Under the new Income Tax laws, the existing Provident Fund (PF) accounts are likely to be divided into two parts. The new provision is likely to come into effect from April 1, 2022.
It is pertinent to mention here that the Centre had notified new Income Tax (IT) rules in the month of September last year.
The new rule for two separate accounts has been introduced to operationalise the new tax on PF income arising out of employee contributions exceeding Rs 2.5 lakh a year.
“For the calculation of taxable interest relating to the contribution in a provident fund or recognised provided fund, exceeding the specified limit, separate accounts, within the provident fund account shall be maintained during the previous year 2021-22 and all subsequent previous year in the taxable contribution and non-taxable contribution made by a person,” according to the Income-Tax (25th Amendment) Rules, 2021.
Detailed Explanation:
a. Non Taxable contribution shall be the aggregate of the following;
(i) Closing balance in the account as on the 31st day of March 2021
(ii) Any contribution made by a person in the account during the previous year 2021-2022 and subsequent previous year, which is not included in the taxable contribution account
(iii) Interest accrued on sub-clause (i) and (ii) as reduced by the withdrawal, if any, from such account.
b. Taxable contribution account shall be the aggregate of the following: (i) Contribution made by a person in a previous year in the account during previous year 2021-2022 and subsequent previous years, which is in excess of the threshold limit
(i) Interest accrued on sub-clause
(ii) as reduced by the withdrawal, if any, from such account. The same threshold is Rs 5 lakh for PF accounts where employers do not contribute, but most EPF accounts, by definition, usually include matching contributions from employers and employees of 12% of monthly salary.