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Taxability on Interest on Provident Fund (PF) Amendment- Budget 2021

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Taxability on Interest on Provident Fund (PF) Amendment– Budget 2021

Taxability of interest on Provident fund: interest income earned on the Employees’ PF Contribution to various provident funds to the annual contribution of 2.5 lakh a year.

 

Its means Interest accrued on Employees PF Contribution exceeding Rs. 2.5 lakh on or after 01.04.2021 shall not be exempt under income tax provision.

For the example:

 

Particular

 Mr. X

 Mr. Y

Basic salary

                      600,000

                                 2,100,000

other Allowance

                      900,000

                                     400,000

Pf contribution (Employee Share) 12%

                        72,000

                                     252,000

Employee Voluntary Contribution

                      100,000

                                     200,000

Total Contribution

                      172,000

                                     452,000

Contribution >2.5lakh

 –

                                     202,000

Exempt income @ 8.5%

                        14,620

                                       21,250

* Taxable interest

 –

                                       17,170

Total Interest

                        14,620

                                       38,420

 

* Detail Clarification related to taxable interest, Declaration required, will follow.

 

Mr. X does not need to pay any tax on interest on Employee PF contribution because his contribution does not exceed Rs 2, 50,000 a year.

 

Mr. Y have to paid tax on interest on PF Contribution above of Rs 2,50,000 i.e. Rs 2,02,000 (4,52,000-2,50,000).

 

The interest earned by the Provident Fund contributions above Rs 2.5 lakh a year will now be added to the taxable income and taxed at the normal rates.

This restriction shall be applicable only for the contribution made on or after 01.04.2021.

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