The government has made the interest received on investments of up to Rs 5 lakh in a provident fund account tax-free. Employees who earn more salary and invest in VPF and PPF will get benefit.
The Finance Minister has announced to increase this limit to Rs 5 lakh only last week.
The central government has announced to give relief to those who get more salary last week. Finance Minister Nirmala Sitharaman, during the discussion on the Finance Bill, announced that the exemption limit on interest on contributions to the provident fund has been increased to Rs 5 lakh. Earlier in the budget speech, the Finance Minister had said that the interest on the contribution of more than Rs 2.5 lakh in EPF will be taxed. However, this time the government has increased this limit with one condition. The government has said that this limit of Rs 5 lakh on the interest of PF Contribution will be applicable only if there is no more than 12 per cent contribution from the employer / company. This new rule regarding Provident Fund contributions will be implemented from 1 April 2021.
This means that the employees who contribute 5 lakh rupees to their PF account in the new financial year and only 12 percent is contributed by their company or employer, then the interest paid on such employees to such employees will not be taxable.
Which employees will get benefits
This will directly benefit the employees who invest in Voluntary Provident Fund (VPF) and Public Provident Fund (PPF), they will not have to pay any tax on the interest on the total annual investment up to Rs 5 lakh. Explain that the employer in VPF and PPF, ie the institution in which you work, has no contribution.
Why did the government take this decision
Earlier, during the budget speech presented in February, the Finance Minister announced that the interest on investment of up to Rs 2.5 lakh in EPF will be tax free. If an employee invests more than this, then tax will have to be paid on the interest received on the additional investment. However, it will not include the contribution of the company. Actually, a report released some time ago showed that many people earn interest by putting their surplus money in a PF account. Whereas it is a retirement fund of PF.
What percentage of account holders will be affected by this rule
In the budget speech itself, the finance minister had said that the tax on interest received on PF will affect the 1 percent EPF account holders. This will not affect other account holders because their annual contribution is less than 2.5 lakh rupees. Explain that the total number of subscribers in the Employees Provident Fund Organization i.e. EPFO is 6 crores.
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