New Delhi: The central government has notified new income tax rules. Under these rules, the existing Provident Fund (PF) accounts will be divided into two separate accounts.
With this move, the government will be able to levy tax on the income earned by the employees from the money deposited in the PM, which is more than Rs 2.5 lakh annually. This means that if the PF account earns more than 2.5 lakhs, then the government will levy tax on it.
In this regard, the Central Board of Direct Taxes (CBDT) has issued rules and two separate accounts will be created within the PF account. Thereafter, all existing Employees’ Provident Fund (EPF) accounts will be bifurcated into taxable and non-taxable deposit accounts. Non-taxable accounts will include their closing account as on March 31, 2021. The new rules were notified by the Finance Ministry on August 31 and later the Income Tax Department was also informed.
What will change in PF account
According to official sources, this rule is likely to be implemented from the next financial year i.e. April 1, 2022. After the implementation of this rule, every person will have two accounts in the PF account. There will be an account in which the interest money will be deposited on which no tax will be charged. The second account will be the one in which the tax liability money will be deposited.
A new section 9D has been included in the Income Tax Rules to apply the new tax on PF income, if the amount deposited in PF earns more than Rs 2.5 lakh annually. For computing the taxable interest, the taxable and non-taxable deposits deposited by an individual will be reckoned.
For this it will be necessary to maintain two separate accounts within the existing PF account. All previous payments in PF accounts will be kept in a single account which will be tax free. In the financial year 2022, however, each subscriber will be given a new PF account, where contributions above Rs 2.5 lakh will be taxed.
Why will two accounts be created
this rule will be effective from April 1, 2022. According to tax experts, this announcement by the government has cleared up any misconceptions and made the interest calculation more convenient. The purpose of this decision is to prevent high earning people from misusing government welfare schemes. Such people take advantage of these schemes and collect tax free amount in the form of guaranteed interest.
Like bank interest, PF interest is calculated on a year-to-year basis. While submitting the tax return, taxpayers will be obliged to include interest earned in their PF accounts in excess of Rs 2.5 lakh in ITR.
It should also be noted that the limit of Rs 2.5 lakh is applicable to non-government employees, on the other hand the limit of Rs 5 lakh is for government employees. The previous budget announcement in February 2021 did not give any correct information about how the taxable income would be calculated. Nor was it explained how it would be segregated from non-taxable deposits.
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