EPF rules are changing! Employees deposit more funds, then they will get income tax, know who will be the most affected

New Delhi. Employees Provident Fund (EPF) has been a great option for future savings, saving and tax saving for most of the employed people in the country. In view of this, a large number of employees have been depositing EPF’s fixed 12 percent contribution amount by their own will as per the rules. This amount, which is increased in EPF with its own will, is called Voluntary Provident Fund (VPF). Till now there is no limit on contribution to EPF. In this, the interest received on the amount deposited is tax free return. Now these rules are going to change. In easy terms, if the contribution amount is more than the limit, then the subscriber will have to pay income tax on the profit.

This change in the rules of EPF and VPF in the country is going to happen on 1 April 2021. As per the existing provisions, income tax is exempted on the interest of EPF, VPF and Exempted Provident Fund Trusts (EPFT), irrespective of the PF contribution. In fact, in the General Budget 2021, Finance Minister Nirmala Sitharaman has made it taxable to deposit more than Rs 2.50 lakh annually in EPF. In other words, the income from provident fund contribution above Rs 2.5 lakh in a year will now be charged to income tax from normal rates.

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Tax increases on interest if the company increases the contribution amount According to the new rules, this will be applicable only on the contribution amount deposited by the employees i.e. if the contribution amount is increased by the company then the interest received will still be tax free. This new provision of Budget 2021 will directly affect high-income salary people, who use VPF for tax-free interest. Under the EPF Act, 12 percent of the employee and the company’s basic salary has been fixed. However, employees can voluntarily do more than this amount in Yodagana VPF. There is no limit to the contribution. Employees also use it for tax exemption.

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One percent employees will have direct impact on new rules
The central government claims that less than one percent of its employees will be affected. The government says that the number of employees who contribute more than 2.5 lakhs annually to the EPF is less than 1 percent. Explain that the number of shareholders of Employees Provident Fund Organization (EPFO) is more than 6 crore. The government has taken this step to compensate for the revenue deficit. This step of the government will affect the employees earning more than Rs 20.83 lakh annually. There is also a possibility of a decrease in the number of people depositing money in VPF with the new rule.