Last Updated on April 14, 2026 at 11:48 am
Finance Bill 2020 has proposed that contribution above 2.5 lakhs by employees into recognised provided funds will be taxed. Here is why this rule does not apply to the public provident fund (PPF).
The change proposed in Budget 2021 is an inclusion to clause(11) and clause (12) of section 10 of the income tax. Clause 11 refers to:
any payment from a provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette
Clause 12 refers to:
the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule
The Provident Funds Act, 1925 applies to employees and employers (govt or private only). PF is defined in the act as:
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” Provident Fund” means a fund in which subscription or deposits of any class or classes of employees are received an held on their individual accounts, and includes any contributions and any interest or increment accruing on such subscriptions, deposits or contributions under the rules of the Fund;
The public provident fund (PPF) is not part of this act. A separate act called PPF act 1968 applies to it. Contributions to the PPF are by the public and not by employees.
Both clauses 11 and 12 of section (10) refer to contributions by an employee and not the general public. Therefore the change proposed in Budget 2021 that interest from PF contributions above Rs. 2.5 lakh is taxable does not apply to the public provident fund.
Update: The Central Board of Direct Taxes has now confirmed that the interest is taxable every year. That is if you invest Rs. 25,000 over and above Rs. 2.5 lakh in the PF of your employer, then the interest earned on this Rs. 25,000 will be taxed every year just like a fixed deposit