The Central government issued a notification informing PF members that the existing provident fund (PF) accounts will be separated into two distinct accounts under new income tax laws. The government would be authorized to tax PF revenue generated from employee contributions that exceed Rs 2.5 lakh annually as a result of the new announcement, according to the Central government.
Non-government personnel are exempted from the Rs 2.5 lakh threshold. In the case of government employees, the relevant threshold is Rs 5 lakh, which means that interest will be taxable in hands of employees if contributions to EPF and VPF exceed Rs 5 lakh in a fiscal year.
Existing provident fund (PF) accounts will most likely be split into two halves on April 1.
The new rules are meant to prevent high-earning individuals from taking advantage of the prevailing welfare programs.
1) Taxable and non-taxable contribution accounts will be formed from all existing PF accounts.
2) According to the Central Board of Direct Taxes (CBDT), non-taxable accounts would include their closing account as of March 31, 2021. The Central Board of Direct Taxes (CBDT) sets policies for the department of information technology.
3) According to official sources, the rules might take effect as early as the following financial year, on April 1, 2022.
4) A new Section 9D has been added to the I-T regulations to impose the new tax on PF income from employees' contributions surpassing 2.5 lakh per annum.
5) To calculate taxable interest, two distinct accounts will be kept within the existing PF account for the recently completed financial year, as well as all previous years, to evaluate and analyze the taxable and non-taxable contributions of an individual.
According to tax experts, the government's move has cleared up any confusion and made interest computation much easier. The goal is to keep high-income people from misusing government welfare schemes. These individuals take advantage of these schemes and earn tax-free income in the form of guaranteed interest.
