| Published: Monday 8 March 2021 3:32 pm [IST]
According to Finance Minister Nirmala Sitharaman’s 2021 budget announcement, from April 1, interest on employee contributions will be taxed over Rs 2.5 billion per year for retirement funds. According to the finance minister, interest on deposits up to Rs 2.5 lakh is tax-free. At least 12% of an employee’s basic monthly salary and performance wages are deducted as pension fund contributions, while the employer contributes a further 12%. The government wants to prevent high-income taxpayers from taking advantage of the tax break with the current tax law. Interest received / accrued from an employee’s pension fund (EPF) is tax-free under the applicable tax laws. Interest that an employee receives on EPF contributions over 2.5 lakh per year will now be introduced for tax purposes.
Employees with a high salary bracket or those who make substantial voluntary contributions to the employee benefit fund can work under the applicable tax laws. Most Investors Many subscribers choose VPF because it offers the best tax-free return on PF deposits and is backed by a government guarantee. Individuals earning more than Rs 20.83 lakh per year have their EPF contribution interest taxable. It should be noted that the current provision only takes into account employee contributions, not the entire amount paid into the fund over a one-year period. In her budget speech, Finance Minister Nirmala Sitharaman said: “The big money that goes into the fund and receives tax benefits and 8 percent guaranteed returns would fall under the tax area.”
There aren’t many options when an employee’s required PF contribution is more than Rs 2.5 lakh per year. The current tax is levied directly on interest on contributions in excess of Rs 2.5 lakh and these individuals have no choice but to accept it. Others who have voluntarily contributed more than 12% of their base salary to the Voluntary Provident Fund (VPF) can reevaluate and reduce their contributions to stay tax-free.
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