According to the current provisions of the Income Tax Act, Income Tax Exemption is available on the interest of Employees Provident Fund (EPF), Voluntary Provident Fund (VPF) and Exempted Provident Fund Trusts (EPFT). Contribution can be any amount in this, but now the government has fixed the limit of this amount.
From April 1, there will be a significant change in the rules related to PF. In fact, the General Budget 2021 provides for a tax exemption limit for interest on Employees Provident Fund (EPF) and Voluntary Provident Fund (VPF).
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This means that the interest on provident fund contributions above Rs 2.5 lakh a year will now be taxed by normal rates. This will only apply to the contribution of the employees, not the contribution of the employee (company). This rule will be applicable from 1 April. Actually, the employees should save tax by depositing more money in PF because till now the interest of PF was outside the purview of tax.
However, this will only apply to the employees’ contribution, not the contribution of the employee (company). This new provision of Budget 2021 will directly affect the people with high-income salary, who use VPF for tax-free interest. Under the EPF Act, 12% of the employee and the company’s basic salary has been fixed.
However, employees can voluntarily do more than this amount in the VPF. There is no upper limit of contribution to CPF. Employees use it for tax exemption. But now this rule is going to change.
One percent employees will have direct impact on new rules
The central government claims that less than one percent of its employees will be affected. The government says that the number of employees who contribute more than 2.5 lakhs annually to the EPF is less than 1 percent.
Explain that the number of shareholders of Employees Provident Fund Organization (EPFO) is more than 6 crore. The government has taken this step to compensate for the revenue deficit. This step of the government will affect the employees earning more than Rs 20.83 lakh annually. There is also a possibility of a decrease in the number of people depositing money in VPF with the new rule.