The Government has introduced new guidelines for calculating taxable interest on PF contributions | Notification, September

The government has announced regulations for computing taxable interest on PF contributions above Rs 2.5 lakh in circumstances where the employer contributes, and Rs 5 lakh in cases where the employer does not contribute. The Central Board of Direct Taxes has announced that starting in 2021-22, 2 different accounts under the PF account would be required to distinguish taxable and non-taxable contributions made (CBDT). 

The total of the person’s contributions over the threshold limit, plus interest earned on the contributions, minus any withdrawals, will be the taxable contribution account. Non-taxable contributions, on the other hand, will be the sum of the account’s closing amount as of March 31, 2021, non-taxable contributions made by the account holder, and interest earned on the whole sum, less any withdrawals.

The regulations will take effect on April 1, 2022. The government made the measure to prevent high-income earners from abusing the advantage by making huge contributions in the employee provident fund or EPF. The interest earned on the provident fund balance is tax-free, and withdrawals are tax-free, making it an appealing investment alternative.

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