The Central Council for Direct Taxes (CBDT) has notified new rules that specify how interest on an employee`s contribution is taxed above a certain threshold. According to the notification published on 31 August, contributions in excess of ₹2.5 lakh in the Employees` Provident Fund (EPF) are taxed per year. In cases where there is no employer contribution in the EPF account, the threshold is ₹ 5 lakh per year. Two PF accounts for some employees: The Central Board of Direct Taxes (CBDT) had announced a new set of rules earlier this year according to which if a person`s EPF contribution exceeds Rs 2.5 lakh in a given financial year, he must have two separate accounts from the Provident Fund (PF). This came into effect from September, as the two accounts separated taxable and non-taxable contributions. This was introduced to ensure simplified facilitation of calculations for the taxpayer. These new sets of rules have been consolidated under the Income Tax Rules, 2021 (25th Amendment). To better understand what the new rules are and how they will affect a taxpayer, here are the most important updates to this evolution. It should be noted that Finance Minister Nirmala Sitharaman had announced in her 2021-22 Union Budget Speech that the FP contribution of more than Rs 2.5 lakh will be taxable in a budget.

In accordance with the decision, the CBDT recently communicated the rules. New Delhi: The Central Board of Direct Taxes (CBDT) recently announced new rules to charge interest on contributions above Rs 2.5 lakh in the Employees` Provident Fund (EPF). Under the new rules, starting in fiscal year 2021-2022, organizations will be required to maintain two separate EPF accounts, one for taxable contributions and one for non-taxable contributions. These CBDT rules will come into effect on April 1, 2022. Maintaining two separate accounts is an annoying requirement that EPFO trustees and other FPs must meet. To put into perspective the administrative overhaul required for such accounting, keep in mind that EPFO has 24.77 crore members with EPF accounts, of which 14.36 crore members received unique account numbers (UAUs) at the end of 2019-2020. Approximately 5 crore of these members actively contributed to their EPF accounts in 2019-2020. Even if a technological solution is developed to renew existing systems and provide two EPF accounts for each member, there are other concerns.

The deduction of withholding tax would require EPFO or individual FP trustees to issue tax deduction certificates or Form IT 26 AS for all such members. It is not yet known whether EPFO, the country`s largest pension fund manager with around 15 lakh crore of assets under management, has been consulted on the rules or whether it is ready for the transition to the proposed system. Each month, a portion of the employee`s income is deducted and credited after retirement. Each month, the employee`s employer provides the same amount of money. Read also| India`s online payment rules will be changed on January 1: What you need to know The story so far: The Treasury Department on Tuesday announced new income tax rules to introduce a new tax on savings from provident funds (PF). In her 2021-2022 budget speech, Finance Minister Nirmala Sitharaman proposed taxing FP contribution revenues of more than 2.5 lakh per year. This limit was then increased to ₹5 lakh for FP accounts where employers do not contribute. However, it was not clear how this tax would be collected, what will be dealt with with the new rules. New Delhi: The Central Board of Direct Taxes (CBDT) has communicated the rules for taxing interest on the Surplus Employees` Provident Fund (EPF), commonly known as PF contributions. Under CBDT rules, PF and Voluntary Provident Fund (VPF) account holders with a contribution of more than Rs 2.5 lakh per fiscal year now have two separate EPF accounts.

Read also – India records more than 2.64 lakh new cases of COVID, daily positivity rate 6.7% higher than yesterday The chairman of the Central Council of Direct Taxes at the time, P.C. Mody, had told The Hindu, that taxpayers should consider interest income from contributions above 2.5 lakh or 5 lakh when filing their tax returns. Since EPFO interest credits are rarely granted in the same year due to delays in reporting the annual EPF rate and actual credits on members` accounts, this formulation posed another implementation problem. .

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