The tax rules related to Employees Provident Fund (EPF) have changed. Now the interest earned on the contribution of Rs 2.5 lakh in EPF in a financial year will be taxed. This rule will come into effect from April 1, 2022. However, the change in the rule will affect only a few EPF subscribers. This is because the total contribution of most of the EPF subscribers in a financial year is much less than Rs 2.5 lakh.
EPF interest rate lowest in 43 years
The total return of the subscriber of EPF covered under this rule will be reduced. Now they have to pay tax on the interest deposited in EPF. The government has reduced the interest rate on EPF. During the financial year 2021-22, only 8.1 percent interest will be available on the amount deposited in EPF. This is the lowest interest earned on EPF in 43 years.
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Have to maintain two PF accounts
The Central Board of Direct Taxes (CBDT) has told about this. He has said that after the implementation of the new rule, two separate PF accounts will have to be maintained. The first account will be for taxable contribution. The second account will be for non-taxable contribution. This will leave the room for any error in the calculation of tax.
An example can understand the method of calculation
We can understand the method of tax calculation with an example. Suppose Anju Gupta is an employee of an IT company. His contribution to EPF in a financial year is Rs 1.5 lakh. She contributes Rs 1.5 lakh to VPF. The amount deposited in his EPF account as on April 1, 2021 is Rs 20 lakh. During the financial year 2021-22, he has contributed a total of Rs 3 lakh.
Out of Rs 3 lakh, Rs 2.5 lakh will be deposited in a non-taxable account. The remaining amount of Rs 50,000 will be put in the taxable amount. Thus, interest earned on an amount of Rs 50 will be taxed. In this way, the total return received by Gupta on EPF will be reduced.
6 crore subscribers of private sector come under the purview of EPF
EPFO manages the retirement fund of employees of private companies. EPFO has about 60 million subscribers in the country. Every month 12 percent of the basic salary of the employee is deposited in the EPF. The government pays interest on this fund at the end of a financial year. The government reviews the interest rate from time to time.
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