should not be more than 12% of your basic salary. If the amount is more than this, then you will have to pay income tax on the remaining amount.