The EPF contributions above Rs 2.5 lakh annually will be taxed by the Centre.
So, here are a few things to know about the new PF tax rule:For contributions upto Rs 2.5 lakh each year, the interest credited to the provident fund account of an employee will be tax-free. However, any interest on an employee's contribution of over the same amount will be taxed in the hands of the employee year after year.
The fresh rule is most likely to affect the high-income earners. While the tax on interest might worry some employees, they must stay relieved as the contribution itself won’t be taxable. The excess contribution can’t be taxed as it is made by the employee from his salary. Tax is already levied on the salary.
EPF basics
Along with the employee, the employer also contributes 12 per cent of basic salary plus dearness allowance to EPF. 8.33 per cent of the employer contribution goes to Employees Pension Scheme (EPS).
It may be noted that PF accounts are mandatory for employees earning up to Rs 15,000 per month in any company having over 20 workers. Meanwhile, earlier this month, the EPFO announced a cut in the interest rate to a four-decade low of 8.1 per cent for 2021-22.
The government has included a new Section 9D under the Income Tax Rules to implement the new rules
