New Income Tax Rules for GPF: After the start of the new financial year 2022-23, various income tax norms announced in the Union Budget 2022 have now come into force. Therefore, it is important for a taxpayer to know the new changes with respect to the Income Tax Rules, which have now come into force. Taxation on Provident Fund (PF) Contribution 2.50 lakh is one of them. Following the rationalization of provident funds announced in Budget 2021, the Central Board of Direct Taxes (CBDT) has inserted Rule 9D of the Income Tax Rules, 1962 in FY22. Under this rule, every EPFO subscriber will have two PF/EPF accounts where the other account will have PF contribution beyond the threshold limit.
speaking on new income tax rules for gpf or General Provident Fund; Sebi registered tax and investment expert Jitendra Solanki said, “In Budget 2021, the Union Finance Minister had announced to rationalize provident funds by taxing PF interest earned beyond PF interest. 2.50 lakh contribution in a single financial year. In order to ensure implementation of this announcement and smooth computation of PF interest earned by the EPFO subscriber, CBDT inserted Rule 9 of the Income Tax Rules, 1962 in the FY 2021-22. As per this rule, every EPFO subscriber will have two EPF or PF accounts where the PF contribution exceeds 2.50 lakhs will be deposited in another PF or EPF account in a financial year. Hence, interest earned in EPF/PF-1 account will be free from any taxation whereas interest earned in PF/EPF-2 account will be taxable.” Solanki said that from the new financial year, two EPF or PF account system has been implemented. However, the classification of taxable and non-taxable PF account will be effective from 1st April 2021.
Explanation of new income tax rules for GPF; Archit Gupta, Founder and CEO, Clear said, “CBDT has notified that organizations are required to maintain two separate PF accounts. One account will be for taxable contribution, while the other is non-taxable with effect from 1st April 2021. Contribution will be for contribution. Interest earned on contribution deposited in taxable account in EPF will be taxed.”
On how the new income tax rules on provident fund contributions will work, Archit Gupta of Clear said, “Interest earned on employee’s contribution to provident fund account will be taxed if the contribution amount in a financial year exceeds 2.5 lakhs. If there is no employer contribution in the Provident Fund account, the limit will be 5 lakh per annum.”
For example, a salaried EPFO subscriber contributes 1.5 lakh more in EPF 1.5 lakh in VPF accounts during the financial year 2021-22. The opening balance of PF account as on 1st April 2021 is 2 million. The total contribution to the Provident Fund account during the financial year 2021-22 is 3 lakhs. Hence, 2.5 lakh EPF contribution will be deposited in the non-taxable account, and 50,000 will be credited to the taxable account. Balance in non-taxable account as on 31st March 2022 will be 22.5 lakhs (opening balance as on 1st April 2021 is non-taxable), and will be in the taxable account 50,000 Therefore, for the financial year 2021-22, an interest of 8.5 per cent will be applicable. 50,000 will be taxable in the hands of the EPFO subscriber.
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