Of late the Central Board of Direct Taxes has apprised brand new rules concerning the taxation on the interest amount requested above INR 2.5 lakh within the EPF- Employee Provident Fund. In keeping with the latest guidelines, the ventures will be obligated to perpetuate two distinct EPF accounts. One will secure the taxable contributions, whereas the second one will be dedicated to non-taxable contributions. This will be mandatorily applicable from the financial year 2021-2022 onwards. The mentioned CBDT rules will reflect on EPF from April 2022.
As per the CBDT notice, “for the computation impetus of the taxable amount of interest as per sub-rule (1), two separate accounts will be enlisted under the sole PF account. These distinct accounts will be gradually maintained for the ongoing financial year I.e., 2021-2022. Furthermore, it will be pertinent for every financial year from now onwards towards the taxable as well as non-taxable contribution.”
Split of PF account into Two Separate Accounts:
Up until FY 2021-22, every contribution made towards PF accounts was placed within a single account and no tax was levied on this amount. Everything including contributed amount, interest amount together with the withdrawal was tax-free. But with the initiation of new PF guidelines, this will be limited from next year onwards.
An additional PF account will be registered for every PF subscriber, in which the contributed amount over INR 2.5 lakh will be secured. This amount will be tax-bound. Both components I.e., the amount as well as the interest earned will be subject to taxation.
Details About the Amount Contributed Within Both F Accounts?
- NTCA: Non-taxable contribution account comprehends the contributed amount of the current year that can be up to INR 2.5 lakh. This is the amount accumulated within the PF account until March 31, 2021. In total, this amount depicts the interest credited after deduction of made withdrawals.
- TCA: Taxable contribution account comprehends:
- If the contributed amount exceeds the threshold amount that is INR 2.5 lakh then it will be accumulated within the TCA. If the amount goes beyond 5 lakh then the Government doesn’t contribute in the case of central government employees.
- Interest on the contributed amount
- The total amount will be reduced if the registered person withdraws any amount from the PF account.
However, the employees receive their EPF statement demonstrating the taxable portion and non-taxable portions of the provisional fund. Earlier, it embraced opening balances, monthly contributions made by the employee along with the employer’s contribution, together with the yearly interest. The interest accumulated within the NTCA account remains tax exempted and the interest component of TCA will be taxable.