New revenue tax guidelines on curiosity from EPF financial savings defined in 7 factors

The Employees’ Provident Fund Organisation (EPFO) earlier this month introduced an rate of interest of 8.1% on EPF or worker provident fund accumulations in members’ accounts for the 2021-22 fiscal, down from 8.5% within the earlier yr. The curiosity on EPF was totally tax free within the arms of provident fund contributors until modifications had been launched within the Budget 2021, efficient from 1st April, 2021. The curiosity accrued on EPF contribution past a selected threshold will likely be taxable. 

For the sake of calculation, separate accounts throughout the provident fund account shall be maintained beginning 2021-2022 and all subsequent years for taxable contribution and non-taxable contribution made by an individual, say tax specialists. Or in different phrases, the provident fund workplace or the worker PF belief, will keep two accounts for this function: One with contribution throughout the threshold and the opposite (second) for contribution over the edge.

How new revenue tax guidelines on EPF curiosity will apply:

1) According to the brand new guidelines, any curiosity credited to provident fund account of an worker shall be tax free just for contribution as much as 2.50 lakh yearly and any curiosity on worker’s contribution over 2.50 lakh shall be taxed within the arms of the worker yr after yr. In case the employer doesn’t contribute to the provident fund of the worker, then the edge relevant will likely be ₹5 lakh of worker’s contribution, says tax skilled Balwant Jain. 

2) The ₹5 lakh restrict covers round 93% of the people who find themselves EPFO subscribers and they’ll proceed to get assured tax-free curiosity, based on the rate of interest introduced by EPFO yearly.

3) The employer contributes 12% of primary wage plus dearness allowance to EPF and deducts one other 12% from the worker’s wage; 8.33% of the employer contribution goes to Employees Pension Scheme (EPS) which earns no curiosity.

4) “Please word it’s the curiosity on extra contribution which can turn out to be taxable and never the contribution itself. The extra contribution can’t be taxed because the contribution is made by the worker from his wage which already will get taxed,” Mr Jain added.  

5) As far as steadiness standing to the credit score of an worker as on thirty first March 2021 is worried, curiosity on this non-taxable account will proceed to stay tax free. 

6) It is curiosity on the second account (taxable) which will likely be taxed yearly. 

7) For the second account (taxable), it’s not just for the yr of contribution but additionally for all the next years that the curiosity will turn out to be taxable, says Mr Jain. 

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