Tax on PF interest income: In Budget 2021, the Finance Minister announced that if more than 2.5 lakhs are invested in a provident fund, then the income from interest on the additional amount will be taxed. Since then investors of PPF and EPF have been in confusion.
Tax on PF interest income: In the budget 2021, Finance Minister Nirmala Sitharaman made a big announcement regarding the provident fund. Under this, now the interest income has been brought under tax after investing in PF. After the budget announcement, there are many questions in the mind of those who invest in salaried individual and public provident funds. In this article, you are going to explain in detail about the impact of the announcement of the budget on the investors.
On February 1, the finance minister announced that if someone invests more than 2.5 lakhs in the provident fund, the interest earned on the access amount will be taxed. In simple words, if an individual invests up to 2.5 lakh in a provident fund in a financial year, then the income from interest will be completely tax free. If someone has invested Rs 3 lakh, then there will be no tax on interest income up to 2.5 lakh, while the income earned by the interest on 50 thousand will be included in the net income of that individual. According to the tax bracket he comes in, he will have to pay tax.
What do tax experts say?
It seems from reading the budget paper that the combined limit of investment in Employee Provident Fund i.e. EPF, Public Provident Fund i.e. PPF and Voluntary Provident Fund i.e. VPF is Rs 2.5 lakh. If more than 2.5 lakhs are invested in all three, then the interest earned on the additional investment will come under the tax net. However, tax experts say that PPF (Public Privident Fund) has been kept out of it. A maximum of 1.5 lakh rupees can be deposited in PPF in a financial year. In this case, it is less than 1 lakh rupees from the budget limit. Minimum 500 rupees can be deposited in PPF. Its lock-in period is 15 years. In this, deduction is given under 80C on investment. Apart from this, interest income and maturity are completely tax free.
New rule will not apply to PPF
According to the Budget 2021 announcement, if one invests in Employee Provident Fund and Voluntary Provident Fund i.e. VPF, then the combined limit of both is 2.5 lakh rupees. If you invest more than that, you will be subject to interest income tax on additional amount. According to tax experts, EPF and PPF will be treated differently and these rules will be applied differently for both. According to the current rule, the maximum limit of PPF is Rs 1.5 lakh, due to which the budget announcement will not have any effect on it. The new rule will come into effect from 1 April 2021.
Understand from example how tax calculation will happen
In this way, if one invests 1.5 lakh in PPF and 3 lakh in EPF, then the total investment is 4.5 lakh. However, he will only have to pay tax on the interest earned on 50 thousand, because the interest income on PPF is tax free. He is under the 2.5 lakh radius. Apart from this, the tax free limit in EPF is 2.5 lakhs. In this way, he will have to pay tax on the additional 50 thousand that will be earned from the interest in a financial year.
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