EPFO: Rules Notified for calculation of taxable interest in PF account

The Finance Ministry has notified the rules for computing tax on interest earned on contribution of more than Rs 2.5 lakh in a year to an employee’s provident fund account (PF account). Finance Minister Nirmala Sitharaman in the budget of 2021-22 had set a limit on tax-free interest on the contribution of employees and employers jointly to the provident fund for a period of one year, up to a maximum of Rs 2.5 lakh.

According to the CBDT notification, no tax will be levied on any contribution till March 31, 2021, but interest earned on PF accounts after the financial year 2020-21 will be taxable and will be calculated separately. There will be separate accounts within the PF account in the financial year 2021-22 and subsequent years.

Have to create two separate accounts

It said that for the purpose of assessment, separate accounts will have to be created for the taxable and non-taxable contributions of the individual under the provident fund account from 2021-22. Shailesh Kumar, Partner, Nangia & Co. LLP said that the CBDT notification has clarified things. This has finally allayed the apprehensions that had arisen with the declaration of taxation on the interest earned on provident funds with contributions above the prescribed limit.

9D rule added

Rule 9D has been added to the Income Tax Law Rules, 1962. It has been clarified that separate accounts will have to be created in PF accounts. In this, taxable and non-taxable contributions to provident fund and interest earned thereon have to be shown separately. Kumar said that this arrangement will facilitate the taxpayers to calculate the taxable interest. The tax free contribution limit is Rs 2.5 lakh for PF accounts where the employer will also contribute, while the PF accounts where the employer does not contribute will get the benefit of tax free interest up to an increased limit of Rs 5 lakh. .

Under the new rules, the non-taxable PF contribution will include the balance up to March this year and the contribution made by the individual in 2021-22 and previous years, which is not included in the taxable contribution account and which is within the limit. Is. The amount deposited in excess of the limit will be deposited in the Taxable Contribution Account and the interest earned thereon will be taxed.