If the income from PF exceeds 2.5 lakhs, then a new section 9D has been added in the income tax rules to be taxed on it. For the calculation of taxable income on PF earnings, two separate accounts will be created.
The government has come out with a new rule of income tax. According to this rule, the existing Provident Fund (PF) will be divided into two separate accounts. This rule is for those people whose PF is deducted more than Rs 2.5 lakh in a year. With the opening of a separate account, the government will be able to easily deduct tax on interest of more than 2.5 lakhs.
This new rule has been brought out by the Central Board of Direct Taxes (CBDT) and has told for which people a separate account will have to be opened in the PF account. On this basis, the PF account of all existing employees will be divided into taxable and non-taxable accounts. An account will be such in which taxable PF interest will be deposited. The second account will be the one which will not attract tax.
When will the new rule come into force
The closing account will be included in the non-taxable account which will be till March 31, 2021. The Finance Ministry has notified its new rule. Its notification was issued on August 31 and the Income Tax Department has also been informed about this. Now further work will be done on this basis. It is believed that the rule of two separate accounts can be applicable from the next financial year i.e. from April 1, 2022.
If the income from PF exceeds 2.5 lakhs, then a new section 9D has been added in the income tax rules to be taxed on it. For the calculation of taxable income on PF earnings, two separate accounts will be created. Account will be kept without interest in one account and earning more than 2.5 lakhs in the other. However, this rule will be applicable only for those whose annual income on PF is more than Rs 2.5 lakh. There are very few people in this category, so most people will not see its impact.
In this regard, CBDT has said in its notification that the new rules will be applicable from April 1, 2022. By the financial year 2021-22, if the annual deposit in your account is more than Rs 2.5 lakh, then the interest earned on it will be taxable (taxable) and you will have to pay tax on it. People will have to give information about this interest in the income tax return of the next year. This year there will be a discount on it. This rule may come into force from the next financial year.
what will be the new rule
This new rule will be valid for both government and private employees. If you are a government employee and your annual contribution to EPF and VPF is more than 5 lakhs, then you will have to pay tax on the interest. Similarly, if an amount of 5 lakhs is deposited annually in the EPF and VPF of a private employee, then his interest will be taxed. CBDT has said in the notification that in the financial year 2021-22, if the contribution of more than 2.5 lakhs is deposited by the employee in the PF account, then tax will have to be paid on its interest. However, the contribution made to the PF account of any person till 31 March 2021 will be considered as contribution without tax.