Jagran Explainer: Centre notifies rules to split PF into 2 accounts - know what it means
New Delhi | Jagran Business Desk: The Union Finance Ministry on Thursday notified the new income tax rules for the calculation of taxable interest on employee contributions to the provident fund of over Rs 2.5 lakh per annum. Under the new IT rules, existing PF accounts will be split into two separate accounts beginning 2021-22 for taxable and non-taxable contributions made by a person.
"For the purpose of calculation of taxable interest…, separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person," the new IT rules stated.
What are the new PF rules?
Under the new PF rules, which will come into effect from April 1, 2022, all existing EPF accounts will be split into two categories -- taxable and non-taxable contribution accounts. The non-taxable accounts will include their closing account what they were by the end of the financial year 2020-21.
Finance Minister Nirmala Sitharaman, while announcing the Union Budget 2021-22, had capped the tax-free interest earned on provident fund contribution by employees and employers together to a maximum of Rs 2.5 lakh in a year in an attempt to dissuade high earners from parking their surplus in what is supposed to be the common man's retirement fund.
Will the new PF rules benefit us?
According to business experts, the new PF rules will end the ambiguity which arose with the introduction of taxation of interest on provident funds with contributions above the specified threshold. Rule 9D inserted in the Income-tax Rules, 1962 has specified that separate accounts within the PF accounts shall be maintained clearing segregating the taxable and non-taxable contributions to PF along with interest thereon.
"This shall provide a convenience of calculation to the taxpayers for segregation of interest to be offered to tax. The threshold for PF accounts with employer contribution is Rs 2.5 lakhs whereas accounts with no employer contribution enjoy an increased threshold of Rs 5 lakhs," said Nangia and Co LLP Partner Shailesh Kumar, as reported by news agency PTI.
(With inputs from PTI)
Posted By: Aalok Sensharma