The Finance Ministry has decided to split existing Provident Fund (PF) accounts into two separate accounts. The ministry has notified the Income Tax (I-T) department on 31st August regarding the same.  

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

The decision was taken to operationalise a new tax on PF income from employee contributions exceeding Rs 2.5 lakh a year. For this, the government has inserted Section 9D for the calculation of taxable interest relating to contribution in a provident fund or recognised provided fund, exceeding the specified limit.   

These rules may be called the Income-tax (25th Amendment) Rules, 2021, and it is expected that it may come into force on 1st day of April 2022, the Ministry has notified. 

The government has mentioned that the purposes of the first and second provisos to clauses (11) and (12) of Section 10, income by way of interest accrued during the previous year which is not exempt from inclusion in the total income of a person under the said clauses (hereinafter in this rule referred to as the taxable interest), shall be computed as the interest accrued during the previous year in the taxable contribution account. 

For the purpose of calculation of taxable interest under sub-rule (1), separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person, the notified. 

The government has explained that for the purposes of this rule, Non-taxable contribution account shall be the aggregate of the following, namely (i) closing balance in the account as on 31st day of March 2021; (ii) any contribution made by the person in the account during the previous year 2021-2022 and subsequent previous years, which is not included in the taxable contribution account; and (iii) interest accrued on sub-clause (i) and sub-clause (ii), as reduced by the withdrawal, if any, from such account 

Taxable contribution account shall be the aggregate of the following, namely (i) contribution made by the person in a previous year in the account during the previous year 2021-2022 and subsequent previous years, which is in excess of the threshold limit; and (ii) interest accrued on sub-clause (i), as reduced by the withdrawal, if any, from such account. 

The threshold limit shall mean: (i) Rs 5 lakh, if the second proviso to clause (11) or clause (12) of section 10 is applicable; and (ii) Rs 2.50 lakh in other cases, it has been notified.

See Zee Business Live TV Streaming Below:

In the Union Budget 2021, the Finance Minister announced that interest on Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) contributions above Rs 2.5 lakh in a financial year will be taxable.