Tax on interest earned on PF - Article

Important note: You are no longer exempt from taxation on interest that you earn on your PF contributions. Taxes will be deducted by the EPF organization and starts on April 1st, 2022. This announcement comes following an announcement made by Financial Minister Nirmala Sitharaman in her budget 2021 speech. Therefore, it is essential for everyone, including business owners as well as non-government employees and government employees to know the latest information regarding the taxation of interest earned on the PF. This article will help you'll be aware of the most recent update to your contributions to PF.

The earlier regulations for interest earned on PF

The section 80C in the Income Tax return filing Act offers a tax exemption for the three funds PPF, GPF, and EPF funds.

The Income Tax Act exempts the earnings earned, the money made, as well as the accrued interest resulting from these schemes from taxation.

In simple terms according to earlier regulations, you weren't required to pay any tax .

·  The amount that is deposited into Provisional Funds(EPF/GPF/PPF).

·  The Maturity Amount.

Additionally, until new changes were released within the Budget 2021, which would begin on January 1, 2021 the interest earned on EPF was tax-free for those who contributed.

The new notice alters these rules and the tax exemptions no longer are accessible if your investments surpass an amount that is certain.

New Notification Tax on Interest Earned from PF

The announcement was made earlier in the month, by the Employees Provident Fund Organisation (EPFO) that for the fiscal year 2021-22, the interest rate for the accumulations in employee provident funds will be cut to 8.5 percent down to 8.1 percent.

According to the announcement from the Finance Department of India taxation will be imposed for those who earn over the amount of.

How much is PF Threshold for Tax Exemption for employees of the government ?

The notice states that the interest on contributions that exceed the amount of Rs. 5 Lakhs in FY 2021-22 must be considered as an income from sources other than the one mentioned during the period of 2021-22(AY 2022-22) and the tax due on income must be deducted from the salary received in year 2021-22. The same should be reported in Form 16 of FY 2021-22(AY 2022-23) in line with. So, the minimum threshold for employees of the government is set at 5 Lakhs.

What is the threshold for tax exemption under the PF for employees in the Organized & Private Sector?

Any interest that is credited to an account of a corporate provident fund will be tax-free on contributions that are up to 2.50 lakhs per year however, any interest earned for contributions above this limit is taxed to the employees of the company in the future, as per the new rules. However, if the business doesn't contribute to the fund of the employee's providing and the threshold limit will change. In this instance the threshold limit has been set at Rs. 5 Lakhs.

Effect of Amendments to the PF Taxation

·  All contributions that you made prior to March 31 2021 are tax-free.

·  But, the income you earn through over the threshold limit for the fiscal year 2021-22 will be tax deductible.

·  An additional account is established for contributions received prior to April 1, 2021 and also for deposits that are under the threshold of taxation, as well as the interest that accrues on them.

·  Interest and contributions which are tax deductible are deposited in an account that is separate from the taxation.

·  Taxpayers have to report the tax PF they owe each year during ITR filing for the following year.

·  Interest is analyzed in a separate manner for tax-deductible contributions and non-taxable contributions.

·  Employee contributions that exceed the limit set by law in the year of contribution as well as in future financial years less the amount of withdrawals, are not taxable.

·  PF subscriptions exceeding the amount of Rs. 5 lakh during the financial year 2021-22 need to report to the department of income tax prior to the time that salary bills for February 2022 are prepared for tax deduction. At Source (TDS) from salary and allowances. This is applicable to the state and central government employees.

 

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