Last Updated on February 9, 2021 at 7:05 pm
From 1st April 2021 onwards, the interest on any contribution above Rs. 2.5 lakh by an employee to a recognised provident fund is taxable as per the provisions of the Finance bill 2021 announced today.
Update: Find out taxable EPF Interest with this calculator
That is, if the total employee PF contribution (mandatory + voluntary) contribution is more than 2.5 lah, the interest earned on the excess amount will be taxable as per slab. The budget memo says this was done because
Instances have come to the notice where some employees are contributing huge
amounts to these funds and entire interest accrued/received on such contributions is
exempt from tax under clause (11) and clause (12) of section 10 of the Act
How will this work? Suppose total employee contribution is Rs. four lakh. You will need to determine the interest amount corresponding to the excess, that is Rs. 1.5 lakh and declare it as income and pay tax as per slab on it.
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Please see this worked out example: How employee contributions over 2.5 lakhs get taxed like an FD