- Advertisement -
Home Personal Finance Tax on PF : Contribution in PF should be reduced after the...

Tax on PF : Contribution in PF should be reduced after the new rules of income tax? understand with expert

0
PF account number: This special information is hidden in the PF account number of EPFO ​​subscribers, how to decode

From the financial year 2022-23, the government has implemented a new income tax rule on contribution to PF. Under this, the employee will have to pay tax according to his slab on the interest received on the annual contribution of more than Rs 2.5 lakh. Now the year arises whether such employees should reduce their contribution to avoid tax.


new Delhi. The government has also changed the income tax rules related to Employees’ Provident Fund (EPF) with the beginning of the new financial year from April 1, 2022. Under the new rule, if an employee’s PF contribution in a financial year exceeds Rs 2.5 lakh, then he will have to pay tax on the interest received.

In such a situation, the question arises whether after the implementation of the new income tax rule on PF, the employees coming under its purview should reduce their contribution. Taking the opinion of the expert in this regard, investment and tax matters expert Balwant Jain said that any employee has to pay attention to many factors before reducing his contribution. Otherwise he may have to suffer more than paying tax.

Know first…who will come in the realm after all

Balwant Jain said, the direct math of contribution to PF is that 12 percent of the basic salary of the employee will have to be paid. Now in the contribution of more than Rs 2.50 lakh per annum, only those employees will come whose basic salary will be at least around Rs 2 lakh. That is, this scope is for people with high income. Yes, if you are contributing more than 12 percent in the form of Voluntary Provident Fund (VPF), then even those without high income can come under its purview.

…then should the VPF contribution be deducted?

No, if your contribution is so high that you are depositing more than Rs 2.5 lakh annually, then consider before reducing your contribution. First of all, the interest rate of 8.10 per cent per annum is being given on PF right now, due to which a large corpus can be collected on retirement. You cannot get this much interest in any other safe option.

Tax has to be paid everywhere

Balwant Jain told that if you reduce the contribution in PF and invest the remaining money in FD or other savings schemes, then only 5-6 percent interest will be available. Not every employee has an understanding of the stock market where he can get huge returns. Even if you invest money in mutual funds and stock market, you will still have to pay capital gains tax. It can range from 10 to 15 per cent for the long term and 20 per cent for the short term.


At the same time, the interest you will get on the contribution of more than Rs 2.50 lakh in PF will have to be taxed on the same amount. This tax will also be decided according to your income tax slab. In such a situation, any additional tax burden on higher contribution will also be compensated in the form of more than 8% return received over a long period. The second thing is that PF is a complete retirement fund, from where you cannot easily withdraw money. If you invest in any other option, you can withdraw the money whenever you want and the retirement fund goal will remain incomplete.

Correct way to pay interest tax

Employees should keep one thing in mind that the tax on the interest received every year by the government on the contribution to PF should also be calculated in the same year. If your tax liability is made, then the tax should be deposited by giving its details in the income tax return of the relevant year itself.

If you are thinking of paying a lump sum on retirement by not depositing tax every year, then this will suddenly cause a huge liability on you. Therefore, it would be better that every year as soon as the government puts the interest of PF in the account, you calculate your tax liability and pay it.

- Advertisement -DISCLAIMER
We have taken all measures to ensure that the information provided in this article and on our social media platform is credible, verified and sourced from other Big media Houses. For any feedback or complaint, reach out to us at businessleaguein@gmail.com

Exit mobile version