Is additional PF contribution taxable?
Finance Minister Nirmala Sitharaman had announced, in this year’s budget, that PF contribution of more than Rs 2.5 lakh in a fiscal will be taxable. This will taxable account meaning interest earned on this contribution would be subject to applicable tax.
How much tax do you pay on PF over 2.5 lakhs?
In the Union Budget 2021, Finance Minister Nirmala Sitharaman had announced that the interest earned on employees’ contributions their provident fund in excess of Rs 2.5 lakh a year will be subject to tax. The government had then said that the move would affect less than 1 percent of tax-payers.
What is the limit for tax-free interest on provident fund contributions?
Rs 5 lakh
Finance minister Nirmala Sitharaman then raised the limit on the annual contribution to provident fund accounts for tax-free interest to Rs 5 lakh from Rs 2.5 lakh for funds where there is no contribution by the employer.
Does 2.5 lakh include employer contribution?
He further adds, “While the taxable contribution would in principle only include the contribution made by the employee during financial year 2021-22 in excess of Rs 2.5 lakhs/5 lakhs (i.e. amount exceeding the taxable threshold limit) along with interest on the above.
What is new PF tax rules?
In her Budget 2021-22 speech, Finance Minister Nirmala Sitharaman had proposed taxing the income on PF contributions of over ₹2.5 lakh a year. This limit was later enhanced to ₹5 lakh for PF accounts where employers make no contributions.
How is interest on PF taxable calculated?
For an employee in the tax bracket of 30 per cent, the interest income on EPF contribution over Rs 2.5 lakh will get taxed at the marginal tax rate. If a person is contributing an amount over Rs 2.5 lakh, say Rs 3 lakh, in a financial year to the EPF scheme, interest will be earned at the rate of 8.5 per cent.
How interest on PF will be taxed?
Key Points of the Amendment vide Finance Bill 2021 – (c) The interest income earned on excess contribution will be taxable only in those cases where the employees’ annual PF contribution exceeds Rs. 2, 50,000, or Rs 5,00,000/- as the case may be.
How much PF is exempt from income tax?
Recognised Provident Fund Account
| Particulars | Income Tax Provision |
|---|---|
| Employee Contribution to the Fund | Deduction allowed under section 80C |
| Employer’s Contribution to the Fund | Exempt up to 12\% of Salary* |
| Interest Income | Exempt up to 9.5\% interest annum |
How is interest on PF taxed?
How is tax calculated on PF interest?
What are the new changes in PF 2021?
The rule requires all PF accounts to be split into separate accounts – one with the taxable contribution and interest earned on that component, and another with the non-taxable contribution that shall include the closing balance of the PF account as on March 31, 2021 and all fresh non-taxable contributions and interest …
Is PF interest compounded?
EPF Interest is compounded monthly and is credited at the end of the financial year.
Is interest earned on PF contribution taxable in India?
In such a case, the interest earned on Rs 38,000 (excess of Rs 2.50 lakh) will now get taxed. The new PF contribution rules will not impact an employee whose monthly contribution is below Rs 20,833. However, if your Basic Salary is above Rs 1.75 lakh, there’s no escaping tax on interest earned.
What is the maximum amount I can contribute to PF to avoid tax?
The Rs 2.5 lakh annual threshold means that a person contributing up to Rs 20,833 a month to PF (basic salary of up to Rs 1.73 lakh a month) will escape the tax.
Is interest earned on EPF/GPF contributions taxable retroactively?
“No retro taxation on interest earned for EPF/GPF contributions of over Rs 2.5 Lakh Interest of more than Rs 2.5 Lakh earned annually from contribution to Employees Provident fund (EPF) or Government Provident Fund (GPF) will not be taxed retrospectively, Expenditure Secretary TV Somanathan clarified.
What is the threshold for tax on EPF contributions?
The Rs 2.5 lakh threshold is meant for non-government employees. In the case of government employees, applicable threshold is Rs 5 lakh, i..e, interest will be taxable in the hands of the employee if contributions to EPF and VPF exceed Rs 5 lakh in an FY.