Interest on PF contribution above Rs 2.5 lakh to be taxed with CA Himanshu Kumar
Finance Minister Nirmala Sitharaman announced some direct tax
proposals in her Budget 2021 speech, including taxing interest earned by
provident fund contributions above Rs 2.5 lakh a year at normal rates.
This will only apply to the employee's contribution and not that of the employer.
In order to rationalise tax exemption for the income earned by high income
employees, it is proposed to restrict tax exemption for the interest income
earned on the employees' contribution to various provident funds to the
annual contribution of Rs 2.5 lakh. This restriction shall be applicable only
for the contribution made on or after 01.04.2021," said the Finance
This will impact high-income salaried people using voluntary provident
fund for tax-free interest. Individuals who contribute over Rs 20,833 a
month to PF will be taxed.
Delay in deposit of the contribution of employees towards various welfare
funds by employers result in permanent loss of interest/income for the
employees. In order to ensure timely deposit of employees' contribution to
these funds by the employers, it is proposed to reiterate that the late
deposit of employees' contribution by the employer shall never be allowed as deduction to the employer," said the Finance Minister.
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