New Delhi: Prime Minister Narendra Modi-led government has notified new income tax rules under which the existing Provident Fund (PF) accounts will be split into two separate accounts.
The decision has been taken to operationalise a new tax on PF income from employee contributions exceeding Rs 2.5 lakh annually.
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The Union Finance Ministry notified the Income Tax department regarding the same on August 31.
The Central Board of Direct Taxes (CBDT) has issued the rules and separate accounts within the PF account shall be maintained.
“For the purpose of calculation of taxable interest…, separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person,” as per the Income-Tax (25th Amendment) Rules, 2021.
All existing employees provident fund (EPF) accounts will subsequently be divided into taxable and non-taxable contribution accounts.
The non-taxable accounts will include their closing account as it stood on March 31, 2021.
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It was announced in the Union Budget 2021 that interest on Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) contributions above Rs 2.5 lakh in a financial year will be taxable.
Announcing the same in the budget, Union Finance Minister Nirmala Sitharaman had argued that some employees were contributing huge amounts into their PF accounts and getting tax-free incomes.