EPFO Rule Changed: Tax rules of EPFO have changed. Explain that if you contribute more than Rs 2.5 lakh per year to the Employees’ Provident Fund (EPF), it is necessary to pay tax on the interest income from it. For your information, let us tell you that in the Union Budget 2021, the government announced that it will reduce tax benefits for high-income people benefiting from the EEE (Exempt-Exempt-Exempt) scheme.
EEE Tax Free
EEE or Exempt-Exempt-Exempt Tax Category makes all investments falling under this category completely tax free. EEE grouped investments are governed by various sections of the Income Tax At of 1961. Here exemption-exempt-exempt means investment amount, interest received and maturity amount all three things remain tax free.
These streams will also be exempted
The most popular sections under which a person is eligible to claim tax exemption include section 80B, section 80C, section 80D, section 80DD, section 80E, section 80EE and section 80GG.
Here, a discount of up to 5 lakhs
If the employer has no contribution in EPF, then high income earners can claim exemption on contribution up to Rs 5 lakh in their EPF. The Central Board of Direct Taxes (CBDT) had incorporated Rule 9 of the Income Tax Rules, 1962 in the financial year 2021-22 to give effect to this declaration.
Know about the taxation system
Experts say that according to this rule, an EPFO subscriber with a contribution of more than Rs 2.5 lakh in a financial year will have two EPF or PF accounts, where PF contribution up to Rs 2.50 lakh will be deposited in one account, while Rs 2.5 lakh will be deposited in one account. The amount exceeding one will be kept in another. Hence, the interest earned in the EPF/PF-1 account will be kept exempt from tax. But the interest earned in PF/EPF-2 account will be taxable only. This means that the excess contribution of the employee will not be taxed.
Understand from these examples
For example if an employee is contributing Rs 2.7 lakh in a financial year and the same amount is being contributed by an employer, then Rs 2.5 lakh is deposited in the first PF account and Rs 20000 in the second PF account are deposited. The interest income from Rs 20,000 will be taxed only on that. The exemption limit on contribution for government employees is up to Rs 5 lakh. In this case also, two separate accounts will exist. The additional contribution and the interest earned thereon will be kept in a separate account with EPFO. Employer’s contribution to PF, National Pension System (NPS) and retirement is tax free up to a total of Rs 7.5 lakh in a year.
Invest more in equity
The EPFO may this month approve a proposal to increase its investment in equities to 20 per cent from the existing 15 per cent limit. The proposal is expected to be considered and approved during the EPFO trustees’ meeting to be held on July 29 and 30.
