EPF Rule Change From April 1, 2021: All You Should Know

In the Union Budget 2021 announced by the Finance Minister, there has been put new tax limitation. And for any contribution to PF over Rs. 2.5 lakh in a year, interest accrued on it will now draw tax implication.

EPF or employee provident fund has been started off a social benefit scheme towards which both the employee and employer contribute proportionately i.e. 12 percent of basic pay and dearness allowance. So, broadly what remains is contribution of up to Rs. 2.5 lakh towards the EPF kitty remains tax-exempt.

Why tax on EPF contribution over Rs. 2.5 lakh?

The government is already facing revenue deficit and it has a bigger role to play to uplift the overall economy and amid it as iterated by Archit Gupta, founder and chief executive officer, ClearTax, " paying tax free interest on provident fund becomes more and more unsustainable, the government wants to curb high income earners from self contributing more to their PF accounts," said.

How will we be impacted from the move?

Typically high income earners making an annual income of Rs. 20.83 per year shall be hit largely. Here what is to be noted that for the said tax implication only employee's contribution is taken into account and not the employer's component.

EPF Tax rules as in the current regime

Interest on EPF as of now is currently exempt from tax implication. So, as per the new ruling salaried class either earning a good salary or making a higher contribution to the fund shall draw tax implication on the interest component (in case the employee contribution is higher than Rs. 2.5 lakh in a year).

What would change for EPF from April 1,2021?

So, primarily those making a larger contribution to the VPF account shall also be hit.
"The big-ticket money which comes into the fund and gets tax benefit as well as assured about 8% returns that would come under the tax ambit," finance minister said.

The move thus puts its focus on large tax free interest accrual which was not taxed on withdrawal either.

GoodReturns.in