You can have two PF accounts till FY 2021-22: Tax Department

The guideline comes after a new provision was introduced in Budget 2021, which has made interest taxable on PF contribution above Rs 2.5 lakh. The two accounts will maintain separate taxable and non-taxable contributions for ease of calculation for the taxpayer.

Nangia & Co. LLP partner Shailesh Kumar said the notification issued by the CBDT has finally put an end to the ambiguity created during the Union Budget, which did not specify how interest on contributions above the limit would be taxed. will be imposed.

As per the notification, the rule will be applicable from the financial year 2021-22, hence contributions made till 31st March 2021 are non-taxable. If employer contribution is not received in your account, then this is the limit ₹5 lakhs.

Sudhir Kaushik, Co-Founder and CEO, Taxspanner said that the second account with taxable contribution will be opened automatically. “No account holder or employer is in a position to open this account himself. As per the law, it is the responsibility of the PF officers to maintain it.”

The closing balance of your PF account as on March 31, 2021 in a non-taxable account, contributions made within the limit in 2021-22 and interest earned in subsequent years, will be as per the notification. It said that the tax to be paid would be calculated after deducting the withdrawals made from the taxable account.

Kaushik said the move is aimed at rationalizing the taxation of PF to bring it at par with other investment options. “This new rule is only the first step and I expect the interest on PF to become fully taxable in the coming years. It cannot enjoy full tax-exempt status, whereas all other options attract some form of taxation.” In view of this, he said, investors should consider other investment options, such as NPS, which Not only tax-friendly but also efficient.Giving better returns than PF.