Interest on employee contributions towards provident fund of over Rs 2.5 lakh per annum will be taxable starting April 1, according to Finance Minister Nirmala Sitharaman's Budget 2021 announcement. According to the finance minister, the interest on deposits up to Rs 2.5 lakh will be tax-free. A minimum of 12% of an employee's basic salary and performance wages per month is deducted as provident fund contributions, whereas the employer contributes another 12 per cent respectively. The government aims to prevent high-income taxpayers from taking advantage of the tax break with the current taxation law. Interest received/accrued from an employee's provident fund (EPF) is tax-free under current tax laws. Interest received on EPF contributions by an employee above Rs 2.5 lakh a year is now implemented to be taxed.
Employees with a high salary bracket or those who make substantial voluntary employee provident fund contributions can be effected under the current tax laws. Most of the investors Many subscribers choose VPF because it offers the best tax-free return on PF deposits and is backed by a government guarantee. Individuals earning more than Rs 20.83 lakh per annum will have their EPF contribution interest taxable. It's worth noting that the current provision only considers employees' contributions, not the entire amount contributed to the fund over the period of a year. In her Budget speech Finance Minister Nirmala Sitharaman had said that "The big-ticket money which comes into the fund and gets tax benefit as well as assured 8 percent returns would come under the tax ambit".
There isn't much option if an employee's required PF contribution is more than Rs 2.5 lakh per year. The current tax will be induced directly for interest received on contributions of more than Rs 2.5 lakh, and those individuals will have no choice but to accept it. Others that have voluntarily contributed more than 12% of their basic pay to the Voluntary Provident Fund (VPF) can re-evaluate and reduce their contributions to remain tax-free.