EPF interest on employee contribution up to Rs. 5 lakhs will now tax-free

Responding to a debate in the Lok Sabha on the Finance Bill 2021, Nirmala Sitharaman on Tuesday announced an increase in the annual limit of tax-free interest on the amount deposited in the PF to Rs 5 lack.

New Delhi: The maximum annual contribution limit per employee has been raised from Rs 2.5 lack to Rs 5 lack to keep the Provident Fund tax-free. Finance Minister Nirmala Sitharaman on Tuesday said that interest paid on up to Rs 5 lack per annum to the Employees Provident Fund (PF) would not be taxed. Finance Minister Nirmala Sitharaman announced in the budget presented in Parliament on February 1, 2021-22 that in the new financial year, interest on contributions of over Rs 2.5 lack per anum will start in the employees' PF. April 1, 2021. Taxed. The contribution made by the employer for this is not included in the calculation.

Only 8.5% interest is paid on PF deposit, EPFO ​​rate not changed

Responding to a debate in the Lok Sabha on the Finance Bill 2021, Sitharaman on Tuesday announced an increase in the annual limit of tax-free interest on the amount deposited in the PF to Rs 5 lack. She said the increased limit would apply to donations to the fund without any contribution from the employer. "My intention is to increase this limit on such PF contribution which has no contribution to the employer fund," the Finance Minister said. This discount is available in cases where the contribution does not include the contribution of the employer up to 5 lack rupees. This is because the employer's contribution is limited to 12 percent of the employee's basic salary.

Following Sitharaman's reply, the House passed the 2021 Finance Bill by voice vote. This completes the process of approving the 2021-22 budget in the Lok Sabha. Following the passage of the Finance Bill by Parliament, the tax provisions for 2021-22 will be approved. The bill was passed after accepting 127 amendments to the proposed amendments. The Finance Minister said that only one per cent of the Provident Fund clients would be affected by the tax proposal on interest on the Provident Fund. This tax proposal will not have any impact on other clients as their annual PF contribution is less than Rs 2.5 lack.

Sitharaman said, "Generally, both the employee and the employer contribute to the Provident Fund, but there is also the contribution made on behalf of the employee, but not on the employer's side." This provision will come into effect from April 1. The Employees Provident Fund Organization (EPFO) has six crore shareholders. Speaking on the issue raised by members about higher tax rates on petrol and diesel, Sitharaman said the GST Council would like to discuss bringing petrol and diesel under GST at its next meeting. She reminded the members that only the Central Government does not impose taxes on the fuel of vehicles. State governments also impose VAT on petrol and diesel.

Regarding disinvestment, Sitharaman hoped that the target set for the next financial year will be achieved. He said that the manner in which the activity in the market has intensified during the Corona period, it is expected that the disinvestment target will be achieved. The government has set a target of gambling 1.75 lakh crore rupees from disinvestment in the financial year 2021-22. The Finance Minister, while replying to the discussion, also said that the customs structure will be made rational for the convenience of the domestic businessmen, especially the enterprises of MSME Reni. In the case of taxes, he said that the tax base will be broadened. Regarding the equalization fee, Sitharaman said that this will make the conditions similar for domestic businesses who pay tax in India.