Salary Hike: After the increase in salary, it is necessary to check the amount in PF account. Which shows that the interest earned on the said amount is not taxable. In fact, the contribution amount in excess of the limit will also be taxable.
PF Balance After Salary Hike: More than three months have passed since we entered the new financial year 2022-23. By now, most of the salaried people would have received their salary hike letters from their employers. After getting the letter of increase in salary, you must have seen the annual increase also. In such a situation, they are also advised to look at the monthly provident fund (PF) deduction as well. As per income tax rules, if the annual EPF contribution of the Employees’ Provident Fund Organization or EPFO member exceeds the specified limit, then the EPF interest earned on the excess amount will be taxable. In fact, the contribution amount in excess of the limit will also be taxable.
As per the Income Tax Rules with effect from April 1, 2021, if the individual annual EPF contribution and Voluntary Provident Fund (VPF) contribution of an employee together exceeds 2.50 lakh in a financial year, then in that case the EPF interest earned on the contribution amount will be Rs 2.50. Any amount exceeding the annual limit of Rs. lakh will be taxable.
This means, if a salaried individual has invested Rs 3 lakh in his EPF account in a financial year, then the EPF interest earned on the contribution of additional Rs 50,000 is taxable as per the income tax slab applicable to the earning individual. Will happen. This Rs 50,000 is also taxable under the new income tax rule.
In case of government employees and EPFO members, whose recruiters do not contribute to their EPF, the maximum limit is Rs 5 lakh.
How to check whether EPF interest is taxable or not?
After receiving the increment letter, an employee has to go through the monthly salary details and check the monthly EPF contribution. After finding out the monthly EPF contribution, one needs to multiply by 12. If the result is more than 2.5 lakhs, then in that case EPF interest earned in excess of 2.50 lakhs annual contribution will be taxable and contribution in EPF account amounting to more than 2.50 lakhs will also be taxable.
As per CBDT notification dated 31st August 2021, if the annual PF contribution of an employee exceeds the limit of 2.50 lakhs, then his second PF account will be opened where additional amount of more than 2.50 lakhs will be deposited. This will make the job of the Income Tax Department easier, as both the contribution amount and the EPF interest earned in another PF account will be taxable.
As per Section 80C of the Income Tax Act, 1961, EPF contribution and interest earned on one’s PF are exempt from income tax. But, one cannot claim contribution of more than Rs 1.50 lakh per annum under this section. So, if the EPF contribution of an employee is exceeding 2.50 lakhs or 5.0 lakhs per annum, then in that case one needs to look for other tax saving options like section 80CCD, etc.
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