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Provident Fund New Ruls: New PF rule will be applicable from April 1, know how much will affect you

The new rule of provident fund (PF) is going to come into effect from April 1. Know here what will fall on you after the implementation of this rule.

New Delhi: Finance Minister Nirmala Sitharaman announced in the Budget 2021 that tax will be levied on interest accruing more than 2.5 lakh rupees per year in the Provident Fund. This rule will come into effect from April 1. There will be no tax on the interest received on annual deposit up to Rs 2.5 lakh in PF Fund. If you deposit more than that, then you will have to pay tax on that interest.

Note that every month, at least 12% of the employee’s basic salary and performance wage is compulsorily deducted in the PF, while the employer also contributes 12%. Through this taxation, the government wants to stop high-income people who contribute more to PF accounts.

Expenditure Secretary TV Somanathan had earlier said that the number of people actually contributing more than Rs 2.5 lakh is less than 1 percent of the total number of contributors to the EPF. Sitharaman said in his budget speech that to rationalize the tax exemption for income earned by high-income employees, restrict the tax exemption for interest income given to various provident funds to employees for an annual contribution of Rs 2.5 lakh Is proposed

The move will mostly affect high-income and high net-worth individuals (HNIs). Under the existing tax provisions, interest received or earned from the Employees Provident Fund (EPF) is exempt from tax. The new rules will likely affect employees in higher income groups or large voluntary employee provident fund contributions.

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Remember that the new provision only takes into account the contribution of employees and not the total contribution to the fund during any given year. The Finance Minister said that the big ticket money that comes in the fund and the tax benefit as well as 8% return is also mentioned.

In addition to high-income employees, salaried employees who use the Voluntary Provident Fund (VPF) to invest more than 12% of the base salary will also be affected. Larger tax-free interest that is not tax on withdrawals is now being rationalized and will affect them mostly in higher income groups. The method of calculation will be specified later as the taxation details have not yet been shared by the government.

Meanwhile, subscribers of about 4 million Employees Provident Fund (EPF) of the government’s pension scheme are yet to receive interest payments even after one and a half months of the government announcing payment for 2019-20. Delay due to mismatch of KYC or identification of employees at employer end. The field offices of the Employees Provident Fund Organization (EPFO) are reaching employers.



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