From April 1, there will be a significant change in the rule related to PF. In fact, in the General Budget 2021, there was a provision to set a tax exemption limit for interest on Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF), which provides for provident fund contributions above Rs 2.5 lakh in a year. Interest will now be taxed at 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.
High-income salary will affect the employees
Under the existing provisions, the interest of Employees Provident Fund, Voluntary Provident Fund and Exempted Provident Fund Trusts is exempt from tax, no matter how high the PF contribution is. This new provision of the budget will have a direct impact on people with high-income salaries, who use the voluntary provident fund for tax-free interest. Under the EPF Act, employees and employee contribution (contribution of the company) is fixed at 12% of the salary. However, employees can voluntarily contribute more than this amount to the Contribution Voluntary Provident Fund (VPF). There is no upper limit for contribution to VPF.
Benefit of full interest rebate without any limit
Chartered Accountancy Govind Singh from Delhi said that some employees contribute high amount to provident funds (Recognized Provident Fund and Central Government Funds like EPF) and take advantage of the discount on full interest without any limit. In the budget proposal, the finance minister has proposed a rebate on interest on PF contribution up to Rs 2.5 lakhs in a year. The new limit will apply to contributions made on or after April 1, 2021. This move will have an impact on less than 1 percent of employees of Employees Provident Fund.
