Amit Ranjan said that the 5 lakh exemption limit means that if someone’s contribution to the PF is Rs 6 lakh per annum, then according to his tax slab, he will have to pay tax only on the interest earned from the additional contribution of Rs 1 lakh.
Nominal picture
Tax Free Investment in PF: Finance Bill 2021 passed in the Lok Sabha last month. According to the amendment made in the bill, great relief has been given for your EPF. The government has increased the exemption limit on interest on the amount invested in the Provident Fund from Rs 2.5 lakh to Rs 5 lakh. However, the thing to note is that a condition has been imposed here. This exemption will be only in the case where the employer i.e. the employer does not have a contribution count.
To understand this in easy language, the government has made the interest on provident fund (PF) on annual contribution of up to five lakh rupees tax-free for a certain category. Contribution to the Provident Fund made by the employer is not included in this limit. That is, only your EPF contribution has been kept tax free up to 5 lakh rupees. If both the employee and the employee contribute to a PF account, then this limit will be only 2.5 lakh rupees. At the same time, in such an institution or trust or company, where the employer does not have contribution, this limit will be 5 lakh rupees.
Who will get the benefit?
Those people whose contribution is not made by the employer in the PF account, only those people will get this benefit. CA Amit Ranjan, who runs a tax assessment firm in Gurugram, said that the condition of contribution from the employer means that most people in the private sector will not get the benefit. This will benefit HNIs with high salaries and some people with government jobs.
In fact, it has been seen in the PF of some old government employees that the employer does not contribute to it. Such workers can get its benefit. While for the remaining people, interest on PF investment up to Rs 2.5 lakh will be tax free.
How is tax calculated
One thing you mean is that tax is calculated above this exemption limit. Amit Ranjan said that the 5 lakh exemption limit means that if someone’s contribution to the PF is Rs 6 lakh per annum, then according to his tax slab, he will have to pay tax only on the interest earned from the additional contribution of Rs 1 lakh.
At the same time, if a person who comes in the exemption limit up to 2.5 lakh has contributed up to 4 lakhs, then the interest earned on his (4-2.5) additional contribution of 1.5 lakh rupees is taxed.
What was the proposal in the budget, what changed
According to Finance Minister Nirmala Sitharaman when she presented the budget for the financial year 2021-22, from April 1, tax was to be levied on the interest paid on the annual PF contribution of more than 2.5 lakhs of employees. However, this tax will be levied only on the contribution of the employee. Employer’s PF contribution will be tax free as before. That is, earlier, there was no tax on the interest received from the entire PF contribution.
Now, according to the changes brought in it, PF contribution up to Rs 5 lakh has been tax free in such cases, where the contribution of the employer does not remain. This means that the benefit of this is going to get mostly people with government jobs. For private sector employees, the contribution of up to Rs 2.5 lakh announced in the budget will be tax free.
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