New EPF Rule: Who Will Require 2 PF Account? Check important dates, find out if you are one of them

New Delhi: Employees’ Provident Fund and Voluntary Provident Fund (VPF) members who have PF contribution of more than Rs 2.5 lakh per financial year will now have two separate PF accounts.

Finance Minister Nirmala Sitharaman had announced in this year’s budget that PF contribution above Rs 2.5 lakh in a financial year would be taxable. In line with the decision, recently, the Central Board of Direct Taxes (CBDT) notified rules for taxation of interest on additional EPF contribution.

“For the purpose of computing taxable interest under sub-rule (1), separate accounts within the Provident Fund account for taxable contributions and non-taxable contributions during the previous year 2021-2022 and all subsequent previous years will be retained. person,” it said.

What does it mean and what are the important dates?

This means that till FY22, all contributions made so far to PF accounts, including contributions up to Rs 2.5 lakh made in FY22, will be kept in one account where no tax will be levied as Same happens with PF, where contributions, interest and withdrawals are all tax free.

But one more PF account will be opened for each subscriber in FY22, where contributions above Rs 2.5 lakh made in the current year and subsequent years will be made. This will be a taxable account which means interest earned on this contribution will be subject to applicable tax.

These rules will be effective from 1st April 2022.

Rationalization of tax-free income on provident fund

Tax experts are of the view that the notification has removed the ambiguity in the matter and facilitated calculation of interest.

The decision is aimed at preventing high net worth individuals from misusing the welfare facility and wrongfully earning tax-free income in the form of assured interest returns. The interest portion is calculated on a year-to-year basis, just like bank interest. Taxpayers have to include the annual income from contributions above Rs 2.5 lakh in their PF accounts while filing their returns.

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