Employment Provident Fund(EPF) is very necessary for all the employees working in India. Hence, a minor change in its rule can also affect a lot of people. The latest changes in the EPF rules for this financial year has been announced by our Finance Minister. In this article, we will discuss New EPF Rules: How EPF Contributions Will Be Taxed Now.
According to the new rule, Finance Minister Nirmala Sitharaman in the Budget 2021 has proposed that the tax will be applied if the interest accruing on the employee contribution to the provident fund account crosses the limit of Rs.2,50,000.
How the contribution to the Provident Fund will be done?
Contribution to the Provident Fund is profitable for both the peoples and the government. Provident Fund is like a long term investment for the employee and the employer. As per the new EPF Rules both the employer and the employee has to contribute 12% of their wages to the Provident Fund. But the employers enjoyed a tax exemption up to the contribution of 12% till March 2020.
Beyond the above limit, the employers are liable to pay the tax. This new rule of EPF has a higher impact on high earning individuals. The budget of 2021 is for imposing various taxes on high earning individuals. These EPF Rules impact the individuals who contribute more than 2.5 lakhs to the provident fund.
All about New EPF Rules
These EPF Rules are made to rationalise the tax exemption for higher salaried individuals. Who was earning a tax-free income and were not contributing to the Provident Fund. According to the Government, this financial move will reduce income disparity in the economy.
The individual earning up to or below Rs.1,75,000 will not be disturbed but the individual earning more than Rs.1,80,000 as their basic salary would get impacted. The cut-off limit of 2.5 lakhs can be exceeded in two ways;
1] According to the basic salary
As we know, 12% of the basic salary goes to the Provident Fund. The PF will not get taxed if your monthly contribution is up to or below Rs.20,833 but if your monthly contribution is above Rs.20,833 then you will be taxed.
2] According to your voluntary contribution to the provident fund
Many of the employees contribute more than the limit of 12% to the Provident Fund. These people do this to earn a safe and tax-free return to their additional contribution. But now, it will be 12% of the tax rate for an additional contribution or voluntary contribution.
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