Interest on PF to be tax free up to Rs 5 lakh sans employer’s contribution


New Delhi: Finance minister Nirmala Sitharaman on Tuesday hiked the deposit threshold limit to Rs 5 lakh per annum in provident fund.

The interest on PF will be tax free if there is no contribution of the employer.

Sitharaman had announced during Budget 2021 that the interest earned on the EPF contributions (only employee contribution) above  Rs 2.5 lakh will be taxable from 1 April. The move is aimed at taxing high-value depositors in the Employees Provident Fund.

Anyone earning over Rs 20.83 lakh a year will attract his or her interest on EPF contribution being taxed.  Archit Gupta, founder and chief executive officer, ClearTax, said as paying tax free interest on provident fund becomes more and more unsustainable, the government therefore wants to curb high income earners from self contributing more to their PF accounts.

Gupta said the salaried employees who use Voluntary Provident Fund to invest more than mandatory 12% of basic pay, will also be impacted.

Gaurav Saraf, partner, VPTP & Co said if the contribution to provident fund on or after 1 April 2021 exceeds Rs 2.5 lakh in any year, then interest earned on contribution over Rs 2.5 lakh shall be taxable.


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