Income Tax on PF interest - Budget 2021

Hi,

What are the details on this- Tax on PF interest- is it on total contribution or only employee contribution?

Please elaborate

Thank you

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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 will only apply to the employee’s contribution and not that of the employer

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Hi @Anushri

The concept is there were lot of them remitting big contribution to PF and earning good returns from the PF annually.

In-order to limit this - Govt made a notification that if you earn more than 2.5 lakhs per year from the PF interest the balance will be taxed.

That means earlier how much ever you make from PF interest is non taxable, but now capped to 2.5 lakhs.

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"If employees’ contribution to provident fund on or after 1 April 2021 exceeds ₹2.5 lakh in any year, interest earned on contribution over ₹2.5 lakh shall be taxable. It may be noted that the new provision only takes into account employees’ contribution and not the total contribution to the fund during any year.

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This is not a good move by the Govt. This will reduce the investment being made to PF.

Govt wants citizens to invest and when they invests instead of encouraging/motivating they caps the limts which will result in future as a reduce investments in PF.

Thanks

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