Government employees will get more benefit from the decision to contribute more than Rs 5 lakh annually to the provident fund. The Finance Minister has recently announced to increase this limit to Rs 5 lakh. However, for this, he has kept a condition that the contribution of the company / employer should not be more than 12 per cent.
There is still no clear information about the tax regarding the new rule.
Finance Minister Nirmala Sitharaman had announced in the Budget 2021 speech that the tax free investment limit in the provident fund would be reduced to 2.5 lakh rupees. But now, by revising it, raising the limit to 5 lakh rupees will benefit the government employees on a large scale. However, this limit will be only for the employees whose contribution of the company / employer does not exceed the fixed 12 per cent. Generally, government employees put their surplus funds in the General Provident Fund (GPF).
There will be very few employees in the private sector, who will directly benefit from this new decision of the Finance Minister. Under GPF, there is full contribution from the government employee and the government deposits interest only on it. From junior employees to civil officers in government departments, GPF deposits far more than the statutory level. For this reason, he was angry with the announcement made in the budget. But now the Finance Minister will definitely benefit from the amendment in it.
Why won’t the private sector benefit?
Experts associated with this case say that the contribution to the provident in the private sector is from both the company / employer and the employee. There is no such situation in the private sector, where only the employee is contributing to this fund and not even one rupee is being contributed by his company. In such a situation, the limit of Rs 2.5 lakhs per annum will not affect much of the private sector employees.
However, government employees are eligible for pension and there is no contribution from the employer to their PF account. In this case only employees contribute all. This is the reason that after the new amendment, government employees will benefit from a limit of up to Rs 5 lakh.
If you understand this rule of the government in easy language, then employees who contribute more than Rs 5 lakhs or Rs 41,667 in their PF account annually, then they will have to pay tax on the interest received on the additional amount. The condition for this would be that the contribution of the company / employer should not be more than 12 per cent in it.
Who else will get benefit from this amendment
Experts say that after this amendment, those employees are working in a company where the total number of employees is less than 20. Apart from this, those employees whose salary is more than this limit and their company / employer does not contribute to the EPF.
The situation is still not clear regarding tax
However, there is still no clear picture from the government regarding the tax. It is still not clear whether the interest on the additional contribution will be taxed on an annual basis or this tax will be collected at the time of withdrawal. It is also not clear who will be responsible for cutting the TDS. Only after the gazette notification issued about this rule, the real picture about tax will be clear.
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