Major changes have been made to the Employees Provident Fund (EPF) rules. The central government has notified new income tax rules. Under this, the existing provident fund accounts will be divided into two separate accounts. The income tax rules notified by the Central Board of Direct Taxes (CBDT) will levy tax on interest income accrued in provident fund (PF) above a specified limit. This rule will apply to those who contribute more than Rs 2.5 lakh in PF accounts in a year. According to the CBDT, the existing PF accounts will be split into two separate accounts to implement the new rules.
What are the new rules?
Under the new rules, non-taxable PF contributions will include the March balance 31 March 2021 as well as any contribution made by the person in the account in 2021-2022 and in later years within the threshold specified and the interest accrued on these. Deposits in excess of the limit will be in the taxable contribution account and interest on it will be taxed. The new rules will come into effect from April 1 next year.
As per government estimates, about 1,23,000 high income earners are making more than ₹50 lakh a year in tax free interest on average from their provident fund accounts. In this year's budget, Finance Minister Nirmala Sitharaman had fixed a tax-free interest limit of Rs 2.5 lakh on provident fund contributions. If there is no employer contribution in a person's account, the limit will be Rs 5 lakh.