PF Tax rule change (Provident Fund): Here are 10 Points to read
In an effort to target high-income workers who benefit from the programme, the government has decided to cut the tax benefits on PF.
The Employee Provident Fund (EPF) is one of the most significant retirement investing and financial planning options for millions of employees.
EPF is the preferred investment for most due to its guaranteed returns and tax advantages. Tax exemptions were offered under the Exempt, Exempt, Exempt scheme (EEE) for both fund contributions and accrual withdrawals.
However, the tax advantages offered to companies and employees for payments to the EPF have been changed by the government. Provident fund accounts will be split into taxable and non-taxable accounts as of April 1, 2022.
The government has chosen to target high-income taxpayers who take advantage of the EEE scheme by reducing the tax benefits under Budget 2021.
The following are the ten things you should know about EPF:
- Only contributions of up to 2.5 lakh per year remain tax-free for interest on employee EPF payments.
- The employee is annually taxed on interest on contributions exceeding 2.5 lakh.
- If an employer does not make a contribution to an employee’s EPF, the contribution threshold is raised to 5 lakh.
- The whole donation itself is not taxed; only the excess contribution that exceeds the threshold is.
- The EPFO will keep track of the extra donations and any interest that accumulates on them in a separate account.
- Employer contributions to Provident Fund (PF), NPS, and superannuation totaling a combined amount of 7.5 lakh rupees per year are tax-exempt.
- Since employers will deduct taxes based on accruals, Form 16 and Form 12BA must provide these facts.
- Employees with monthly incomes up to 15,000 rupees must receive EPF payments from their employers by law.
- Employees must report any taxes withheld in this way as “Income from other sources.”
- For FY 2021–2022, the EPFO has lowered the interest rate to an all-time low of 8.1%.