People choose PF as a safe investment for the future, and then withdraw this money when needed. But now after the announcement in the budget, those investing in Provident Fund (PF) are also going to get shocked. Union Finance Minister Nirmala Sitharaman has announced that now the benefit of tax rebate will be given only on investments up to Rs 2.5 lakh in a financial year.
Actually, along with tax exemption on PF, there are good returns. That’s why people consider investing in PF as the first option. But now if you invest 2.5 lakh rupees more in PF in a year, then the interest earned will come under the tax net. Currently, the interest rate on PF is 8 percent and the income from interest is completely tax free.
This means that if someone’s PF accumulates more than 2.5 lakhs in a year, then they will have to pay tax on the interest received on it. This rule will be applicable from 1 April 2021. The return income from investment of up to Rs 2.5 lakh per annum from investment in provident fund of employees was kept tax free. Now the returns from the investment above this will be taxed.
A part of the PF is given by the company in which you work and a part is given by the employees. The new provision will be taxed only on the employee’s contribution. The government argues that such a step has been taken to rationalize the tax exemption. The government wants to clamp down on employees who get more salary and get a large portion of the money invested in PF and get the interest money tax free.
Let us understand by an example how much interest will be taxed. If the employee’s annual contribution to the PF is Rs 3 lakh, then there will be no tax on the PF contribution of Rs 2.5 lakh. The contribution of the remaining 50000 rupees will be taxed.
Suppose the interest rate on PF is 8 percent, according to this, on the contribution of additional 50 thousand, the employee will get Rs 4000 interest. Now if the employee comes in the 30 percent tax slab, then the employee will have to pay 1200 rupees as tax. If 4% health and education cess is added on this, then this tax will increase to about 1248 rupees. That is, if the annual employee deposits Rs 3 lakh in PF, then he will now have to pay Rs 1248 as tax.
How much tax will be deducted?
This tax will be deducted as much as the tax slab in which the employee’s salary is. That is, if the employee’s salary is in the 30% tax slab, then the PF contribution will be 30% tax on interest above 2.50 lakh.
Who will be affected?
It is going to affect the people who have more salary. Those with less salary are not going to have any problem. Employees whose PF is deducted up to 20 thousand 833 rupees every month will not have any effect on them. The above will come under its purview.
The contribution of VPF will also affect
Voluntary Provident Fund (VPF), this tax is going to be hit. If the monthly contribution of an employee in PF is Rs 12 thousand and contribution to Voluntary Provident Fund is Rs 12 thousand. In this way a total contribution of Rs 24 thousand will be made monthly, according to this, there will be a contribution of Rs 2 lakh 88 thousand annually. That is, the employee will have to pay tax on the interest of additional contribution from 2.5 lakh rupees.
