PF: For your retirement, these money are deducted from your salary every month. You give 12% of basic salary and 12% of the employer.
Now, Employee Provident Fund (EPF) has taxed on the contribution of employee’s contribution of more than 2.5 lakhs. But apart from this, will other provident fund (PF) be taxed? Will every PF contribution be taxed?
All PFs will not be taxed. EPF, VPF, GPF and PPF – these are the four Provident Funds and you should not worry about them.
How will EPF be taxed?
If you do a job, then these months are deducted from your salary for your retirement. You give 12% of basic salary and another 12% is given by the employer. Now if you make a total contribution of 20,833 rupees in a month, then no worries, but if your contribution goes above this, then you will have to pay tax on the interest received from EPF. That is, if your E-PF contribution crosses the Lakshman line of 2.5 lakh, then tax will have to be paid according to your slab.
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Let’s understand with an example – if the Salan Contribution in EPF is 3 Lakhs, then the interest you will get on that you are depositing 50,000 more is taxable. If calculated by 8.5 percent, then this amount is Rs 4250. Now if the employee is in the 30 percent tax slab, then Rs 1275 will have to be paid as tax. It will cost 4% cess i.e. 1326 rupees more. Investment of more than 2.5 lakhs will not get 8.5 percent interest but post tax 5.85 percent interest. Overall, you will be getting 8.06 percent interest on your entire contribution. As your contribution to EPF is more than 2.5 lakhs, you will earn less interest.
For whom the news of concern?
It is only a matter of concern for those who increase their PF contribution through the route of Voluntary Provident Fund (VPF). Each employee can only contribute 12% of the basic of his salary. But if someone wants to do more than this, then he can put up to 100% of his basic through VPF. Now who can it be? These are the people who are the directors or owners of companies or in high positions who can increase their contribution. Do you know that out of 4.5 crore PF holders in India, there are 0.3% accounts with contribution of more than 2.5 lakhs.
So the contribution which is increasing in EPF through VPF will be taxed.
Will GPF be taxed?
Now Government Provident Fund (GPF), this PF is only for government employees. And also those who started the job before 1 January 2004. Now it has been closed. Now instead of this government employees come under the purview of NPS. Those who have old accounts are running in which government employees can contribute minimum 6 percent of their salary and maximum 100 percent. It is currently getting 8 percent interest and if the employee also contributes more than 2.5 lakh rupees, then he will have to pay tax according to the tax slab.
GPF interest rate from January 2020 to March 2020 declared: Check details
Will PPF be taxed or not?
Anyone can open this account. Public Provident Fund (PPF) accounts open in banks and post offices. This contribution has nothing to do with your salary. But its limit is 1.5 lakh rupees annually. On this, you are getting 7.10 percent interest. There is already an upper limit on investment in this and if no one can contribute more than this, then there is no tax on it.
