Govt Introduces New IT Rules to Bifurcate PF Fund into Taxable and Non-Taxable Accounts

New IT Regulations come from the government

Friday, 3rd September 2021

The Central government issued a notification in the interest of Provident Fund subscribers on Thursday and laid down new income tax rules. According to this, the existing PF accounts will all be bifurcated into two separate accounts, one of which will be taxable while the other non-taxable.

In the new update, the government also stated that this step will allow them to levy taxes on PF income that is generated from employee contribution that supersedes Rs 2.5 lakh a year. The Income Tax Department had been made cognizant of this decision by the Union Finance Ministry of August 31.

To this effect, the Central Board of Direct Taxes (CBDT) has announced rules which entail dividing the existing employee provident funds (EPF) into two and maintain them separately as a taxable and a non- taxable account, in order to calculate the taxable interest.

The CBDT also mentioned that the non-taxable account will include their closing account as it was on March 31, 2021. It has also come to be known that these new rules will be put into effect from the next financial year, April 1, 2022 onwards.

As per the Income – Tax (25th Amendment) Rules, 2021, “For the purpose of calculation of taxable interest…, separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person.”

During the Union Budget 2021, the announcement had been made that stated the new rules. It mentioned that Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) contributions that exceedsRs 2.5 lakh anually will be taxable.

Union Finance Minister NirmalaSitharaman had made the same announcement in the budget and argued that some employees were contributing huge amounts into their PF accounts and getting tax-free incomes.

A new section in the income tax rules has been appended, Section 9D, in order to put into effect the new tax on PF income from employees' contributions exceeding ? 2.5 lakh in a single financial year.

The News Talkie Bureau

Source

NDTV