In Budget 2021 Government Proposed Tax on EPF interest.

 

Finance minister Nirmala Sitharaman announced in Budget 2021 that interest in employee contributions to the provident fund of over ₹2.5 lakh once a year would be taxed, ranging from 1 April.

In order to rationalize tax exemption for the income earned by high-income.

employees, it's proposed to limit tax exemption for the interest income earned on the employees’ contribution to varied provident funds to the annual contribution of ₹2.5 lakh," Sitharaman said in her Budget 2021 speech.

Under the prevailing tax provisions, interest received/accrued from an employee’s provident fund (EPF) is exempt from tax. 

it's proposed that the interest earned on the EPF contributions (only employee contribution) above ₹2.5 lakh a year will now be taxable. 

This might potentially impact employees within the high-income bracket or employees making large voluntary employee provident fund contributions.

1) Up to ₹2.5 lakh has been kept because the deposit limit that interest is tax-exempt, the minister of finance said.

2) The move is aimed toward taxing high-value depositors within the Employees Provident Fund. a minimum of 12% of an employee's basic salary and performance wages is compulsorily deducted as provident fund, while the employer contributes another 12%.

Anyone who earns quite ₹20.83 lakh a year will attract his or her interest in EPF contribution being taxed.

3) If an employee’s 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's going to be noted that the new provision only takes under consideration employees’ contribution and not the entire contribution to the fund during any year. this may have a limited impact specifically on the high-income salaried individuals.

4) We aren't reducing any worker's rights. But at an equivalent time, getting tax exemption and eight rate of interest for somebody who puts ₹1 crore into the account, we thought is probably not correct. and thus we've put the ceiling, the minister of finance said.

5) The big-ticket money which comes into the fund and gets tax break also as assured about 8% returns that might come under the tax ambit, the minister of finance said.

You have huge amounts, some to the extent of ₹1 crore, being put into this account monthly . For somebody who puts ₹1 crore monthly into this fund, what would be his salary? So for him to urge tax concession and eight return we thought it probably not comparable an employee with ₹2 lakh who puts that cash , gets tax concession, and gets 8 percent return. That person would still be allowed to place in money, but in fact with a ceiling of ₹2.5 lakh