Finance & Economy | News & Insights

Interest earned on PF contributions above Rs 2.5 lakh to become taxable.

Published: February 4, 2021
Author: Manali bhanushali

Budget 2021: Instances have come to the notice where some employees are contributing huge amounts to these funds and entire interest is exempt from tax.

Finance Minister Nirmala Sitharaman, while presenting the Budget 2021, has proposed taxability of interest on various provident funds where income is exempt.

Currently, Clause (11) of section 10 of the Act provides for exemption with respect to any payment from a provident fund to which the Provident Funds Act, 1925 (19 of 1925) applies or from any other provident fund set up by the Central Government.

It means, as of now, interest earned on EPF is fully exempted from tax in the hands of the employee. The government says that instances have come to the notice where some employees are contributing huge amounts to these funds and entire interest accrued/received on such contributions is exempt from tax under clause (11) and clause (12) of section 10 of the Act. This is true mainly in case of employees who contribute towards voluntary provident fund.

Accordingly, the FM says that it is proposed to insert a proviso to clause (11) and clause (12) of section 10 of the Act, providing that the provisions of these clauses shall not apply to the interest income accrued during the previous year in the account of the person to the extent it relates to the amount or the aggregate of amounts of contribution made by the person exceeding Rs 2.5 lakh in a previous year in that fund, on or after 1st April, 2021.

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