Finance Minister, Ms. Nirmala Sitharaman on Tuesday i.e. 23rd March, 2021, raised the limit for tax exemption on interest earned on provident fund contribution by employees to Rs 5 lakh per annum in specified cases as against Rs 2.5 lakh proposed in the Budget.
Announcing the Budget for 2021-22, Sitharaman had announced that interest on employee contributions to PF over a certain amount will now been made taxable. Interest on employee contributions to PF above Rs 2.5 lakhs per annum would be taxable, in an attempt to dissuade high earners from parking their surplus in what is supposed to be common man’s retirement fund.
Replying to the debate on the Finance Bill 2021 in the Lok Sabha, Sitharaman made the announcement regarding raising the limit to Rs 5 lakh in cases where employers do not make contributions to the provident fund.
”I intend to raise this limit to Rs 5 lakh only in those cases, where there is no contribution by the employer in that fund.”So, most often, it is employee contribution and employer’s contribution, but there are contributions which are only employee and no employer contribution is made, in such cases that amount is raised to Rs 5 lakh,” Finance Minister said.
The new provision would come into effect from April 1, 2021.
She clarified that the Rs 2.5 lakh limit is covering 92-93 percent of the people who are subscribers and they are entitled for assured interest that is tax-free under this scheme. So, the limits have been kept keeping in mind that small and medium taxpayers are not impacted by the step, she said.
The Employees’ Provident Fund Organisation (EPFO) has over six crore subscribers.
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