Some rules related to Employees Provident Fund are going to change soon.
According to the current provisions of the Income Tax Act, Income Tax Exemption is available on the interest of Employees Provident Fund (EPF), Voluntary Provident Fund (VPF) and Exempted Provident Fund Trusts (EPFT). Contribution can be any amount in this, but now the government has fixed the limit of this amount.
- February 22, 2021, 7:39 PM IST
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.