Taxable Interest Calculation In PF Account

New tax and financial rules, laws come into effect from April 1, 2021 – the start of the new financial year. Here is a look at all the changes that will impact your money in FY 2021-22.

Tax on PF interest

As announced in the Budget 2021, if deposits in Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) by an employee exceed Rs 2.5 lakh in a financial year, then the interest earned on the contributions exceeding Rs 2.5 lakh will be taxable in the hands of an employee.

Further, in case there is no contribution by the employer to the EPF account (usually in case of government employees), then interest will be tax-exempt for the deposits up to Rs 5 lakh in a financial year.

Thus, in the new financial year to avoid tax on the PF interest, ensure that the deposits in your EPF account do not exceed the specified limits mentioned above.

In the Income-tax Rules, 1962, after the rule 9C, the following rule (9D) has been inserted by the Central Board of Direct Taxes:

(1) For the purposes of the first and second provisos to clauses (11) and (12) of section 10 , income by way of interest accrued during the previous year which is not exempt from inclusion in the total income of a person under the said clauses (hereinafter in this rule referred to as the taxable interest), shall be computed as the interest accrued during the previous year in the taxable contribution account.

(2) For the purpose of calculation of taxable interest under sub-rule (1), separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person.

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