Every little thing that you must know concerning the new EPF rule


The Worker Provident Fund (EPF) is a public pension scheme for workers. Underneath the EPF, which was beforehand a social advantages scheme, the worker and the employer pay a month-to-month contribution equivalent to 12 per cent of the essential wage and the fee allowance.

Within the 2021 Union price range, the Minister of Finance Nirmala Sitharaman introduced a brand new tax restrict on contributions paid to the EPF. Underneath the brand new rule, any contribution to the provident fund (PF) of greater than Rs 2.5 lakh in a yr and the curiosity accrued on it’ll now have tax implications. Solely the contribution as much as Rs 2.5 lakh per yr is tax exempt.

The federal government faces a income deficit and has a larger position to play in reviving the financial system as a complete. Archit Gupta, Founder and CEO of ClearTax, reiterated the identical saying, “Paying tax-free curiosity on the provident fund is turning into more and more unsustainable, authorities needs to forestall high-income earners from contributing extra to their PF accounts. ”

However how will the brand new tax limitation have an effect on us? The brand new rule is just relevant on the worker’s contribution and the employer’s contribution is to not be taken into consideration. The transfer is especially for top revenue earners who earn an annual revenue of 20.83 rupees per yr.

Curiosity earned on EPF is presently exempt from any tax penalties. The brand new rule implies that the salaried class who earns a superb wage or who makes the next contribution to the fund can have a tax implication on the curiosity part. That is within the occasion that the worker’s contribution exceeds Rs 2.5 lakh in a yr.

The rule, relevant from April 1, 2021, may even have an effect on those that make bigger voluntary contributions to the Voluntary Provident Fund (VPF). “The vital cash which enters the fund and obtains tax benefits in addition to assured returns of 8% would fall beneath the tax area”, declared the Minister of Finance. This ruling emphasizes the massive, tax-free curiosity accrued that was additionally not taxed upon withdrawal.

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